Appendix 1: Ways to Use Your 401(k) or IRA If You Have No Savings
If you have little cash and investable assets saved outside of your retirement account, here are ways you can implement the gold strategy in your retirement accounts. There is a great advantage to this. When you use your IRA, 401(k) or better yet, ROTH IRA or 401(k), you can avoid the higher maximum 28% collectible tax on profits in gold.
The downfall is, your retirement account may limit your ability to implement this strategy. But with a little work you may be able to get around it.
First, if your employer contributes any sort of match to your 401(k), I suggest you contribute as much as you can get matched. If your employer is offering you free money, take it!
I’ve seen some employers contribute a 100% match up to your first 6%. If so, contribute 6%. I’ve seen employers contribute an 80% match up to 6%. If so contribute 6%. I’ve seen employers contribute a 50% match up to 6%. If so contribute 6%.
The point here is that if you’re getting any sort of match from your employer, up to a specific percentage, contribute that percentage.
But after that, I move away from most mainstream financial advice. Don’t contribute above the percentage your employer provides a match. Take full advantage of the free money but don’t contribute any more. Most financial outlets tell you to contribute as much as allowed by law to take advantage of the tax breaks. I disagree.
Most employer 401(k) plans offer a limited amount of funds that you can choose for your investments. These are typically restricted to large cap stocks, small cap stocks, international stocks, bonds, and money markets funds.
I’ve seen the investment offerings in a lot of different 401(k)’s and most are limited to that small range of investments. This is good for the financial companies that run those mutual or index funds but bad for you. If you’re limited to those investments, how can you implement the needed strategies to maximize your wealth building?
If stocks and bonds are all really expensive right now, you are forced to overpay for any investment you make. Or you’re forced to just sit in a money market which is almost as bad.
You’re better off just taking the free money (we’ll talk about how to invest the free money below if you’re restricted to just these options) and contributing to an IRA that allows you to buy the individual stocks or ETF’s you choose. Better yet, get a self-directed IRA that allows you to buy rental real estate and gold bullion. If you choose to invest after taxes, use a ROTH IRA to maximize your returns. I think you’re better off putting the minimum matched in a tax deferred 401(k) then paying tax on the remaining investment money now and investing it properly.
So what to do if you have money already in a 401(k) that has these limited investment options?
Option #1:
First, have you left your job where this money was contributed? If you did, you should be eligible to roll your 401(k) over into an IRA that allows you to invest in individual stocks and ETF’s. This is very standard and I’ve done this myself several times.
Fidelity makes this very simple for you to do and also only charges $7.95 commission on each trade. I receive no compensation from Fidelity, I just personally use them for my retirement accounts and it’s been easy. If you call them up, within 15-20 minutes they’ll walk you through how to create an IRA and roll your old 401(k) into the IRA. Just make sure you know your account number of the old 401(k) or IRA the funds are sitting in.
If you haven’t left your job or your new job has the majority of your money in its 401(k) with limited options there are other steps you can take.
Option #2:
If you work for a really large company, your employer’s 401(k) may offer something referred to as BrokerageLink®. Depending upon the broker your employer uses it may have a different name. Again, I have Fidelity and work for a large employer and it’s called BrokerageLink®.
What BrokerageLink® does is it allows you to move some percentage of your 401(k) funds out of the standard account which is limited to specific funds and into a brokerage account where you can buy individual stocks and ETF’s. The funds are still in your 401(k), it just gives you more investment options. Most likely they will not allow you to move all of your funds but I was able to move 50% of my funds into this option.
If you can do this, you can invest just as if the funds were in a personal brokerage account. You can buy gold ETF’s, sit in cash waiting to buy amazing dividend paying stock opportunities, and/or invest in China. If the value of this brokerage account goes up significantly it’ll reduce your opportunity to move more money into it. The way my employer plan works, I can’t move new money into this unless I have less than 50% of my total value in this brokerage account.
I moved 50% into this as soon as I could and invested in gold. My brokerage account quickly went up almost 30% and now I can’t move any more money in, until I contribute enough to exceed this 30% gain. I’m not complaining because I’ll take the 30% gain but I want you to understand how this works.
If you work for a smaller company, this may not be an option so we will continue to get more creative.
Option #3:
The next option for you is to call your 401(k) broker and ask if you can roll any of your 401(k) into an IRA while still employed. I was actually able to do this with some of the funds remaining in my regular 401(k) that couldn’t be moved into the BrokerageLink®.
Not all plans allow this and the percentage you can move varies but it is worth the 15-20 minute phone call to ask. I just called my broker of the 401(k) plan, they checked, told me how much I can move, and walked me through how to do it in a matter of minutes.
After these two simple moves, I basically had 75% of my 401(k) in a brokerage or IRA where I could invest in individual stocks and ETF’s. I was able to implement my exact strategy with no issues.
Unfortunately for me the other 25% of my 401(k) is stuck in very limited investment options. And if you don’t work for a really large company, 100% of your 401(k) may be stuck in very limited investment options.
Option #4:
If this is your case, what should you do?
This is tough. I don’t know your personal situation so I can’t give specific financial advice. But if you have over 20 years until retirement, here are my suggestions.
Step 1: Look and see if you have any precious metal funds available. If so, move 50% of your 401(k) into the precious metal fund. Make sure this fund owns gold and silver at a minimum.
Step 2: See if any general commodity funds exist. The entire commodity market has been in a bust for several years now. This includes coal, oil, soybeans, corn, hogs, etc. Over the next 5-10 years this bust should reverse. Put 10-15% into the commodity fund. If no precious metal fund exists, increase this to 25%.
Step 3: Find the large cap mutual or index fund that pays dividends. You want this fund to own quality stocks of companies whose products will be around for a long time. Stocks like Coke. I know they are overvalued right now but if you have no other options, this is your best option. These are going to drop in value during a crash but at least you’ll earn a dividend while you ride out the storm. Don’t sell when the value drops during the crisis. Put 15% into this fund. If you have no commodity or precious metal fund options, increase this to 50%.
Step 4: Take a look at the bond funds available. Are there any municipal bond funds or bond funds that only invest in investment grade bonds above BBB rating? If so, this is your next option. The whole bond market is probably going to drop but funds that are spread across municipalities or only top investment grade corporate bonds should still pay their interest payments as you hold to maturity. Don’t sell when the value drops during the crisis. Put 10% into this fund. If you have no commodity or precious metal funds up this to 15-20%.
Step 5: Hold the rest in cash. If you have precious metals funds and no commodity funds, that leaves you 25% cash. If you have both precious metals and commodity funds, only put 10% in commodities and you have 15% cash. If your only option is dividend stocks and bonds, you have 30-35% cash. When the market drops and we’re in full panic and fear selling, don’t sell. Invest your cash into the large dividend stocks first. Then put a smaller amount into the high investment grade bond funds. This will bring your average cost of these currently overvalued investments down to a more reasonable entry price.
Please make sure you understand these suggestions are for individuals with more than 20 years until retirement. It’s based upon my proprietary asset allocation strategy as explained in the report, Let Your Asset Allocation Build.
If you have less than 20 years until retirement, or are not comfortable with this asset allocation strategy, please don’t use the allocations recommended above. You can still use the different ways to try to open your investment options, but you must first determine the allocation that works best for you.
Don’t let this information overwhelm you. Your 401(k) broker should be more than willing to answer any of these questions for you and help you quickly over the phone.
They don’t need to know why you want to do it and should not try and sway you from wanting to do it. If none of the first 3 options are available for you, try asking this question: Is there any option available for me to buy individual ETF’s or stocks? If they say no, I’m sorry. Then it’s time to work on assets outside your retirement accounts. See Appendix 2 for help with that.