Image source: Kinross Gold Corp.
Roth IRAs are a great way to invest. But you have to think about the structure of the account and what you can do with it before just heading out and buying stocks. And that's why I would never put Kinross Gold Corp. (KGC 0.55%) in a Roth IRA. Here's what I mean...
Ins and outs
The wonderful thing about a Roth is that you pay taxes on the money you put in and -- more to the point -- don't pay taxes on the money you pull out. In other words, when you retire and start tapping your retirement savings, withdrawals from your Roth accounts are tax-free income. At a time when you're likely trying to keep costs down, that can be a huge benefit. But it changes how you need to think about investing.
For example, in a Roth the income from taxable bonds and high-yielding stocks suddenly becomes tax-free income. And if you own stocks that have a history of dividend increases, then you get tax-free pay raises, too. It's not that you don't want capital appreciation, but income-focused investments that throw off taxable distributions tend to play well with Roth IRAs (a notable exception is limited partnerships, which have unique tax implications and are best held outside all IRAs).
Big gains, big losses!
But who wouldn't want a stock that's gained over 180% so far this year, like Kinross Gold? With that kind of a gain, who cares where you own it? You should.
The first reason not to be so fond of Kinross is that it doesn't pay a dividend. That said, some gold and precious metals companies do pay dividends. For example, industry giants Newmont Mining (NEM -0.10%) and Barrick Gold (GOLD 0.90%) have yields of 0.3% and 0.4%, respectively. Not much to write home about, but during good times these gold miners are likely to materially increase those distributions -- in fact, Newmont's dividend level is actually linked to gold prices.
But here's the thing -- good and bad times tend to fall at the extremes when it comes to miners. Which is the second reason to avoid owning Kinross Gold.
One of the big reasons to buy a precious metals company is diversification. The shares tend to zig when markets zag, effectively hedging your portfolio against stock market losses. . The stocks of precious metals companies, though, can be quite volatile. I noted that Kinross is up 180% or so this year, but take a look at the chart above -- it's down nearly 50% over the last decade.
Since you know going in that Kinross is going to be volatile, it's something of a proxy for owning gold, you pretty much know you're going to lose the ability to offset capital gains with capital losses if you put in a Roth. And as the chart below shows, Kinross's benefit as a hedge haven't really worked out so well over the long term, with some stressful ups and downs along the way. But there are other reasons to worry about Kinross.
Kinross' mine portfolio is mostly in the Americas, which represent about 60% of production. Around 15% comes from West Africa and 25% from Russia. That last one is a little worrisome, since Russia has a habit of not playing nicely with its global peers and is currently being hit with financial sanctions. That's a risk you simply don't have to take on. Roughly 80% of Newmont Mining's portfolio is in the Americas and Australia, with no exposure to Russia at all (Indonesia and Africa make up the last 20% or so).
Looking at Kinross from a more dollars and cents perspective, it's targeting all in sustaining costs of $890 to $990 an ounce this year. Newmont's goals are similar, but Barrick Gold's target is $760 to $810 an ounce. Basically, Kinross isn't the lowest cost miner around and has notable exposure to a questionable region. (Barrick, by the way, doesn't have any mines in Russia, either.) If you were to buy a gold investment in a Roth, Kinross probably isn't the best option available.
Better options
Although I don't think a Roth IRA is the best place for a gold stock, Kinross Gold really shouldn't be your choice if you plan to go down that route. It doesn't offer any income and it has company-specific issues that suggest it could be even more volatile than other options like Newmont and Barrick. These two gold giants, by comparison, would give you some income now, with more likely during good years for gold, have more exposure to "stable" countries, and Barrick has relatively low costs.
