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Is gold a safe asset to invest your retirement savings? A Certified Financial Planner offers some perspective.
I have a RRIF (registered retirement income fund) and I am looking to shift it to gold. I am 65 years old. Is this safe and does this make sense?
—Audrey
Gold prices have surged recently, rising 26% over the past year. Silver has also had a good run, up 24% over the same period. Mind you, for perspective, the S&P 500 has a total return including dividends of 20% over the past year as well.
Gold is considered a qualified investment for registered accounts in Canada, Audrey. This means you can hold gold in a registered retirement savings plan (RRSP) or registered retirement income fund (RRIF).
However, gold and silver bullion coins, bars and certificates are subject to conditions. For example, gold coins must be at least 99.5% pure, while silver coins must be at least 99.9% pure. Coins cannot have a collectible value, so the fair market value cannot exceed 110% of the value of its gold or silver content. To be eligible, coins must also be purchased directly from a Canadian financial institution or the Royal Canadian Mint.
Bullion bars, ingots or wafers qualify, if they are purchased from a metal refiner accredited by the London Bullion Market Association. The purity requirements are the same as coins.
Certificates for gold or silver issued by the Royal Canadian Mint or a financial institution can also qualify, if the bullion represented satisfies the above conditions.
There are other ways to hold the asset, Audrey, beyond owning physical gold. SPDR Gold Shares (NYSEArca ticker symbol: GLD) is the world’s biggest physically backed gold exchange-traded fund (ETF). It owns gold bullions, and investors can easily buy and sell the ETF in their registered accounts. It is very liquid, should you need to sell it quickly.
There are mutual funds that own gold bullion and gold stocks, although it is more common to find precious metals funds that provide exposure to various precious metals, gold being the primary one. And of course, you can invest in gold by buying company stocks, such as those of small exploration companies or major global gold producers, with high to low risk levels.
My inclination, Audrey, would be to allocate, at most, a small amount of gold to your RRIF account. That is not a reflection of my view on gold and what I think might happen next to gold prices—frankly, I would be speculating. My answer would be the same for any other commodity, stock or even stock sector. Diversification is the only “free lunch” in investing, meaning if you are looking for something safe—which is part of your question about gold—you should aim to build a diversified portfolio.
If I were you, I would allocate no more than 5% to an individual stock and no more than 10% to gold. But you should talk to your advisor or do your due diligence to decide what works best for you.
Minimum RRIF withdrawals are another consideration, Audrey. At your age (meaning the year you turn 65), the minimum RRIF withdrawal is only 4%, but you still need to make sure you have liquidity. So, however you choose to invest in gold, be sure you are keeping in mind your required minimum withdrawals. And, consider if you may need to withdraw more than the minimum for cash-flow purposes.
Diversification is a strategy for reducing risk that involves holding a portfolio of investments that perform well under different and varying conditions. This reduces the investor’s vulnerability to losses, because poor performance by any single security, asset class, industry or other factor will usually be offset by strong performance in another.
Read about diversification in the MoneySense Glossary.
So, Audrey, you can buy gold many different ways in your registered accounts, including RRSPs and RRIFs. But the key to building any investment portfolio is maintaining diversification regardless of your interest in a particular investment.
Gold has been in the news as of late, although its return over the previous year has been similar to U.S. stocks. Canadian investors should be careful about chasing themes in investing. When a stock or sector is elevated or volatile, it can lead you to “buy high” and then sometimes to subsequently “sell low.”
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