Why would you invest in Silver?
Silver so often hides in the shadow of Gold as an investment vehicle. There are reasons why some people prefer to invest in Silver, but for many people, those reasons are overshadowed by disadvantages.
With any paper or digital assets, there is always the chance that someone can default and you could lose what you thought of as assets. With Gold and Silver in your possession, you need not worry about that possibility. Your Assets are sitting in your safe or bank safety deposit box. Just like with Gold, Silver is seen as a safe place to put your money during times of unrest or financial crisis. Silver is also used in industry, so there is a constant demand for the metal.
You will be surprised to know that only 11% of Silver holdings are for investment purposes. A further 33% is used for jewelry manufacture, but over 50% of silver is used for industrial uses. The benefit this brings is that in an economy that is on the up, there will be an increasing demand for Silver, which boosts the price. Much of this industrial use for silver is in high-tech industries, which are going to be increasingly in demand, such as, Solar Power, Battery Power, electronics, and smartphones.
Just like Gold, the price of Silver can be volatile, and in recent bull-markets in precious metals, the performance of Silver was significantly better than that of Gold.
Ways of investing in Silver
With Silver, there are four main methods of investment. The first is to buy the metal itself by going to a bullion dealer/coin dealer. When buying Silver this way, VAT is payable in the UK, but in the USA there is no GST. The only tax you may have to pay is a State Sales Tax (in some states). Be careful with this since there are many scam artists out there. A book I recommend to get started is ‘Guide To Investing in Gold & Silver: Protect Your Financial Future‘.
The second method is to visit auction houses and bid on silver items that have no reserve. You can often pick up these items at less than the value of the silver they contain. Occasionally you can find real bargains and purchase the Silver at a vastly reduced cost.
The third method is to invest in Silver Futures and options. These contracts allow you to gamble on the price movement of Silver over a set period. Note the word, Gamble, as this can produce losses as well as profits, should your prediction prove wrong. Investing in commodities can be tricky, I would start with some basic education in this. I recommend ‘Commodities: 50 Things You Really Need to Know‘ before you invest in silver or other commodities.
The Fourth method is to invest in Silver ETFs (Exchange Traded Funds). A Silver ETF will track the price of Silver. In terms of ease of liquidity and avoiding the logistical difficulties of storing bullion, ETFs are regarded as the optimum way of investing in Silver.
Should You Invest in Silver?
Investing in Silver is to invest in a volatile commodity. If your portfolio is heavily reliant on Silver, there may be difficulties in that the value of your entire portfolio could be influenced. Silver, like Gold, has its place in a portfolio, but you should not allow the value to rise above 10% to 20% of your total investment.
Pros & Cons
1. In some situations, Silver can offer some degree of protection from market disturbances
2. Silver can be affected by the market but will never completely crash
3. It’s cheaper and more versatile than Gold
1. It may not be as liquid as you would like if you need cash fast
2. Risk of burglary and higher insurance premiums if bullion held
3. Does not match Real Estate in terms of return on investment
Bottom Line & My Final Take
Whether you should invest in Silver depends on your appetite for risk. It can be more volatile than Gold, so if you prefer to avoid risk, stick to Gold. However, Silver is like money in your pocket, you are not relying on someone honoring a promise they have made. It is real, it is tangible.
Silver is portable and private, you can move to another country and take it with you. You cannot lose it to hackers. Silver is just 1/65th the price of Gold and offers all the same benefits.
Industrial use is growing and so there will be an underlying increase in value. Silver has many reasons why it should make up a small part of your portfolio.
All in all, investing in silver and other precious metals can be used in your portfolio as risk protection against the other three asset classes. If you invest in commodities (i.e. Silver, Gold, natural resources) you have a different market and different risk exposure than you have in paper assets and real estate. Ultimately, I would strongly encourage investing in all the assets classes.
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