Are precious metals the best investments?

by Jim Sloan

The price of gold hit a record recently as anxiety over the debt crisis in Greece and the protracted uncertainty over the United States' debt ceiling sent banks and investors racing to the security of the precious metal.

According to Reuters, global central banks have been stocking up on gold in an effort to diversify from the dollar, and as a safe haven from the inflation many are expecting to see in places like China. Converting dollars into gold for these financial institutions could be like putting money into a high interest savings account.

While common sense says the price of gold is likely to adjust downward from its lofty perch, a recent poll by Reuters found that more than half of the investors surveyed expect gold to hold much of its value in the near future; respondents said prices will average $1,575 an ounce in the coming year, way up from the $1,453 average predicted in January.

But does this mean gold is one of the investments you should make in this uncertain market. Is it better than the best savings accounts or money market accounts? Not necessarily.

Disadvantages of investing in gold

Although gold prices have been increasing steadily in the last three years during the global financial crisis--making precious metals appear to be good investments and an attractive way of increasing your returns the way a certificate of deposit or other investment tool might--Forbes magazine warns that gold prices often don't correlate to equity markets. In this sense, gold investments serve best as a way to reduce your portfolio's risk than as a means of increasing profits.

Forbes also notes that gold isn't like stocks or bonds, where you can get a return for risking your money with a particular enterprise that produces a valued good or service. Gold doesn't have a great deal of industrial value, and as a commodity, its value is limited--unless paper money is rapidly losing its value.

Buying up gold in physical chunks, such as bullion, makes the metal a collectible in the eyes of the U.S. government, and that means it's taxed at 28 percent rather than the 15 percent you pay for profits on financial securities.

How should you turn gold into a good investment?

If you want to diversify your investments with precious metals or other commodities, Forbes recommends that no more than 10 to 20 percent of your portfolio goes into commodities like gold, silver, petroleum or food. Think of it as a long-term investment and a way to reduce risk--not necessarily as a short-term money-making strategy.

You can make these investments by purchasing the commodity directly or by investing in companies that deal in them. Another method is to buy commodity ETFs, which track the price of the commodity and issue you a security. But these are also considered collectibles and are taxed at 28 percent.

The pressure to buy and sell gold

There are, of course, ways to buy gold directly and store it yourself. eBay now supports an online gold and silver marketplace, and sales have grown 60 percent since 2007. You can buy coins, bars and other pure metal iterations online.

You can even buy gold bullion from vending machines, although according to Forbes, you'll have to go to Las Vegas or Germany to do that, and the commission fees are pretty steep.

Are you putting enough money in your company 401(k) savings account plan?

by Jim Sloan

Although one in 10 401(k) plan participants increased their contribution rate during the first three months of 2011 and more than half have increased their contributions to the retirement savings accounts in the last five years, most savers admit they are not putting away as much as they should for a comfortable retirement.

That's according to a new survey from July, 2011 from Fidelity Investments, the nation's largest provider of workplace retirement plans and individual retirement accounts.

When asked why they increased contributions to their savings accounts, about a quarter of the 1,000 current and retired workplace retirement plan participants surveyed said it was to take full advantage of an employer's matching dollars, while nearly 40 percent said they had received a raise or some other extra money.

The importance of 401(k) plans

According to Fidelity, 55 percent of those surveyed said they wouldn't be saving at all--whether it's in an IRA, a money market account, an online savings account or a certificate of deposit--if it weren't for workplace 401(k) accounts.

These types of tax-deferred savings accounts have struggled in recent years as stock market losses cut deeply into many participants' balances and the recession prompted many employers to contribute less to their workers retirement savings accounts.

According to U.S. News and World Report, 95 percent of all 401(k) plans provided an employer contribution in 2007 but only 85 percent did in 2010. A typical company 401(k) match is 50 cents for every dollar an employee saves, up to 6 percent of their pay, but the matches range from 1 percent of pay to more than 7 percent.

Those company matches are seen as important investments by workers; according to the Fidelity survey, more than 90 percent feel it's important not to lose that employer match.

Other findings

The Fidelity study also found that most workers are using other investments in order to build up their retirement savings, including IRAs, employer-sponsored pension plans or high yield savings accounts. Only one in five respondents enrolled in a workplace 401(k) said they had no other retirement savings plan.

Fidelity found that employer contributions are the main motivation for workers participating in the savings accounts. A 2006 law that allows employers now to automatically enroll their workers in the company-run 401(K) plans is also credited with increasing participation, although a study recently conducted by the Employee Benefit Research Institute (EBRI) concluded that auto-enrolled participants often don't increase their contribution rate to a level that voluntary participants choose.

What to look for in a 401(k) plan

Although some 401(k) plans offer immediate eligibility to employees, some companies require workers to work for one to three months or up to a year before they are qualified for the plan. According to U.S. News, larger companies are more likely to allow immediate eligibility, but the amount of time a worker becomes eligible to receive matching contributions varies; about a quarter of the company-sponsored plans require a full year of service while about 30 percent require one to six months of service.

If you're comparing different companies' 401(k) plans, be aware that the time it takes to become vested often varies. You won't be able to keep your employer's match until you are vested. According to U.S. News, nearly half of all company-sponsored plans allow workers to become immediately vested but about a third require five or six years of service before you can keep that employer-paid match.

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Disclaimer:This content is not provided or commissioned by American Express. Opinions expressed here are author's alone, not those of American Express, and have not been reviewed, approved or otherwise endorsed by American Express. This site may be compensated through American Express Affiliate Program.

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