Have you ever thought about buying silver? Maybe you’ve gone to coin stores or visit the post office and wondered if you should buy some coins? Maybe instead you have concerns over the macroeconomic landscape. Is silver a good hedge against inflation?
Could owning silver be better than gold? All of these questions and more come up before inevitably asking how much silver should I own?
So if silver catches your fancy, there are obviously many things to cover. We are not investment advisors, but we are here to help explain some basic concepts. So where do we start?
One question is how much of our portfolio should allocated to precious metals, generally? We don’t think that putting all your money into one asset is a good investing philosophy for most people. You want a level of diversification. The first way silver comes into the equation is that it diversifies you against certain risks. What kinds of risks? One if the risk of inflation and reduced buying power.
If you do not think inflation rates are going up over the coming years, what then? Well, many people see inherent risks in fiat currencies. Simply put, if governments keep printing money, countries could end up declaring bankruptcy and issuing new currencies. In some ways, this is much like mega-inflation.
The second way silver comes into the portfolio equation is as an insurance policy. This is especially meaningful for those people who want a cheaper alternative to gold. Very much like gold, silver is accepted near universally.
Well, the strategy a lot of people use is to maintain a constant amount of silver in their portfolio. Unlike speculators, these people bank on the slow appreciation of precious metals. Case-and-point is the strategy of owning 5% of your portfolio in gold and silver.
Whenever the price goes up to for example 7%, you re-adjust by taking money out. You then put that money into other investments. Effectively, your goal here is to balance periodically and enjoy protecting your buying power.
Practically, there are certain questions you need to be asking yourself if you want to take the question of how much silver you should own seriously. First, you need ask if you are invested wholly or almost wholly in a particular asset? Modern portfolio theory cautions against this kind of thing, especially if you are not extremely wealthy and may need to draw down capital for unexpected events.
Next, you need to ask how comfortable you are with macro-level risks such as economic uncertainty, inflation, and war. Finally, you need to make sure that you have a sufficiently long-term investment horizon, e.g. no sooner than five years. This can help avoid temporary downturn in certain markets.
While far from conclusive, “how much should I allocate to precious metals” seems to evolve into a question of risk tolerances, specifically of the general economic environment.
For most investors, some exposure to contra-currencies (and yes, we just invented that word) can prove helpful. Especially for passive investors, we do not recommend exceeding 25% of your total wealth at any one time in precious metals.
In some ways, bullion is the truest way to own silver. Especially if you are buying to protect from the risks of failing financial institutions, the last thing you want to do is own paper. In other words, if banks are closing their doors, your paper silver is not going to get you far. And that’s why a lot of people turn to bullion.
Some of us choose to buy silver coins and others prefer to buy silver bars. Still others just look for whatever is the cheapest silver bullion online. At the end of the day, however, an investment in silver bullion should be premised on solid principles.
We do not recommend exceeding the 25% cap in bullion or any asset. That’s an opinion, but as we said, we are not investment advisors. Still, diversifying your silver bullion - at least in size - will do you good. Take the following as an example.
Jeff Clark, the Senior Precious Metals Analyst at Casey Research, thinks you should buy silver coins. But he wants you to think about your investment in terms of ounces, not dollars.If you look at it like Jeff Clark does, you would see silver investment as a means to cover for your financial health when inflation hits.
Jeff offers a pretty handy tool to assess how many ounces of silver you should own. He advises looking at your bank statement and assessing how much you spend monthly.Knowing that number will give you an idea of how many ounces of silver you should own to cover all expenses, if the economy were to crash.
Let’s say your monthly expenses are $2,500. At the time of writing, the current spot price of silver is CAD $21.20. Divide that by 2,000 to get the amount of ounces you could own.
Well there you have it. You get 117.9 ounces of silver. So if you owned 118 ounces of silver you could cover your expenses for one month. This is a rough budget-based solution. Still, on the inflation-hedge model, you can bail yourself out. Whether that’s a transition between jobs or a family emergency, you have at least a little protected buying power.
Now even if you and I are not mathematically inclined, I need only think bout that how much silver should I own as a step by step plan. Over the course of a year, we would need 1419 ounces of silver to live for a year. And that is without bringing any money in.
Do it for a few years, and the logic suggests you would have a comfortable backup especially if you stretched things out. And if things don't end up so bad, it sounds like a great retirement fund.
These are the questions you need to ask your bullion dealer to make an informed purchase and make sure that precious metals are working for you.