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Opting for a Silver IRA

money in nestFinancial advisers have long pointed out the benefits of saving for retirement by making regular contributions to a recognized pension scheme. The government, too, tries to encourage people to make this kind of saving, and offers various tax incentives to people who chose to pay into IRA pension schemes.

Over the course of their working lives, millions of people pay large amounts of money into pension schemes, yet many of them are completely oblivious to what happens to that money, and take no time to check out how their pension fund is performing.

Understanding what happens to money that is invested in pension schemes is vital if you are to actually get the most out of your substantial investment. Furthermore, you should be aware that there is the possibility that, when you retire, your pension fund could actually be worth less than the total amount you have paid in.

How pension funds are managed

The vast majority of pension funds are managed by financial institutions that specialize in this field. Essentially, employee and employer contributions are combined into several larger funds, and these funds are used to invest in other financial products. These could be stocks, currencies, indexes, government bonds etc.

The financial institution will charge annual fees for managing these funds. The fees are payable even if the fund falls in value. If a given fund performs badly over many years, the value of the fund will be in a state of continual decline.

Individuals will often have the right to specify to the financial institution what funds they want their contributions invested in. For a small fee, they can usually change funds as often as they want. Effectively, they can have full control over their investment, albeit at a price. They will still have to pay the annual management fees on top of any fund transfer fees.

Potential problems

Financial institutions will have a range of investment funds that can roughly be grouped by risk. Some funds will be high risk, others will be medium risk, and yet others will be low risk.

The lower the risk, the lower the potential profits, and the fund value will rise only slowly. On the other hand, high risk funds can grow rapidly, but there is also the chance of spectacular falls in value.

IRA pension contributions are usually long-term investments. The contributor will not get any benefits for many years, often decades, into the future. The scheme he or she is investing in will have to produce a profit level that is enough to offset the management fees charged by the scheme administrators. Additionally, profit levels will also have to outstrip inflation. If not, the contributor may get back more than he or she has paid in, but the real value, essentially the buying power, will have fallen.

It is perfectly normal for the value of pension funds to fluctuate upwards and downwards, and contributors should not normally worry about downward fluctuations provided the overall trend over many years is upward.

There is an exception to this, however. If a contributor is very close to retirement and the fund or funds in which he or she is invested falls in value, the impact could be severe. This is because the contributor will soon be cashing in, and will not have the opportunity to wait until fund prices recover.

Other options

The recent global recession and banking crisis had a serious negative effect on the value of pension funds. A huge number of people saw the value of their funds tumble downwards. This was particularly painful for people close to retirement.

The result was that more and more people started taking a keener interest in their pension funds, and started looking for potentially more secure ways to use their contributions.

silver IRAFortunately, the government has made it possible for people to take more control by letting them roll over their IRAs into other types of investment. Among the more popular options are Silver IRA products.

The principle behind this type of investment is quite straightforward. Instead of holding on to a pile of cash that is invested on a contributor’s behalf by a financial institution, the owner uses the cash to buy silver. When you decide to opt for a silver IRA rollover, you can choose to invest in silver bullion, or in items like silver coins. There are some restrictions as to the products you can invest in, so you should always check current regulations before committing yourself to any contract.

Which is better, bullion or coins?

The primary difference between the two is that the price of silver coins is not necessarily dictated by the quantity of silver in each coin. Coins may have a premium attached because they are limited editions, or are extremely rare. The demand for some coins can far exceed supply, pushing the price up. However, coin collectors can lose interest in a particular coin, and what was once a desirable coin may fall out of favor.

The price of bullion is based on the weight and purity of the silver, and is much more stable than that of coins. Since the motivation for most people in choosing a silver IRA rollover is to make their retirement fund more stable and predictable, bullion is probably the best option.

What are the benefits of this type of IRA?

The price of silver goes up and down dependent on supply and demand. Therefore, it is possible that the value of your investment could fall as well as rise, just as can happen with investing in funds via a financial institution, although the chances of a significant drop in price are pretty slim.

The key factor is that the price of silver is less affected by other financial events than stocks, currencies, or other investment options. For example, if the government decides to raise taxes on corporations, that can have a negative effect on the share price of many corporations, which in turn affects the values of funds that have shareholdings in those corporations. Similarly, in times of recession, stock prices can plummet. If interest rates rise, this can also adversely affect the value of many investment products.

In contrast, the price of silver is almost exclusively based on supply and demand. Since silver is an element, and not a man-made metal, the total amount of silver on the planet is fixed. There may be as yet undiscovered seams of silver buried, but there will come a point when all accessible silver has been recovered. That means you can be confident that there will not be a sudden increase in the world’s supply of silver, with a subsequent drop in price.

Conclusion

Investing in a silver IRA has the potential to give you a solid foundation to grow the value of your pension contributions. It is important to be clear on the implications of investing in a silver IRA. If you are doing a silver IRA rollover, you need to make sure that you do it according to the legislation that applies at the time. Otherwise, you could be penalized by the IRS, who could claw back tax-deferred payments because you have invested in an unauthorized scheme. It may be in your best interests to seek sound professional advice before proceeding.