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Investing in Silver

If you’re worried that an economic disaster might cause the dollar to plummet, you may be looking to commodities like silver as a safe haven. In this article, we’ll discuss the ins and outs of investing in silver, as well as the risks that this strategy carries. When it comes to investing, say, retirement savings, it’s important to make sure you’re making informed decisions. 

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Investing in Silver: The Basics

Folks who invest in silver often say that doing so lets them hedge against the risk that their other investments might depreciate – and against the risk of catastrophic events. According to these investors, silver’s intrinsic value and history of being used as a currency mean that even if the dollar’s value drops, folks who hold silver will come out on top. Much of the appeal of commodities like silver stems from the fact that they give investors something to latch on to. They’re not just numbers on a screen.

Those who want to invest in silver have a few options. You can buy the physical commodity and figure out a way to store silver bullion securely. You can also invest in a silver-backed Exchange Traded Fund (ETF) that trades on the market and offers a higher degree of liquidity. You can buy silver futures contracts and either go long on silver (betting that its price will increase) or short silver (betting that its price will decrease). Alternatively, you can buy stock in a silver mining company. Keep in mind, though, that when you invest in a silver mining company you’re taking on risks associated with the management of the company, not just the risk that the price of silver could fall.

Investing in Gold vs. Investing in Silver

With the same amount of money, you can buy a lot more silver than gold. If you don’t have a lot of extra money and you have your heart set on investing in a precious metal, silver may be a better place to start. But remember that you don’t have to invest in metals at all. Their prices are volatile and they’re not a particularly reliable way to grow your savings.

Skittish investors tend to flock to both gold and silver when an economic crisis has already set in, the stock market is down and metal prices are up. If you jump on this bandwagon, you’re committing the classic mistake of “buying high,” investing in something when its price is already at or near peak. Conventional wisdom states that investors should buy low and sell high. This means overcoming your natural instinct to sell off stocks in a crisis and retreat to commodities like gold and silver.

Related Article: Up, Up and Away: Understanding Inflation

Investing in Silver: The Risks

People who advocate investing in precious metals will tell you that it’s safe. What they won’t say, however, is that prices of metals, including silver, can be volatile. Plus, there are often high fees and commission expenses associated with investing in individual silver stocks. The average investor can do perfectly well just buying and holding some low-cost index funds. If your investing portfolio is under-diversified, with too much money in silver, you’re a) vulnerable to silver price fluctuations and b) missing out on potential stock market gains.

Check out our retirement calculator.

Bottom Line

At the extreme end of the silver investor spectrum are those folks who fear that society might break down someday. Then, they say, silver investors will be able to take their silver bullion out of the vault and use it to buy goods and services. If owning some silver will make you feel better about the future, who are we to stop you? But for the bulk of your investments, you’re probably better off sticking with a more conventional option, like the low-cost index funds.

Photo credit: © iStock/rasslava

Amelia Josephson Amelia Josephson is a staff writer covering financial literacy topics at SmartAsset. She holds degrees from Columbia and Oxford. Originally from Alaska, Amelia now calls Brooklyn home.

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