Each year millions of Americans contribute a portion of their income to a 401(k) plan as part of an array of financial options to help them prepare for retirement. They have become so popular that many employers choose to offer some degree of matching contribution to a 401(k) plan as a way to attract as well as incentivize quality employees.
Most 401(k) plans are managed by a third party investment firm, which means that the employer, employee/investor has very limited input on what the money is specifically invested in. However, most 401(k) managing firms recognize that this can be frustrating for their clients, so they offer some level of flexibility, that allows you, the investor to provide some input, without technically managing the money directly.
Understanding 401(k) Basics
401(k) fund managers are closely tuned into what the market is doing, and they are often quick to take advantage of opportunities as they present themselves. This means a 401(k) is primarily intended to help prepare for retirement, so the goal, within the stated parameters, is often geared toward making safe plays that have the best option for a long-term profit.
In recent years, precious metals like gold, silver, and platinum have shown steady growth as well as increasing value. This makes them very attractive to people enrolled in 401(k) investment programs. This has more and more investors interested in shifting some portion of their 401(k) portfolio assets into the precious metals. Standing head and shoulders above the rest is gold.
However, most 401(k) plans do not allow enrolled to directly invest in gold or to direct their contribution toward purchasing gold bullion, gold coins or other precious metals. At the same time, most 401(k) managers do allow a little flexibility on this matter by allowing enrolled members to allocate a portion of their contribution invest in gold through things like exchange-traded funds (ETFs) or mutual funds.
Understanding Your Gold Investment Options
While a very small number of 401(k) plans allow enrolled members to directly invest in physical gold, a fair number of them still offer balanced mutual fund choices. The way these plans work, the investor is given investment profiles to look through and research. Each provides a basic description of the sectors and types of investments the plan’s profile will prioritize. This allows you, the investor to look through and carefully choose a mutual fund strategy that has increased exposure to gold by investing a larger portion of your contribution in things like stocks related to the gold mining industry. This might also include things like gold recycling technology, as well as companies that provide critical equipment designed to support the gold mining industry.
One low-cost, value-oriented option for investing in gold is the Fidelity Select Gold Fund, which is more commonly known as the FSAGX. It is essentially a type of mutual fund provided through Fidelity Investments. It includes investment options in the larger players in gold mining firms including Goldcorp Inc. which is traded on NYSE: GG, as well as Randgold Resources Ltd. Traded on NASDAQ: GOLD. They also offer a mutual fund option in First Eagle Gold A Fund, which is also known SGGDX through First Eagle.
Investing in Gold ETFs
If you are enrolled in 401(k) plan that includes a brokerage option, you may have more input or choice into to how a portion of your investment is managed. With this type of plan, you essentially have a regular brokerage account which provides you with some direct access to various gold investments. In a scenario like this, you may want to consider investing in Gold Exchange Traded Funds. More commonly known as ETFs they provide investors with the ability to shift a portion of their shares to a fund that holds physical gold bullion. Some of the more well-known options include iShares Gold Trust ETF which is traded on NYSEARCA: IAU, as well as BlackRock Inc., traded on NYSE: BLK. There is also a fund that specifically invests in gold industry stocks like the Sprott Gold Miners ETF traded on NYSEARCA: SGDM.
Rolling Over To A Self-Directed IRA
If your 401(k) plan doesn’t specifically offer you something like an additional brokerage account, you may still have options for being able to invest in gold. Many of these plans allow you the ability to opt out of the 401(k) plan to move all or a portion of your contribution into a self-directed investment account that is also serves as a retirement account, IRA. This allows you access to just about any type of investment including stocks, gold shares, mutual funds, and ETFs, as well as things like commodity futures or options.
If you have an existing 401(k) account from a previous employer, or you are retired and 401(k) is still active you can simply roll over the money into an IRA. In a situation where your 401(k) plan is through your current employer, you can ask them for the option to take an in-service withdrawal. This provision allows you the employee/investor to obtain funds in your 401(k) without having to take a tax penalty, so long as you reinvest it into an IRA or some other retirement 401(k) within 60 days of the withdrawal.
However, you should still keep in mind that most traditional IRAs still do not allow you to invest in physical gold, like gold bullion. They only allow you to invest in things like gold stocks or funds. In order to hold actual physical gold, you would need to seek out a type of self-directed IRA, which specifically allows it.
The Dangers Of Managing Your Own Investments
Handling a rollover where your allocated fund managers handle ETF’s and other basic investment strategies are relatively easy. However, managing a brokerage account or a self-directed IRA can be dangerous, if you don’t significant investing experience.
The last thing you want to do is take money that was already earmarked for your retirement and risk losing it to the complexities of market trends, policies, and procedures. If you want to go this route, you should very strongly consider seeking out a professional service to help guide you through the process of investing in gold and precious metals.