What is the Best Way to Diversify Your 401k

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When it comes to building retirement wealth, the most common piece of advice you'll hear from financial advisors is to diversify your investments. A broader range of investment types will increase the likelihood that you'll always be earning wealth from at least one investment. In this way, you'll protect yourself from significant losses that will adversely affect your ability to build enough wealth to fund your retirement.

In addition to investing in a few different investing types, such as stocks, bonds, and mutual funds, you should also be investing in a broad range of industries. For example, you might invest in one fund that focuses on the real estate industry while a different fund deals with pharmaceutical companies.

What happens when an economic shift affects the market as a whole? In that case, all of your paper investments will be affected. For this reason, the best way to diversify your 401k is to use some of it to invest in gold. In most cases, the value of gold increases as the value of paper currency decreases. There are many benefits to investing in gold and, as you review those advantages below, you'll be able to see why buying gold is in your best financial interests.

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What is the Best Way to Diversify Your 401k

Gold Fuels the Global Economy

Even though the United States no longer backs its currency with gold, the same can't be said for the rest of the world. The world's central banks and financial institutions in every country use gold to back their economies. In fact, worldwide organizations hold over one-fifth of the supply of gold that has been mined up to this point. There's some concern about the future of the validity of paper currency as many central banks have recently started to increase their gold holdings.

Looking to central banks as a guide, it's easy to see why more individual investors are also starting to buy more gold. If we reach a period in which paper currency loses significant value, it may not be accepted in some countries at all. In that case, having your own supply of gold bullion or coins will help you to better manage your financial situation.

Investing in Gold Will Protect Your Wealth

It's easy to search online for graphics that demonstrate the effects inflation has had on currency over the past 100 years. The value of the U.S. dollar has decreased gradually across the decades. If you had $40 in 1970, you could have bought much more with it than you could buy with $40 in today's economy. This is the result of gradual inflation that occurs from year to year.

The same isn't true for gold. If you used your $40 in 1970 to buy gold, your investment in the gold would have increased along with inflation. All physical assets increase in value over time as inflation drives prices higher. This means you could buy as much with that $40 worth of gold today as you could have in 1970. Gold protects your wealth by rising in value over time.

What is the Best Way to Diversify Your 401k

Gold is a Unique Investment

The primary reason financial advisors recommend diversifying a 401k with gold investments in a self-directed gold IRA is that the value of gold is independent. It's not linked to the stock market, so, as stocks lose value, gold values remain consistent. In most cases, gold rises in value as the stock market experiences a drop. If you have 15% or more of your wealth directly invested in gold, you'll have a protective safety net that can compensate for your losses in other types of investments.

One reason the value of gold increases during a market drop is that more investors will sell off their paper investments. Instead, they will turn to gold as a more secure investment. The gold you already own will increase in value with the greater demand in the market. If you sell your gold during this period, you'll earn much more through the boost in gold's market value.

Gold Can Be Passed to a Beneficiary

Just like your 401k account, your self-directed IRA won't go through the probate process. The assets contained in the account will be passed directly to the beneficiary you choose when you set up or update your account. The big difference is that the wealth in a 401k account will need to be rolled over into the beneficiary's IRA or they can cash it out. Conversely, a beneficiary takes ownership of the gold in a self-directed IRA.

Since gold is a physical asset, the beneficiary can manage the gold however they choose. They might want to transfer it to a self-directed IRA of their own and add to it as a means of investing in their own retirement. Alternatively, they may choose to sell the gold and use the net sum to pay their living expenses during the grieving period. Knowing that you can pass the gold on to a loved one will give you peace of mind by ensuring your loved ones will be cared for after you're gone. In this way, your gold holdings can serve as a secondary life insurance policy.

What is the Best Way to Diversify Your 401k

Tax Breaks Make Gold Investing a Smart Choice

The same IRS rules that affect contributing to your 401k will affect how you contribute to your self-directed gold IRA. You can avoid exceeding contribution limits by doing a direct rollover from your 401k to your self-directed IRA. From there, you will have to make sure you don't exceed contribution limits. The catch-up contribution allowances for individuals over 50 still apply with a self-directed IRA as well.

The good news is that taxes are handled in the same way. The money you contribute to your gold IRA will remain tax-free until you start taking disbursements at retirement age. As long as you don't withdraw early, you won't face hefty income taxes and early withdrawal fees. When you do start taking distributions, you'll be charged the base rate for your income tax bracket. This will help you keep more of your retirement savings rather than overpaying on your income taxes from year to year.

Gold is Easily Liquidated

In extreme financial emergencies, investors are willing to pay the income taxes and withdrawal penalties in order to use their retirement savings. When dealing with your 401k investments, accessing this money can be complex and time-consuming. In the meantime, you might be facing hard financial situations that are very time-sensitive. When you have a self-directed gold IRA, you can use your gold IRA company's buyback program to liquidate your gold quickly. This will give you access to quick cash to help you deal with emergency situations.

It's just as easy to recoup any gold you cashed out to handle a financial hardship. As you recover, you can start contributing more of your disposable cash to your self-directed gold IRA. A representative from the gold IRA company will assist you in creating a new investing strategy to meet your changing retirement goals. While you may have suffered a setback, you'll be able to recoup your retirement wealth faster with professional guidance.

There are several different gold IRA companies that offer this type of assistance. While you should do your due diligence in researching your options, it can help to take an initial look at the top three companies. They are:

Each of these companies has high ratings with the Better Business Bureau and excellent customer reviews. Additionally, they all offer extensive customer assistance from rolling over your 401k to choosing the best gold products to meet your investing goals. You'll also find that they offer a wide selection of learning materials to help you adapt to gold investing. Looking into these companies can help you set a standard for picking the gold IRA company you want to use.

Final Thoughts

When it comes to directly investing in gold, you might feel a little overwhelmed. In addition to rolling over your 401k funds, you'll also have to learn about an entirely new investment market. Fortunately, there will be professionals to help you navigate this learning curve. Once have a good grasp of gold investing, you'll be able to use it to maintain better control over your retirement wealth.