Silver is often overlooked in the conversation about precious metals. Don’t make that mistake yourself. It’s an undervalued investment opportunity that can do a lot to protect your portfolio and grow during times of crisis. Take a look at the reasons investors choose silver over gold, and why you should too.
#1 Silver Upside
While gold is the first thing bullion investors are drawn toward, there’s a compelling argument to be made that you should split your asset allocation with silver, or even go all-in with the cheaper metal. Gold prices were certainly in a rut for the past few years, carrying along around $1,300 and then $1,400, but those prices were elevated compared to the much-undervalued silver. If you want to see bigger gains from your investments, go with the better value.
#2 The Limits of Silver Mining
The mining industry is not a very flexible one. It can’t respond nimbly to price increases, which means that higher demand does not necessarily mean higher supply. It costs millions to find precious metals and then build the infrastructure required to make a mine operational. The markets move too quickly for the mining industry to keep up.
A sudden rise in demand from investors could result in a real shortage of the element, further exacerbating high prices.
#3 Inflation Risks
Inflation is expected to climb to 2.5% in 2020, and while that’s considerably more in control than inflation has been in the past, it’s higher than the pace the U.S. has seen for most of the 21st century so far. As inflation picks up, it’s harder for low-yield investments to keep up. With 10-year U.S. Treasury bond yields dipping to 1.6%, you’re looking at a negative real returns situation.
You need to be holding inflation-proof assets. Some market analysts believe an increase in inflation has a direct relationship with silver prices. It’s an interesting relationship to explore, but one thing is for sure, silver remains a rock-solid inflation hedge.
#4 Portfolio Insurance
You can’t insure your investments, but you can spread out the risk and include assets that have a history of rising prices when stocks crash. Gold and silver are the textbook-case assets that benefit from poor market performance. Precious metals are a buffer against wider the wider losses you can expect during a recession.
The more extreme the downturn, the higher silver prices can go. In 2008, the fear of bankruptcies across the economy pushed silver prices 15% higher. When it looked like economies as big as Italy and Greece could go bankrupt, gold increased 250% and silver hit nearly $50 an ounce. Investors have faith in precious metals when all else begins to fail. Precious metals are your safety net.
#5 Smaller Investments
If you’re sold on precious metals but not sure how whether to go with gold, silver, or both, consider how much you’re investing in total. Investments under $2000 could easily be 100% silver, while investments up to $10,000 could benefit from a 70/30 split. The more money you’re sinking into metals, the more gold makes sense. When you’re buying bullion, make sure you get your silver from a respected online dealer who offers insured shipping. Using online classifieds to find a cheap deal opens you up to counterfeiters and fraudsters. Stick with reputable sources.