Should you invest more in gold as you near retirement?
You've contributed to your 401k throughout your entire career — setting the stage for retirement. As you get closer to your golden years, a question starts to pop up: "How do you protect your nest egg?"
With retirement just around the corner, you'll likely become more interested in safe havens and inflation hedges than growth from stocks and trading opportunities. That's where gold comes in.
Gold has long been considered a safe haven and investors often use it as a hedge against inflation. Chances are, it can have a meaningful place in your portfolio as you near retirement.
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Should you invest more in gold as you near retirement?
Your view on investing will likely shift as retirement draws closer. When there are fewer years leading up to the time you'll need your nest egg, you'll have less time to recover if something goes wrong. As such, your appetite for risk will typically deteriorate.
Dana J. Menard, CFP, RLP, CEPA, CDAA, founder and lead financial planner at Twin Cities Wealth Strategies, Inc., says there are a few steps to take when considering allocation changes near retirement.
He suggests those nearing retirement should first "figure out how much income they will require in addition to any other income they will have available such as social security or pensions to cover their non-discretionary expenses." Then, Menard suggests retirees "calculate the rate of return they will need their investments to generate to achieve that gap."
From there, he says investors should "figure out whether or not they prefer to spend all their money during their lifetime, live off of the interest and gains of their portfolio or attempt to grow their wealth while taking distributions."
He says answering these questions will help investors determine how to adjust their risk to "make sure they can keep up with the cost of inflation in order to accomplish their retirement (and possibly also estate planning) goals."
With retirement around the corner and uncertain times ahead, a move toward a safe play like gold could be a strong one, according to Stuart Boxenbaum, president and founder of Statewide Financial Group in Jupiter, Florida.
"Because of the uncertain times we are in now, between the war in the Middle East and an uncertain economy here in the United States and around the world, it makes more sense now more than ever to play safe," Boxenbaum says.
Boxenbaum suggests investors set the stage for "less exposure to the stock market, for starters."
He notes that "investments like gold and silver will likely do well in our high inflation economy," and that other "safe money investments, like fixed indexed annuities where you are linked to the market, but not invested in it, may make good sense for you right now, too."
That's because with fixed indexed annuities, "your principal is always protected, meaning if or when the market does crash, you don't lose money," Boxenbaum says.
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3 reasons why gold investing is a safe move
Considering the mix of uncertain geopolitical, economic and market conditions, it may be more important than ever to look for safety ahead of retirement. Here are three reasons why gold is a compelling safety play:
- Gold is an inflation hedge. Gold has maintained a positive correlation with inflation throughout history. This means that as the value of the dollar falls and prices rise, the price of gold tends to rise. So, gold is typically a strong store of value in uncertain times.
- Gold has an inverse relationship with the stock market. Gold's relationship with the stock market is an interesting one. When investors are uncertain about the direction of the stock market, they tend to look toward safe havens like gold — increasing the demand for the precious metal. So, when stocks are down, gold tends to move in the upward direction.
- Gold is highly liquid: Some safe havens lack liquidity. That does little for you when you need the money you've accumulated to cover expenses in retirement. Gold isn't one of those assets. It typically doesn't take long to turn your gold holdings into cash when you need to.
The bottom line
The bottom line is that now is a compelling time to shift your focus to gold, especially if you're a retiree or nearing retirement. With uncertainty circling the economy, the market and the geopolitical stage, exposure to stocks could be a riskier play than you're willing to make. Consider rolling some of your retirement funds into a gold IRA or 401k to bring more stability to your asset allocation.
