Why Should You Be Investing in Silver?
Discover Why Silver is the Must Have Investment for 2020
What Are the Main Benefits of Silver?
As an investor you already have an enormous choice of investments when it’s time to add to your portfolio. Most of us are already invested in the usual blue-chip stocks and bonds, or derivatives, ETFs and mutual funds. A number have made a killing or agonizing losses in the in the volatile cryptocurrency market.
And then we’ve got some of the oldest highest-value assets known to man: precious metals. So why invest in silver?
Silver investing is definitely what you’d call an established market, the metal having been traded, used as money and hoarded as a store of wealth for well over 4000 years.
As a wealth-protecting asset silver has a proven history, typically helping to protect assets against inflation and safeguarding against financial market losses by acting as a market hedge.
Yes, the price of silver bullion is volatile over the shorter term and this can make some investors nervous – however it’s this very volatility which helps make silver market traders wealthy with every bull and bear move.
For longer-term holdings, even the most nervous investors can take comfort in silver having seen a long underlying climb, averaging nearly 27% in average annual growth between 1920 and 2020, taking it’s price from 65 cents, to over $18.00 /oz.
Silver has also outperformed gold during stock-market crashes, most recently adding a 448% profit to silver investor’s pockets between 2008-2011 whereas gold – which is famous for having shot up in value during the crisis – “only” managed a 166% gain from it’s 2008 low to 2011 high.
The once mighty dollar – as we illustrated in our comparison of two dimes – has meanwhile fallen in value.
This is because unlike paper currencies, silver’s supply is finite; central banks can’t print silver in the same way as they print money. No amount of accounting wizardry capable of creating new money out of thin air can be used to magic new silver into being.
Although silver has historically been used for asset protection, it’s always played second-fiddle to gold. Yes the wealthy have always bought silver bullion and central banks have owned it for years, but always in smaller quantities than gold.
So what has changed where countries, nations and big institutional investors have started stocking up on silver in record volumes?
Why are silver refineries having to work 24-7 producing large silver bars for the super-rich? Why Now?
Silver Might Be an Excellent Store of Value – But It’s Also Full of Potential
It’s silver’s finite supply and it’s close relationship with gold which is seeing silver take on a new role as star performer in diversified investment portfolios, with a huge potential for upside gain.
Silver’s use as an industrial metal is seeing millions of ounces permanently consumed by chemical processes every year – or built into products using methods which are currently difficult to recycle. Not only are our supplies of silver finite, but they’re dwindling fast – with mining unable to match consumption.
And silver’s integration into our consumer appliances is seeing no sign of slowing: 11 million ounces of silver were used in smart phones in 2018, with 2019 numbers already higher as Chinese companies vie for global dominance.
The more essential silver becomes to our modern tech – the greater it’s price will rise through simple market dynamics. From consumer electronics, to solar panels, to next-generation rechargeable batteries we are powering through our dwindling supplies of silver at an ever increasing speed – as we turn to silver to help create more efficient and more environmentally friendly tech.
So not only is silver experiencing strong upwards price pressure through it’s increased use in tech – there’s another key indicator suggesting silver could go a LOT further.
The silver/gold ratio tracks the price of gold in terms of silver. At present the ratio stands at around 85:1 meaning you’d need 85 ounces of silver bullion to buy a single ounce of gold.
But this is an unusually high figure. The ratio has averaged 47:1 across the 20th century and before this it was even lower.
In fact the last time the gold/silver ratio was at these levels was immediately before the great financial crash of 2007/08 and the time before that, it was during the major global recession in 1991.
For this ratio to get back towards it’s 20th century average silver would need to become far more valuable in relation to gold. It’s already on it’s way thanks to silver’s plethora of new high-tech uses, but with the ratio being SO high at the moment, despite these growing industrial uses, silver is clearly very undervalued.
Where a cyclical market sees undervalue or overvalue, it will invariably move to correct this.
For the ratio to reach 65:1 (a figure still far higher than the median) we’d see a silver price of $23/oz against gold – and if it were to retrace to 55:1 silver could reach $27/oz. All of these figures are not only possible but very likely given current market conditions.
And when there’s a new banking crisis or stock market crash, silver’s other use can come into play.
The other way silver protects wealth is by acting as a market hedge.
A hedge is effectively part of a bet on two opposing outcomes. You think stocks are going to do well over the next few years, you buy stocks – but you also take another position in case you’re wrong.
In some ways silver itself is a two-way bet
Silver being an industrial metal will rise as it’s industrial users do well – with silver’s use in expensive electronics and high value alternative power systems when there’s money flowing in a good economy, then there’s money being spend on products using silver.
But silver can also behave like gold, where in a financial crash silver will typically soar in value – a correlation that’s strong enough to see the wealthy and large fund managers use silver as a form of guarantee. A guarantee that can even beat gold.
In the last big crash of 07-08 when millions of Americans saw their 401ks and IRAs slashed by a more than 50%, gold reached a record all-time USD high. Retirement accounts heavy in gold saw a healthy uptick, in some cases enough to cancel out losses in the stock markets – but silver went much further.
Where gold saw a total bottom-to-top climb of 166%, silver rose 448%!
Had a savvy investor listened to advisors and bought into silver ahead of the crash, they would not only have canceled out losses but most likely turned a tidy profit.
Which brings us back to now. Wealth managers are again advising their clients to stock up on precious metals, making worried noises that something big could be on the horizon.
The Boom Bust Cycle
Looking at the approximately 10 year boom/bust cycle of our financial markets it’s plain to see we’re starting to look long overdue on the next crisis:
Data courtesy of the St Louis Federal Reserve
As we already mentioned silver is currently priced where 1oz of gold buys 85 ounces of silver. This gives a gold/silver ratio of 85:1 – an important value which has historically been a good indicator of there being an ongoing recession, or an impending crash.
Our stock-markets are currently buoyant – even if they are making some alarm sounds in terms of overvaluation – so our bet – and apparently the bet of all those piling into silver and gold, is we are facing an imminent crash.
Once again silver is getting ready to protect – and grow – wealth.
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Is Investing In Silver A Good Idea?
Given what we said above, even if you’re not on the lookout for an investment showing all the signs of being undervalued, silver is still a useful diversifier – especially if your portfolio or retirement account is leaning heavily towards stocks, shares and other paper assets – or if you’re invested in real estate.
Is investing in silver smart?
Most financial advisors who are open to a healthy diversification of assets suggest putting aside between 3-10% of a portfolio to precious metals.
Traditionally this is gold, but for investors looking to add an extra helping of capital growth, the metals may be split 60:40 gold to silver or can go even heavier on silver if the client is happy with the extra volatility silver can bring to the party.
For smaller-scale investors with $5-10k to invest and for whom a metals investment could be a large slice of their available capital, silver makes even more sense especially if the investor opts for home storage in a suitably insurance-rated safe.
Having a number of lower-priced units in an investment means any small financial emergencies can be dealt with without having to sell half of your assets. After all it’s much easier to liquidate a few silver bullion bars to meet an unexpected expense than getting change from a $10,000 gold ingot.
For those with $25,000 or more to invest, silver suddenly becomes a much more useful tool and this is where precious metals come into their own.
One of the best ways to buy physical bullion is through a Gold and Silver IRA.After all when the government offers you a highly tax-advantaged route to buying precious metals, it’s wise to make the most of it.
And of course one of the key advantages to having gold and silver in an IRA is the protection the metals can give you at a time when you need money the most: retirement.
Given their history in using our money to play on the stock markets, wouldn’t you feel safer having some assets fat-cat bankers can’t control?
Is Investing In Silver Safe?
We’ve already established silver is a prime safe-haven asset, used to secure wealth – be it a country’s wealth, generational wealth, personal assets or a retirement account.
But are there safety issues in investing in silver? Is investing in silver high risk?
Silver is clearly a more volatile metal than gold and in the short term can take losses – just as much as giant gains – and this is riskier if your retirement is in the immediate future. If your retirement is further away then you’re more likely to take advantage of silver rising significantly as it’s being forecast to do so.
Silver may have averaged an increase of 26% per year over the past 100 years, but there have been years where it’s dropped 50% and others where it’s risen over 700%. If this level of volatility and potential for profit is of too much risk for you, then it’s best to opt for gold.
This being said, unlike stocks, cryptocurrencies or any other paper or digital asset it’s near impossible that silver will ever reach zero value. It’s too rare, too important to industry to society and our very psyche, for silver ever to have no value to us. After all silver’s 4000 years trading as a valuable asset is a hard history for us to rewrite.
Silver’s other risk is also silver’s greatest benefit: value.
Thanks to this value, your investment in silver is also subject to a risk of theft.
It very easy for criminals to alter silver bullion’s identity, melting it down and reforming it as a new bar. As for silver bullion coins, they carry none of the identifying marks or serial numbers bars do, making one silver coin completely indistinguishable from another. If it’s stolen – your silver is as good as gone gone.
It’s therefore essential to store your silver investments safely – whether in an adequately insured safe at home – or in a secure and fully insured vault. We cover gold storage and vaulting in detail here.
With your silver secured, especially in professional vaulting, there’s little to no chance of theft and even if it were to somehow be lost or stolen you’re insured.
Is silver investing wise? If you doubt silver’s potential, then history is not on your side.
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Can I Invest in Silver to Make Money?
We’ve already mentioned silver’s average annual increase over the past 100 years, and silver’s tendency to leap skyward during times of crisis – but can investing in silver make you rich?
Remember the ratio of gold to silver we mentioned earlier?
We were being very conservative when we talked about it returning from it’s current high of 85:1 to it’s mean value of 47:1. In fact we didn’t even get close to mean when we said a value of only 55:1 would see silver priced at $27/oz. At silver’s mean/average value of 47:1 we could actually see silver selling at $32/oz.
But as we all know for there to be an average value – and we know the high is 85:1 – then there must also be a corresponding low. This is simply how averages work.
2011 saw a gold/silver ratio at 35:1 – if this were to return today we’d have a potential for silver to reach $51/oz – matching it’s 1980 high.
However jumping into out time machine and going back to the late 1970’s or even the late 1960’s the ratio stood at a low of 15:1. If this were to be the case now and gold remained at it’s current price, an ounce of silver would suddenly be priced at a whopping $120!
Now this is admittedly a very simplistic way of looking at silver – and a tactic often used by bullion dealers to suggest we could see an imminent 800% rise in the price of silver.
In reality, unless there is a seismic shift in our world, a major catastrophe, or dollar’s removal as our global currency, then when we see 15:1 again, gold will have dropped a little and silver will have risen higher to meet it.
One way or another the current ratio clearly demonstrates silver to be well undervalued in relation to gold and when we do return to a mean value we can very realistically expect a near doubling of silver’s price.
Want greater profits? Waiting on a price rise isn’t the only way to make money with silver…
Active Trading
To take best advantage of silver’s volatility you need to develop a more active strategy than simply buying and holding.
Although more risky – especially to novices – you can time buys and sells to take advantage of the daily, weekly and monthly rise and fall of the silver market.
Buying at the price lows and selling at the highs is the very foundation of trading and is equally applicable to physical metals as it is to paper or digital assets. Perfect timing and reducing buy/sell fees to a minimum is essential, but for someone with a good eye or an understanding of market dynamics there are significant sums to be made.
Even without constant trading, it makes sense to buy low and sell high and this is what many precious metals investors and home stackers do, moving between gold and silver depending on what is comparatively over priced or under-priced. This makes a quicker way to grow your precious metals than simply buying and waiting.
Finally you can always play an arbitrage game, finding a source selling a silver bullion product lower than you can sell it somewhere else.
In short you become a small-scale bullion dealer. If you scale this enough you can attract excellent wholesale deals, buying at trade and selling retail.
This is how every successful national and international bullion dealer started – from humble beginnings to multi-billion dollar companies
Provided you can cope with the far higher risks inherent in these more active methods, they are all capable of producing significant income and profits from gold.
In summary, is investing in silver profitable? Yes it is – but just how profitable your investments are against simple market gains depends on your activity and risk tolerances.
Is Silver Better Than Cash?
As we already covered silver used to BE cash – and the eagle-eyed investor can still find silver coins in circulation today.
Roosevelt and Mercury Dimes, Washington Quarters, Walking Liberty Franklin and Kennedy Half-Dollars all contained between 35-90% pure silver – and it was this silver which gave them their value.
With a silver dime, there was a dime’s worth of silver insider the coin. A half dollar was valued at that price because it contained half a dollar’s worth of fine silver.
This system worked very well and was the basis of circulating coins across several thousand years. A coin’s real value was based on the precious metal within.
The problem with this method – for governments – was if you wanted to issue more coins you needed to buy more precious metals. Or in the case of many failing empires, government would simply add less and less gold or silver inside the coins they minted. The face value of the coins became greater than their intrinsic metal content.
And the markets weren’t stupid. For every coin created partially out of nothing, the value of all other coins was diminished – and so the prices of goods and services rose. Merchants knew this new money contained less silver and so they wanted more coins to keep things squared. Prices didn’t rise – coin values fell – and this was the birth of inflation.
Of course the American government had plans to take this idea and really go large.
Fire Up the Money Machine!
When America does something it does it in style. First of all precious metals were removed from new coins, which started being minted purely from base metals. Much like their paper dollar cousins, these were issued as a proxy on the value of precious metals held by the state.
The dime’s silver content was replaced by silver held in a distant Federal Reserve vault.
Unfortunately this meant the US government still needed to own a lot of precious metals to back the dollar and this was seriously limiting their ability to create new money to fund the function of a rapidly growing state. They tried confiscating gold and then they tried devaluation of gold.
Then they just did away with it altogether!
In 1971 Nixon fully decoupled the dollar from the value of gold and silver, meaning America could fire up the printing presses and create new money out of nothing. If they needed a billion dollars, they printed it. A trillion dollars? No problem – after all what could possibly go wrong?
Well, as of January 2020 the US Federal government is $23 trillion in a hole.
Consequences of Printing Your Way to Wealth
As a result of this reckless printing, every minute of every day sees the money in your wallet and your bank account lose value to inflation. And with headline inflation rates being so heavily manipulated through constantly changing calculation methods, you can guarantee your dollar is shrinking far faster than what the government is telling you.
Precious metals on the other hand don’t lie, can’t lie and cant be printed out of nothing.
A 1965 dime in your pocket will have lost 1220% of it’s spending power since it was minted and on it’s own is very near worthless – but a silver dime from the previous year is like some kind of financial time traveler – able to buy almost the exact same amount of goods and services today as it did then.
A $100 note converted into silver billion in 1971 – when the dollar was decoupled from precious metals – would have bought 77oz and change of silver – and at current prices you’d be now be holding $1400 worth of silver. Had you hid the $100 under your mattress it would still be “worth” $100. Enough to get you a pair of mid-market sneakers.
Even if you were to have held your $100 note in a high-interest bank account, you’d have needed an average compound interest of 5.7% per year just to match inflation – and any bank fees or taxes over this time would have wiped half of those gains out.
So would we recommend cash as an investment? Absolutely not – unless it’s a bag of silver dimes.
In seriousness, by all means hold some cash for day-to-day spending, but as for holding onto cash as an investment for any length of time – it only pays if you can convert your cash from paper dollars into real money.
The only real money in the days of fiat currency is precious metal like gold and silver.
Is Silver Better Than Shares?
This is no black and white, silver vs shares issue. Shares and precious metals both play a part in a well diversified portfolio.
Advocates for both sides of the argument can easily find periods where one has outperformed the other, or carefully select a basket of shares which have either performed terribly against silver, or left silver for dead.
The truth is, there are some excellent shares which have massively outperformed the market over a certain time.
Others have vanished without trace, leaving investors holding worthless certificates.
Whether you’re invested in Apple or Enron, Google or Lehman Brothers is down to either blind luck, incredible market knowledge or the use of a good advisor.
And good advisors also tell investors to diversify their assets – to help de-risk and to hedge against other assets performing poorly.
When stock markets crash – and this tends to happen on average once per decade – your hedges are there to protect you against calamity and when it comes to hedges there are few investments with the same proven history as precious metals.
At the time of writing our stock markets are seeing all time highs and alarm bells are ringing that prices do not reflect company earnings.
As talks of record markets make it from the financial press into mainstream media and small-scale retail investors pile in hoping for the same big gains as they’re seeing reported, the markets begin to over inflate and the institutional investors and super rich look to their hedges sensing a coming crash.
If you’re not already big in shares and so haven’t enjoyed the journey upwards this is not a good time to enter the market. If you are already in, it’s time to start making some form of insurance policy against what is most likely around the corner.
So when it comes to the question of is silver better than shares, the answer shouldn’t be a yes or a no – an either or situation.
A well planned portfolio should contain a basket of blue chip shares and for the adventurous a few riskier ones too – but it should also contain a plan B for when the market turns – and it’s an absolute inevitability the market will turn at some point.
Plan B for many is gold and silver. Whether you’re at 5% gold or 20% silver and 10% gold is down to your personal circumstances and the risk in the shares or other assets like real estate that you own.
We cannot recommend one route or another but we do recommend you speak to a professional precious metals investment company who will be able to properly advise you impartially and under no obligation.
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Who is Investing In Silver?
The physical silver market – and the market for silver derivatives – are both far smaller than those for gold. While gold see $100bn in daily trade, silver can be as little as a tenth of this, but that’s not to say there are no big silver investors.
According to figures from the Silver Institute from an average of 1,020 million ounces mined and recycled every year, industrial investment eats up over half of all physical silver at 578 million oz, with 248 million oz of silver finding it’s way into consumer electronics. Silver jewelry investment – one of the market’s big buyers – uses 212 million oz.
In fact of all annual silver production, only 18% makes it’s way into investment bullion bars and coins – with the latest figures from 2018 showing 181.2 million oz being transformed into new investment-grade silver that year.
Despite this comparatively low figure for bullion, there are now 29 million more ounces being bought by investors than the market can supply – so who’s putting silver’s annual figures into deficit?
Well in the two years prior to the 2008 financial crisis, demand for silver bullion was only 6% of annual supply. Immediately that the crisis began, investors rushed to buy silver and gold due to their safe-haven properties against dollar risk. By 2010 physical silver bullion demand was up 166% and by 2011 demand was up 238%.
Silver investment funds and exchange depositories currently hold just over 920,000 million ounces of silver.
Where once central banks were selling their silver holdings and adding them to annual supply figures – this completely stopped in 2014. China’s demand for silver has increased 475% in 15 years and India’s 650% in 10.
Silver is being bought for the same reasons as gold: we are now in what can only be described as a high-risk period with over-valued stock markets overdue their next crash, geopolitical turmoil and a rapidly shifting allegiance away from the dollar as our global trade currency
Where the super-rich are moving into physical gold, ordinary Americans are becoming “silver stackers”, setting aside any spare cash each month to grow an inventory of silver for when the inevitable crisis breaks.
Since the crash of 2008, private investors have stacked over 1,500,000,000oz of silver bullion, holding it in storage as a risk mitigator.
For some the plan is to capitalize on silver’s gains in the crash, while for others – the “prepper” community – these silver holdings are to be utilized as real money in the event of a dollar devaluation, state-wide social unrest – or much worse.
But putting aside talk of stock-market and dollar crashes, silver is just a smart investment. It’s historical use as a store of value continues and with it’s average 26% annual price rises over the past 100 years and it’s current undervaluation against gold – it’s an investment with a lot of potential.
This is why millions of Americans are adding a percentage of silver and gold in their retirement accounts or diversifying their stocks and other investments with physical precious metals.
Silver is a reliable, dependable investment. It just so happens it could also save you in a crunch.
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What are the Advantages of Silver in an IRA
An IRA is like any investment in that you want it to increase in value over time. What’s different about an IRA is that it’s a tax-advantaged way of buying specific investments, where these tax savings are gifted to us by our federal government as a way of helping reduce the costs of retirement planning.
The whole purpose of an IRA is that it’s there to help provide for you in your retirement.
If you don’t want to end up penniless at 70, working long into your senior years or depending on your children and grandchildren, then creating an effective retirement plan is not something to be taken lightly.
This is why the crash of 07-08 hit IRAs and 401k plans so badly – especially for people close to retirement age at the time. When the financial crisis struck, it wiped 50% from the value of millions of retirement accounts almost overnight.
Carefully thought out plans for a carefree retirement were decimated and standards of living had to be scaled back drastically. It doesn’t matter that 6 or 7 years later the markets were back on track – for those now in retirement who’d been so badly affected the damage was done and their life had taken on a very different quality to the one they’d hoped for.
At the same time as the crisis was destroying hopes and dreams for many, silver and gold were soaring to record highs. Investors desperate to sell their rapidly falling stocks and shares were rushing for safe-haven investments – gold and silver both saw an immense rise, during the crisis and in the years immediately after.
Although gold is the metal usually cited as being the big performer in times of crisis, silver was the star of the show. From a 2008 low to 2011 high gold saw a 166% gain – while silver gave an incredible 448% profit.
For those retirees who’d been advised of gold and silver’s benefits as a hedge before the crash and who’d added physical bullion to their IRAs – these price rises helped compensate for any stock losses their account had seen meaning those retirees were looking at broadly the same levels of money in retirement as they’d planned for. Gold and silver had performed the precise task they had been added to help achieve.
As with any investment portfolio it pays to have diversification and some form of a hedge. By not having all your eggs in a single basket you increase your chances of growth and reduce your risks. An IRA shouldn’t be any different and because it’s for your senior years it’s all the more important to get it right while you can.
We have a full section looking at Silver IRAs examining the processes required and detailing what can and can’t be added to an IRA. Provided you follow these simple rules or work with an IRA professional, there’s no reason why adding silver inside an IRA should be any more difficult than buying other standard investments and with the right advisor it can be so much easier.
And besides who wouldn’t want to make tax savings when buying silver?
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About Tim Schmidt
Tim Schmidt is an Entrepreneur who has covered retirement investing since 2012. He's also a published author, and his views on investing have been featured in USA Today, Tech Times, The Huffington Post, Nasdaq, and many more.
