How Much Silver Should Be in Your Portfolio?

Aside from diversifying your portfolio, silver does have a lot of opportunities

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Jun 03, 2018
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No portfolio today should be missing silver. With recent silver trading staying stubbornly sideways, there are real signs that investors expect something big to shift in the silver market. But the real reason to include gold and silver in your portfolio has less to do with price changes around the corner than it has to do with gold and silver’s long-term performance and value retention.

Buying Gold and Silver

Before you start investing in gold and silver, think about your investment goals. An effective portfolio should balance risk and growth in a way that matches your income, age, and financial goals. Are you investing for the next 10 years in order to afford a mortgage or are you putting away money now for a retirement that’s 30 years down the road?

The conventional wisdom is that the younger you are and the smaller your savings, the more aggressive you should be. You have more time to recover and you have a greater need to grow. That means investing in stocks, which offer high growth potential but high risks. As much as you might be pushed into investing entirely in equities, consider balancing out those risks with gold and silver. At a younger age, you may only want 5% of your total portfolio in gold and silver.

As you get older and your savings grow, you should be looking into wealth preservation. A recession, financial crisis, or a stock market crash can damage your savings if you’re over-invested in risky stocks and funds. That’s also when gold and silver prices tend to push higher. Rising gold and silver prices will help your portfolio recover – and give you more capital to invest when equities are undervalued at the end of the crash. At this point, you may want to look at increasing you silver and gold to 10 to 20 percent of your portfolio.

Silver vs Gold

Once you’ve decided on investing in gold and silver you have to decide how you’re going to break it down between the two precious metals. The ratio depends on several personal factors, including how risky or conservative you are and the size of your investment. Here’s a potential breakdown:

Under $2000 – Smaller investments could be as much as 100% silver. With gold prices around $1,300 an ounce, you could run into the problem of physical limitations. Keep in mind that when you buy gold and silver, you often get a discount on premiums or shipping for buying larger quantities. Buying a coin that has a fraction of an ounce of gold will be more expensive than a 1 oz. gold coin.

Up to $10,000 – This depends on your goals. If you’re growth-driven, you may want 70% silver and 30% gold. That’s because silver has a higher growth ceiling than gold. It also makes sense if you’re investing for the long-term, as you have a greater chance of seeing a silver bull market.

For a balanced approach, take a 50-50 split.

If wealth preservation is your main goal, 70% gold and 30% silver will protect your assets while still giving you room to grow.

Up to $100,000 – At this point, storage becomes an issue with silver investments. There are storage facilities available for gold and silver coins and bars, but to keep volumes down, a balanced or conservative approach that’s 50-70% gold makes more sense.

Silver Is Under-Priced

Silver is conventionally known as the more volatile of the two metals. During bear markets for precious metals, silver is typically under-priced compared to gold. You can tell by comparing the silver-gold ratio. Today, the silver-gold ratio is around 80 (meaning 80 ounces of silver equal the dollar cost of 1 ounce of gold). Over the last 45 years, the silver-gold ratio has stood between 30 and 70 nearly 70% of the time.

Silver prices are known to follow gold prices up and down but exceed gold’s growth and decline both ways. Rising gold prices will be outpaced by rising silver prices and vice versa. That’s what makes silver a riskier precious metal but one with higher rewards. Silver moves for many of the same reasons as gold, including inflation, stock market corrections, and investor fears.

Silver and gold belong in every balanced portfolio. There’s no magic percentage of silver and gold you should include. Adjust your position in silver and gold according to your goals, your age, and the size of your savings.

Disclosure: Author does not have any stake in the listed equities.