Silver Bullion: Diversify Your Portfolio
If you are trying to avoid a situation where you suffer a complete loss after a market crash, it’s always a good idea to diversify your portfolio. This is standard investment advice. It doesn’t take a genius to figure this out. After all, the whole idea behind diversification is that if certain parts of your portfolio crashes in value, others would either rise or hold their value. As a result, you don’t suffer a complete loss. Fairly straight forward. With that said, there are diversification options that make more sense than others. It’s possible to diversify your portfolio with real estate artwork, collectible items, you name it. However, when it comes to actually cashing out and actually benefiting from your diversification strategy, some options are better than others. Consider silver bullion. Silver bullion is a silver based asset, and it carries the investment benefits of precious metals. Here are some reasons why you should consider this shiny piece of metal for your portfolio diversification needs.
Silver’s Classic Appeal
Silver is not an overnight asset. It just didn’t appreciate in value in recent years. It’s not like Google, Yahoo or Facebook. In fact, the investment value of silver and silver bullion and other silver-related investments have been with us for several hundred years. Take China, for example, China would export porcelain silk, spices and other export goods. In return, the Chinese demanded silver. They did this because, they didn’t really need the manufactured products of the rest of the world. Outside of raw materials, they didn’t really have a need for imported goods. They made money of their exports by insisting on the one thing that they would know would have a global value and that is silver. Take Latin America, for example, the Spanish conquistadors stripped the silver from Mexico and other parts of Latin America and shipped it all to Spain. There wasn’t much gold found in Latin America as much as silver bullion. It is this silver bullion that made Spain a world power in the 1500s. Again, it’s all about zeroing in on value. Silver is a universal appeal extended for several hundred years. In fact, in Roman times, silver was being used. Why is silver and silver bullion in such high demand? First of all, it’s not gold. Gold is rarer than silver. As a result, silver and silver investments like silver bullion are more accessible. It is easier to save up to buy a silver bullion than it is to buy a gold bullion or gold coins. Since it’s more accessible, there is a higher demand for it. On the downside of silver is that it is less rare than gold. There are more of it. So, it kind of evens out. It’s more accessible but there’s more supply. So silver’s value increases but not so much that it exceeds gold. Moreover, there is a heavy industrial use for silver. Primary use of silver is for dental fillings and electronics that this establishes a base level of demand. Even if we assume that silver will crash in value over the years, there is still a base level of demand that it can’t fall under because it has industrial uses. Finally, besides being a store of value, silver is used for jewelry. As mentioned above, silver is more accessible than gold, as a result, there are more people using silver jewelry than gold jewelry. This adds to its popular appeal. Regardless of where you go, chances are, silver is viewed as a store of value and as an attractive asset. It’s this classic appeal that helps make silver bullion a great diversification option for your portfolio if you are worried about inflation or market crashes.
Silver as an Inflation Hedge
As briefly discussed above, silver can be used to protect against inflation. Make no mistake about it, if you work hard to earn your money, and you put all that money in a bank, you are going to lose money, seriously. Even if you don’t touch your money, you don’t make any withdrawals overtime, the value of your money in the bank will crash to zero. The culprit? Inflation. Inflation is the silent enemy of money. Inflation really is when there is so much cash printed out by governments that the overabundance of money decreases spending power. If there is so much cash and people use this cash to buy limited goods, the price of limited goods will go up. This should not be a surprise. It’s the law of supply and demand. When there is high demand, low supply prices go up. Demand increases when there is cheap money. Cheap money is created when governments stamp blank pieces of paper with the right magical incantation to give that paper value. Of course, the magical incantations we’re talking about is called government guarantees. In the United States, you only need to look at the phrase “legal tender.” If you see that on a piece of paper, it means the US government would say that this piece of paper has value, and we will back it up. Of course, they don’t say that they will back it up with gold or anything tangible. They will back it up with more paper. Be that as it may, people believe US dollars, European Euros, Japanese Yen, you name it, have value because the governments backing up those currencies say those pieces of paper have value. The more these pieces of paper flood the economy, the higher inflation becomes. On the other hand, there is only a fixed number of silver in the world. It can only be extracted from the earth at a certain rate. As a result, when there is too much inflation and there’s all these money flooding the system, the price of precious metals like gold, silver, platinum, palladium, you name it, shoot up. As a result, people who hold silver preserve the value of their money instead of you putting your money in the bank where inflation will destroy it. If you invest your hard-earned money in stocks, commodities or silver bullion, you protect yourself from inflation because when inflation goes up and the price of everything goes up, the price of precious metals goes up as well. This is much better than keeping your money in cash form because when the price of everything goes up, the price of your money doesn’t go up, it actually goes down. The value of your money in terms of its purchasing money goes down. This is why silver bullion, real estate, precious metals and others are great inflation hedges.
Silver as a Stock Market Crash Hedge
The subheading for this discussion might seem alarmist. It may seem very scary, but the reality is that stock market crashes happen. They are bound to happen. Whenever the equities market increases, eventually the increases stop and there’s a correction. This happens periodically. The most famous stock market crash of course is the great market crash of 1929. We recently had a nasty stock market crash in 2008. There have many crashes in between. It happens. It’s not a matter of if it will happen but how severe it will be. Whether you are trying to protect yourself from market corrections or from the Big One, you need to diversify your portfolio. Investing in silver bullion is a great strategy to protect against stock market crashes or major corrections. When the stock market crashes, the value of your stock obviously crashes with the Dow Jones index. However, if part of your asset is invested in silver bullion, the price of precious metals goes up. This is very predictable. Why? When people are exiting the stock market and driving the prices down, they are entering traditional refuges and safe havens for market crashes. They are either going into certain types of bonds, or they are going into precious metals like gold bullion, silver bullion, platinum and others. This is why silver is a great stock market crash hedge. Even if you don’t think there would be a stock market crash, devoting a certain percentage of your portfolio to silver bullion acts as some sort of insurance policy just in case something unexpected happens to the market.
Figuring Out the Right Percentage
If you are thinking of diversifying your portfolio by investing in silver bullion, one key consideration to think about is figuring out the right percentage. Keep in mind that if you are going to be diversifying into precious metals, you should not put all your money in the same kind of metal. In other words, you have to diversify your precious metal diversification strategy. It’s a good idea to diversify in precious metals, but that doesn’t necessarily mean that you have to park everything in gold bullion or silver bullion or platinum or palladium. Instead, figure out the right percentage in the precious metal component of your investment portfolio for the different types of metal. Figure out the share of silver. One key part of your analysis for determining silver share should focus on silver’s classic problem. Silver unlike other precious metals suffers from a very interesting problem. Its price cannot go up so high that it pushes people from all over the world to turn in their silver spoons, silver coins, silver watches, silver jewelry. This happened in the past when certain speculators try to corner the silver market. Silver spiked up so high that it pushed this huge tsunami of hoarded silver to flood the market. As a result, the price crashed. You have to keep this in mind, silver as mentioned above is more accessible than gold. There’s a lot more silver than there is gold. So, figure out the right percentage to invest in silver bullion. This is crucial because you have to diversify your diversification components in your portfolio.
Benefit from the reliability of “harder” assets
Gold, platinum, palladium and other precious metals are hard assets. They are termed hard assets because they are actually stores of value. In other words, if the stock market crashes and society goes down a hole, you can be assured that if you’re trying to unload your hard assets, you will have a buyer. This is primarily due to the fact that there is an industrial use for these assets. Even if you take away their traditional investment appeal, industries will still use them. You are assured that there is some sort of baseline demand. Factoring in these metals use as jewelry, then you can see why the price of gold bullion and silver bullion may crash but not crash all the way through. There is always a support mechanism for the prices of hard assets. On the other hand, stocks are soft assets because they are very vulnerable to the general fortune of the economy. In fact, it is not uncommon for some stocks to hit zero. If hey become bankrupt or they hit a legal wall, the price of stocks can hit zero and your stock would be worthless shares, not so with precious metals. They are hard assets, because even if they crash as an investment vehicle, they still have industrial demand and jewelry usage that sets a cushion for how hard they can crash.
Timing your silver bullion sales
If you are diversifying into silver bullion or bullion units of other precious metals, diversification is just the first stage of the game. You have to also figure out when to load up and unload. If you have your timing right, you can make quite a bit of money and maximize the value of your portfolio. If, however, you choose to remain passive and just buy up silver bullion and then cash it out after many years in the future, then you should be okay as well. However, if you truly want to maximize the value of your portfolio, you can use the same strategies many big time investors use. They use precious metals as a way of not just protecting themselves from market crashes but also to make money when the market crashes. It’s fairly straight forward. If you’ve diversified a decent part of your portfolio in precious metals and the market crashes, you don’t sell your stocks, you don’t sell the equities part of your portfolio. Instead, you sell your precious metals. This is a good move because when the markets crash, the price of precious metals go up. When there’s economic uncertainty, the price of gold bullion, and silver bullion go up. Once you are happy with the amount of appreciations of the precious metals you’re holding, sell and then scoop up blue-chip stocks and other formerly high-value reliable stocks after a crash. Wait for the reliable bounce up in the market. Usually when the market crashes, it crashes hard, and it bounces up and it crashes again. It goes through these gyrations for some time until there is a recovery. You can make money of this gyrations. You just ride the stocks going up, sell, put into precious metals, wait for everything to go down again, sell the precious metals, buy more silver bullion, repeat until the pattern no longer holds. There is a point where the gyrations become tighter or closely spaced that it’s not worth doing. Still, with precious metal investments like silver bullion, you can actually make money of market crashes while protecting yourself against inflation. If you are a very proactive investor, this is a great strategy. However, if you are a passive investor, you can just let your precious metals ride out the recession along with your stocks and then cash out several years in the future.
Make no mistake about it, silver bullion is a solid investment. It not only protects you against inflation, it also protects you against economic uncertainties and market corrections. With that said, you have to be very clear regarding your overall investment strategy. You have to remember to diversify but also diversify your diversification options. Don’t bet everything on silver bullion. The best approach to precious metals investment is to invest in a basket of different precious metals. This way, you can protect yourself from fluctuations in the valuation of different types of metals.