USAA is an organization that has been around for over a century, having been founded in 1922. Nowadays, they connect veterans with a variety of insurance and investment options to help secure their futures. If you're a member of the armed forces and want to open a gold IRA, you might be wondering whether it's a good idea to do so through USAA.
Here are the things that you should know before you decide what to do.
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USAA is an acronym that's familiar to most people in the United States, even if you aren't an Army member. But not everybody knows what it stands for. It actually stands for United Services Automobile Association, because it was started by a small group of soldiers who wanted to insure each other's cars.
The organization is rooted in the American military and has existed since 1922. They've expanded far beyond simple car insurance, though. Nowadays, they're known as one of the most important financial institutions in the country. They provide a variety of financial solutions to service members including insurance, retirement plans, banking options, and investment portfolios.
The overarching USAA group is a nonprofit organization, though it is made up of a large group of smaller companies. This network of companies can connect people to investment products, banking services, and various insurance solutions.
Some of the types of companies and services include:
USAA has several partners that can help service members to open retirement accounts. One of these partners is Charles Schwab, an investment firm with a truly staggering amount of options. People who work with Charles Schwab can choose from a range of traditional assets, get feedback on their portfolios, and consult with expert financial advisors.
However, USAA does not have any partnerships with self-directed IRA custodians. If you want to buy physical gold instead of investing in paper funds, then you need a self-directed IRA. That's because gold is an alternative asset. It's been legal to hold in a retirement account since 1997, but only under specific circumstances.
USAA Precious Metals and Minerals Fund
One of the options for people who want to invest in precious metals through USAA is to use the USAA Precious Metals and Minerals Fund, also known as USAGX. This is the main offering that USAA has in regards to the precious metals industry.
According to the investment write up, the investment seeks to appreciate capital over the long term, as well as to protect capital assets against inflation. Usually a minimum of 80% of the fund's assets are invested into equity securities all over the world, which are related to mining, exploring, or refining gold or other precious metals. The other precious metals include silver, diamonds, and platinum.
This is a non-diversified fund that focuses exclusively on the precious metals industry. Every investment is related to precious metals in some way.
Compared to other mutual funds, this precious metals fund doesn't have the most impressive returns. The past twelve months show that the fund has dropped more than 11% in its returns. The total gain for the past three years is 2.39%, while the total gain for five years is 5.41%. Though that seems like an impressive average, the average for the whole decade is -4.53%.
The boom in gains might be attributed to the effects of the COVID-19 pandemic. When the government first began putting shutdown measures in place, the price of gold and silver skyrocketed. Gold often performs inversely to the traditional economy. So the value of the mutual fund went up. But in general, it looks like investors aren't seeing many returns on this particular fund.
Analysts say that the risk is about average in comparison to other precious metals based mutual funds. While your money will be used for purposes related to the precious metals industry, you will not be buying physical gold.
USAA's Stance on Gold
Though USAA hasn't said much about gold in recent years, and though they don't offer physical gold IRA options, they have been in favor of precious metals in the past. A Forbes article from 2013 talks about how executives at USAA analyze the risk and reward of gold investments.
Ten years ago, gold was trading at a lower cost than it is now. But the vice president of equity at the organization stated that there were important benefits. He said that he was concerned about the printing of new money, as that would just weaken the American dollar through inflation. That was especially true because the dollar was no longer secured against the gold standard.
In the interview, the USAA representative expressed that he believed that gold was a favorable investment. Though the price was trending downward at the time, he emphasized that the goal wasn't to immediately make money. Instead, the goal was to secure a person's assets in something other than fiat currency, and to have a hedge against volatility in the stock market.
USAA often gives investment advice to veterans and other investors. In 2013, their stance was that a balanced investment portfolio should have anywhere from 2% to 5% of their assets secured in precious metals. They emphasized that the amount shouldn't exceed that, because then the investor would lose the important benefits of their diversified portfolio.
The USAGX fund existed in 2013, but it had fallen in returns that year. As mentioned, the fund has trended downward over the last decade in terms of returns. Part of that might be due to cooling off after the boom following the 2008 recession.
Traditional Investments Versus Physical Gold
There are three main ways that people typically invest in the precious metals industry by using traditional investment methods.
The first is to invest in stock of precious metals companies. People might choose to buy shares in mining operations or refineries. As with any other stock, this is a high risk investment. There are many factors affecting a company's profitability, such as their competition, current projects, and management. All of these things are unrelated to the price of precious metals.
However, stocks do pay dividends to their shareholders. You earn a small amount of the profits that the company makes each quarter. Precious metals don't accrue dividends like this.
The second method of investing is to invest in a mutual fund. Mutual funds are funds created by thousands of investors, who are all putting money toward the same things. The exact investments in a mutual fund will vary widely. With the precious metals industry, usually these funds involve shares in mining companies and gold dealerships.
The third method of investing is to buy into gold ETFs. Exchange traded funds are paper funds that are backed by physical gold. Like mutual funds, they are made up of thousands of investors. When you buy into an ETF, you own a small share of the paper that is backed by physical gold. But that isn't the same as owning actual gold.
When you invest in physical gold, you are the sole owner of that gold. It is stored in a vault under your name and maintained by your custodian. You can liquidate the holdings when you're ready to take distributions, and many gold IRA companies offer buyback programs. You therefore don't have some of the risks that come with traditional investments, like sudden loss of value.
But there are a few things to keep in mind. If you invest in gold with your retirement funds, you have to be careful when choosing your products. Only sovereign gold coins of 99.5% purity or higher are eligible, or gold bars that have been certified from a refinery. It's important to be sure that you're purchasing eligible products before you finalize your order.
You'll also need to pay certain ongoing fees each year to maintain your account. There will be a fee from your custodian for the paperwork and account maintenance. There will also be a fee from your storage depository for keeping your vault open. You must use a storage depository with strict security measures, as the IRS prohibits keeping your IRA in a safety deposit box or home safe.
When you work with some of the top companies on the market, these fees are often negligible. It's best to work with a firm that has a flat annual fee no matter the size of your account. With this fee structure, you know exactly what you can expect to pay in any given year.
Some companies charge a percentage of your holdings instead. While it might be a small percentage, you will end up paying more as you save more in your account. That can be frustrating for some investors.
It's also good to look for companies that don't have transaction fees or hidden fees. When you're finding a gold dealership with products for your IRA, look for ones with a good reputation. Many of them will post their fees directly on their websites. In addition, they might give you information about exactly how they calculate their sale prices and buyback offers as well.
Is USAA a Scam?
USAA is definitely not a scam. They are one of the best known organizations for families in the military. However, they aren't a good fit if you want to secure your retirement in gold. The organization works with two main IRA providers: Charles Schwab and Victory Capital. Both of those organizations generally deal with traditional assets, rather than alternative options like precious metals.
If you want to open a gold IRA, you need a self-directed IRA with a licensed custodian. You also need to work with a gold dealership that you trust. USAA isn't the best organization to put you in touch with either of those things, though they do important work in many other regards.
We recommend looking for a gold IRA broker like Goldco or American Hartford Gold. These companies sell gold, but they also have in-house IRA teams that help you to set up your account. They'll put you in contact with a depository and custodian, and they'll make sure that all of your paperwork is compliant. These companies also have high levels of integrity and a great reputation.
Pros & Cons of USAA
USAA is known for taking care of veterans in the United States. They provide a huge variety of services, including helping service members to secure their futures. There are ways to invest in different assets through USAA, as well as partnerships with traditional IRA custodians. You can purchase shares in mutual funds and certificates that are backed by gold.
However, USAA does not have any options that allow you to invest directly in gold. If you want to buy physical gold, you need to open a self-directed IRA with an appropriate custodian. You must also purchase approved products and have them stored in an approved depository. That red tape can be confusing, and USAA won't help you navigate it.
For this reason, if you're looking for a gold IRA, it's best to work with a different company. There are many gold dealerships that have IRA experts on staff. They'll help you with setting up your account and choosing the right gold pieces. Many of these companies have transparent policies, good reputations, and reasonable pricing. Our top pick overall is Goldco.
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