Ten Rules for Investing in Silver

Pure silver and gold are global standards of wealth.

Pure silver and gold are global standards of wealth.

At one time, silver and gold were the standard on which all U.S. currency was based. Today, commodities, including silver, are more highly valued and desirable than ever. Silver isn't a magic investment, but there are some reasons why some investors find it to be a worthwhile part of a balanced portfolio.

Silver as Safety Net

Silver will always be worth something. At one time, it was the substance used to back, and even make, all currency. Because of its inherent value, it (like gold) is treated by many investors and buyers as a security blanket against potential economic disaster. It is this fear of catastrophe that causes many investors to hold at least some silver in their portfolios.

Build Slowly

Buy silver commodities when they are at periodic lows to save money and to maximize your investment dollar. Buy small and build your holdings over time to avoid losing too much should the market drop. As you learn the market, you may become more comfortable with the ups and downs of silver commodities and opt for larger purchases or holdings. If you plan to buy silver in weight rather than commodities, stick to bullion, bars and coins of pure silver. Avoid antique or other high-priced items, and remember that your silver is valued as a raw material and not an heirloom.

Maintain Discipline

Have a firm amount in mind that you wish to invest, and do not go over that amount. Create a buying schedule and stick to it. By spending only as much as you set out to, at the times you planned to, you prevent overbuying and overpaying. When the price falls, your smaller investments will make the hit more bearable as well. Do not plan your investment by how much silver you expect to buy; plan it by how much money you have to invest.

Don't Overdo It

Set a maximum percentage of your portfolio that will be dedicated to silver holdings. Financial advisers understand the volatility of silver commodities and recommend that independent investors dedicate only 5 percent or so of their portfolio to it, in order to avoid serious risk of loss. While silver will always be worth something, it is not worth tying your entire financial future to, since it takes time to bring a profit and it can tie up money that would do better invested elsewhere. Until then, it should only be part of your total investment. Consult with a financial advisor to help figure out how much is right for your investment needs.

Hold Your Investment

Small amounts of silver can be held in your own safe or home, but when your holdings grow to a substantial size it is key to find a proper facility for storage. Your silver should be immediately accessible at all times without exception. Your silver should be stored on its own and should never be mixed with the property of other investors. Keeping things orderly and open prevents loss through mishandling or theft.

Do the Research

Research the history of silver prices, why they rose and when they fell. Knowing how and why silver fluctuates can make you a much smarter and more successful investor by helping you to anticipate the market swings to come. If the circumstances dictate that the demand for silver is about to fall, you will be able to unload some or all of your holdings beforehand and avoid a loss. If demand is about to rise, you can invest more heavily and profit on the swing. Keep an eye on the day-to-day market and the global events that may affect silver.

Mining

When buying silver, mix in some stock in silver mines as well. If there is a mine that produces well and is forecast to do well into the future, purchasing shares in that mine can be a great way to make a quick and substantial return to offset the longer term of your silver investment. When silver rises in value, so will the mining shares, which can then be unloaded for easy profit while you hang on to the silver itself. The amount of shares you purchase should be determined by the rise and fall of the stock and the amount of risk you are comfortable with. Most investors and mutual funds blend in between 10 and 20 percent mining stock into a precious-metals portfolio.

Shop Around

If you plan to invest in real silver rather than commodities, look for a silver dealer whose prices and fees are within reason and who can actually supply all of the silver as promised without delay or shorts. Some dealers promise the world and never deliver, while others charge rates that make the investment impractical. Find a happy medium with a reliable dealer who doesn't make more off the investment than you will.

Collectibles

If you are drawn to collectible pieces or enjoy owning a piece of history, you may purchase rare coins or fine silver over time. Keep in mind that these items are not to be treated in the same way as bulk silver. They should never be sold on the open market, and should instead be marketed to collectors and other parties who will appreciate its artistic value and be willing to pay accordingly.

Problems

When a large quantity of silver hits the market at one time, the price tends to drop precipitously because of the lack of buyers and traders. That's because silver and other precious metals are long-term investments, rather than "shorts" bought to make quick cash.

About the Author

Robert Morello has an extensive travel, marketing and business background. He graduated with a Bachelor of Arts from Columbia University in 2002 and has worked in travel as a guide, corporate senior marketing and product manager and travel consultant/expert. Morello is a professional writer and adjunct professor of travel and tourism.

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