Ten Rules for Silver Investing
Source: David Morgan, silver-investor.com (1/6/10)
These rules are found in "The Global-Investor Book of Investing Rules," which includes tactics, strategies and insights relied on by 150 of the world's most respected financial experts. They are revealed in a concise, digestible form. In order to be a successful silver investor it is imperative that you stay current with what is happening in the market and with the most current investment strategies.
1. When all else fails, there is silver.
No one likes to be a prophet of doom, but the simple truth is that silver is the world’s money of last resort. Should a severe economic collapse occur, leaving paper assets worthless, silver will be primary currency for purchase of goods and services. (Gold will be a store of major wealth, but will be priced too high for day-to-day use.) Thus, every investor should own some physical silver-and store a portion of it where it’s accessible in an emergency.
2. Start small- keep it simple.
Too many investors, upon deciding to beef up the metals portion of their portfolio, buy too much physical silver at once-and in the wrong forms. Beginning metals investors should concentrate on pure bullion bars or coins, in smaller sizes, looking to pay a minimum premium over the actual metal value. Avoid commemorative coins, decorative items, jewelry and other collectibles, all of which carry large premiums and have limited resale markets.
3. Boost the buying power of your dollars with mining shares.
If you are a typical investor, you cannot expect to be an expert on silver and the silver market- but you can invest in the people who are. Once you have established a core holding of physical silver, leverage both your knowledge and your buying power by purchasing the stocks of mining companies. These shares are highly responsive to changes in silver prices, frequently producing much higher percentage returns than the metal itself.
4. Dollar – cost average to lower your costs – and increase your discipline.
Dollar-cost averaging is an ideal way to implement Rule 2. By making same-dollar purchases at regular time intervals, you wind up buying more metal when prices are low and less when they are high. This approach helps you develop discipline, erasing the “trader’ mentality that infects many market participants and instead fostering an “investment” philosophy. Dollar-cost averaging also eases some of the sting when prices move against you, allowing you to view the downturn as an improved buying opportunity rather than a disappointing loss.
5. Do not get a raw deal from your dealer.
Because of the specialized nature of the physical metals markets, selection of a well established dealer with a quality reputation is essential. A good dealer will provide timely executation of your trades at fair prices with reasonable fees. Note, as well, that the lowest price is not necessarily the best price. In the past, some dealers who squeezed their price margins too low in order to attract clients were unable to make delivery, leaving those clients holding the bag.
6. What’s yours is yours – so keep it that way.
While it is wise to keep some of your silver where you can get to it easily, it is also important to keep the bulk of your metal in a safe place- especially as you holdings increase. However, if you establish an account with a brokerage warehouse or other public storage facility, you should make sure your holdings are kept segregated and that you can inspect them when you wish.
7. Silver speculation’s like cough syrup- good in small doses, but too much can make your portfolio sick.
Depending on your individual goals and our personal tolerance for risk, a small portion of the assets you commit to silver can be used for speculation, perhaps in futures contracts or options on futures. Never forget, however, that this type of trading is speculation, NOT investment.
8. A little information can mean a lot more dollars.
You do not need to be a student of the silver market to profit from your metals investments. However, you will greatly increase your chances of success-and the size of your potential profits-if you understand the fundamental factors that drive silver prices and pay regular attention to current supply and demand considerations.
9. Collecting silver is an art- but not really an investment.
Owning fine silver items- including rare coins – can provide great enjoyment and personal satisfaction. Like paintings and other artworks, they are beautiful and often quite valuable-and, if you are astute at buying and selling, they can generate large profits. In spite of this, however, always view such holdings as collectibles, NOT as investments. When you need your silver-or simply want to cash in- you do not want to have difficulty selling or be forced to forfeit a large aesthetic premium, both of which are likely with silver rarities.
10. More than 10 percent is too much of a good thing.
No matter how good the market looks-or how worried you are about the future of civilized society-you must always remember that silver should make up only a small portion of a well-diversified portfolio. I recommend committing no more than 10 percent of the average portfolio to silver-regardless of how strong you feel about the potential of the metals markets.
As printed in The Book of Investing Rules pages 301-303
Note: Under the current economic conditions, I feel 20-25% is more appropriate, than the original 10 percent per the book global-investor book of investing rules pages 301-303. At the time the book was published the economic conditions were more stable but now that the world is in a war environment the higher allocation is necessary!