Is Silver a Good Investment? Silver has occupied a similar level of importance as gold has historically, all be it to a lesser extent. Though certainly not as rare as our shiny yellow friend, there are still benefits to be derived from the metal which an investor could look into.
Known as the poor man's gold, silver can offer an investor the chance to diversify his portfolio, hedge against inflation, and have an emergency source of income in a time of distress. That being said, there are also some downsides to the metal which, for most, still makes it an inferior investment to gold.
I've been investing in Stocks & Precious metals now for OVER 11 years, and in this post I share some of my knowledge and experience.
By the end of this post, you'll learn:
- The Benefits of Investing in Silver
- The RISKS of Investing in Silver
- The Differences Investing in Silver Vs Gold
- And More..
That said, let's go over some of these advantages and disadvantages together so that you can decide for yourself if silver is a worthy investment:
Benefits of Silver:
Silver is classified as a commodity and is a tangible metal traded in markets all over the world. Where current assets like cash and liquid investments usually depreciate due to the unfortunate effects of inflation, the price of noble metals like silver and gold move in the opposite direction. They generally only get more expensive with the time.
This, of course, presents investors with several benefits that other, intangible investments do not provide. The incorporation of investments in silver into your portfolio allows you to hedge against the effects of inflation. Say you are worried that, because of inflation and the volatility of the money market, your investments might turn out not to be as valuable as they could be. As an investor, it's only natural that you want to walk away with as much money as possible. By buying quantities of silver, or investing in silver-related investments, you let the ever-increasing price of the metal offset the loss you incurred from inflation. Thus, successfully hedging.
Another notable benefit is their ability to serve as ample sources of emergency funds in times of need. Silver can easily be liquidated to free as much cash up as needed in cases when it's needed or you simply wish to cash in on your investment. Consider how fragile the market can be from time to time, how usual fiat money can fluctuate in value that it makes it hard to depend on. Also consider for a moment that, for much of human history, gold and silver as been the standard currency for millennia. They were what was used to facilitate exchange and their dependability extends to the modern age as viable sources of investment.
In the unlikely event of an economic collapse or natural disaster, one that renders normal currency next to useless, it helps to have some precious metals around to serve as an alternative.
Finally, investment in silver is just another way to safely invest money. It's profitable not just because it's a noble metal but also that it's an important component in gadgets and technology. Having investments in silver can also mean you partially own the material that is heavily needed in the technology market -- which is an infamously lucrative market.
Risks of Silver:
Now that we've covered the benefits of silver as an investment, let's go over some of the reasons why it's not the most ideal thing to invest in. After all, if it was so great then why doesn't everyone invest in it, right? Here are some of the risk factors with silver investments:
Sensitivity to the Industrial and Technology Markets
Perhaps much of what dictates the price of silver is its integral part in many industrial and technological uses. Silver is a corrosion-resistant and highly conductive metal -- a quality that makes it useful for electrical engineering.
But any downturns in these markets can directly affect the price of silver negatively. Technology is ever-changing and it's not uncommon that entire industries are rendered obsolete in the blink of an eye.
There is also the very real possibility that a material might be introduced that has many of the same qualities as silver but is much cheaper. Much like what happened when silver was no longer used in photography, silver might lose an entire market use in the future due to advancements in production.
Limited amount of income
The thing that makes silver so easy to understand as an investment might also the thing that holds it back. In the case of owning physical silver (just as with buying gold bullion), you will only ever earn the amount it could be sold for. There are no interests or dividends that yield you liquid income every month. Just like when you sell your gold, you can only earn from silver when you eventually decide to sell it.
Unlike gold's prices which increase relatively predictably, silver's price changes much more and can be far more volatile. In some cases, new silver deposits drive the price of silver down. Silver is also known to be recyclable and reused from discarded electronics and gadgets.
Its harder to liquidate
Unlike gold, the silver market is smaller. This means that you'll have to do some extra searching online or in the city streets to find a place willing to buy silver. Some, if not most, dealers don't deal in silver at all. This when you buy silver, you must also have a selling strategy in place for when you need it converted to cash.
Main Differences with Gold Investment:
Both metals share most of the same benefits stated above. They are optimal options for hedging against inflation, their prices mostly only increase, and they are great sources of emergency funds or as safe-haven investments to weather times of turmoil.
Silver is cheaper than gold
That being said, it's obvious why we should compare the two and see which one holds out when takes for their differences. The first and most obvious difference is that silver is cheaper than gold. The poor man's gold is viable if you're looking for a cheaper alternative to gold investments that still offer many of the same advantages. Silver is a good investment for the investor on a budget.
Silver is more readily available than gold
If it's a question of which is the rarer element then gold wins by no contest. All the gold mined in the world so far is stipulated only to fit in about two Olympic-size swimming pools. On top of that, fruitful gold mines are quickly drying up. Silver, on the other hand, is not so rare. This can either be a good thing or a bad thing depending on the nature of your investment.
It could be a positive if you're banking on silver's role in the future of technological development. Alternatively, if you are banking on silver's increasing price to make your investment worthwhile, then you won't have as much assurance as gold in that department.
Silver's prices are more unstable than gold's
The fluctuations in the price of silver are more frequent than those in gold. Where one can bank on the rarity of gold, viable silver mines are still being found every few years or so. Along with that, the availability of silver in industrial markets means that its price is heavily influenced by the demands found therein. One could wake and find that the Tech industry doesn't need silver anymore. Where does that leave silver's price?
With gold, all you bank on is its rarity and predictable price increase. Entire investment schemes are built on this almost unchangeable principle and it's not likely to change any time soon.
Silver can be very liquid
The silver market is smaller, much smaller than the one for gold. This especially applies to the market of silver investments. The risks explained here are some of the reasons why silver hasn't really caught on as much as a form of commodity investment the way gold has. This could present some problems for you when the time comes that you'd like to liquidate your silver investments.
Unloading it will be difficult since gold is much more highly praised and better understood. Perhaps the market will grow when gold finally runs out and silver is seen as an alternative investment in noble metals. But at this point, the price you pay for the cheaper metal is finding a place to sell it later on.
Despite all the risks concerned with the metal, there are still some great, non-direct forms of investment you can partake in to earn from silver's value while still protecting yourself from its riskier elements. Investments in silver mutual funds are one such technique. This also saves you the hardship of having to store actually silver.
Just as there are Gold ETFs, there are also silver ETFs (exchange-traded funds) and ETCs (exchange-traded commodities) which lets you buy silver the same way one would buy stocks from a company.
Again you get the benefits of the metal's increases in price while not having to worry about storing and selling it yourself.
Stocks in silver mining companies are also just as good as investments in silver itself, just like gold stocks.
No matter what the case is, it's important to weigh your options first and decide on the investment you feel works for you best. Silver might not be gold, but it's still shiny and will likely be valuable in one way or another for decades to come.
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