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Precious metal rewards and risks retirees should know

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Investing in precious metals can make a lot of sense for retirees — but it can also be risky. Getty Images/iStockphoto

Thanks to issues like high inflation and economic uncertainty, gold investments (and prices) have spiked in recent years. But it's not the only precious metal worth investing in.

In fact, silver, platinum and palladium can all be wise investments for the right buyer — including retirees or older investors looking to retire soon.

Are you considering investing in precious metals as you near or enter retirement? Here's why that may (or may not) be a good idea.

Find out how to add precious metals to your portfolio today.

Precious metal rewards that retirees should know

Buying precious metals — and gold, in particular — can have many benefits as you near or enter retirement. For one, it can help your wealth retain its value for the long haul. 

"Gold has lasted 5,000 years as money," says Matthew Argyle, a certified financial planner at Encore Retirement Planning. "Your 401(k) hasn't. Gold has outlasted financial crises, hyperinflation, and stock market crashes. Its historical resilience is why it remains a good store of value."

It can also help you ward off inflation. While inflation is down compared to its nearly double-digit highs of a few years ago, it's still near 3%, according to recent government data — meaning that it's above the Federal Reserve's ultimate 2% goal. 

"Another key benefit is gold's role as an inflation hedge," says Daniel Boston, founder of Preserve Gold. "As the cost of living rises, gold tends to appreciate in value, helping retirees maintain their purchasing power."

Gold is also a safe-haven asset during periods of economic uncertainty or geopolitical turmoil, Boston says, and it acts as a smart portfolio diversifier. 

"It often moves independently of stocks and bonds, which can help balance out a retirement portfolio and potentially reduce overall risk," Boston says.

Learn more about the benefits of precious metal investing now.

Precious metal risks that retirees should know

Precious metals aren't right for every retiree, though, and they do have some drawbacks that you'll want to consider before buying in. First, while there is some potential for profits when investing in gold or precious metals, those aren't guaranteed — particularly on shorter timelines, which many retirees are working on. 

"Gold isn't a growth asset like stocks or real estate," Argyle says. "It doesn't generate earnings, pay dividends, or appreciate through innovation. It sits there. This makes it a valuable hedge but a poor engine for wealth creation. If you want your portfolio to grow, you need assets that actively produce value, not just hold it." 

There are other downsides to think about, too. For instance: The costs. You may need to pay to insure and store it, and, of course, there are the potential tax implications to think of, too.

"Gold is physical," Argyle says. "It can be stolen, lost or require expensive safekeeping. But most people forget to consider taxation. In the U.S., gold is taxed as a collectible with a 28% capital gains tax rate — higher than the 20% max for stocks."

Liquidity can also be a challenge with precious metals, as it's not always to sell off in a pinch — or at top dollar — when you need to. 

"When you want to sell, you may face dealer markups and liquidity challenges," Argyle says. 

The bottom line

If you do opt to invest in gold or precious metals, take time to consider what type makes sense — and how much you should buy. 

"Gold is generally considered the primary choice for retirees due to its long history as a store of value and its potential to hedge against inflation and economic uncertainty," Boston says. But "silver can be a more affordable alternative with significant growth potential, especially during bull markets." 

As for volume, most experts recommend devoting somewhere between 5% and 10% of your portfolio to gold or precious metals. Any more than that is "hoarding," Argyle says. 

"This level [5 to 10%] provides a hedge against downturns without dragging down overall returns," Argyle says. "Any more, and you risk tying up too much capital in an asset that doesn't produce income or compound growth. Gold is valuable, but a portfolio needs balance."

If you're still not sure how much to invest, talk to an expert who can walk you through gold and precious metal options and pricing and make personalized recommendations based on your specific goals and budget.

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