Why is silver a bad investment? Silver is often used as a safe haven during uncertain times, and as an inflation hedge. Silver also has many industrial uses. The metal is a popular investment because it is much cheaper than gold, but is silver a good investment? It certainly can be, and many people hold silver in their portfolio. But here are a few things to beware before investing in silver.
Volatility
Silver tends to be more volatile than gold because it is traded on a smaller market. It also has lower market liquidity and price can be impacted by industry. These forces can cause a lot of churns in the silver market. This might not be a bad thing if you are a trader, but for the long-term investor it could be a problem.
Valuation
The price of silver is driven by supply and demand but also by speculation. Due to its smaller market the price can rise or fall rapidly. It can sometimes be difficult to get a true value for silver.
The price of silver can be driven by fear or optimism. Often, the value overshoots in either direction causing rapid runups and sell offs in the market.
No Income
Silver, like other precious metals, don’t pay any dividends. You are investing either solely on the hopes that your initial investment will appreciate, or you are holding silver as a hedge against inflation. The only way to realize your gains would be to sell the underlying asset.
You could invest in mining companies or an ETF that tracks silver, of course This will give you possible stock appreciation and possibly a dividend. The stock prices and performance will be linked to the silver spot price however, so if silver drops so too does share prices and possibly dividend payouts.
Storage
Unless you have a large secure safe in your home you will most likely have to pay someone to store your physical silver. Some companies will charge up to a half percent of the total value of your holdings annually to store your silver.
There is also an issue where some companies will hold IOU’s instead of physical bullion or coins. If many investors attempt to cash out all at once the storage companies may not have enough silver to pay everyone out. You can see how this would be an issue.
Conclusion
Why is silver a bad investment? I would argue that investing in silver or any commodity has value and can have a place in a well-rounded portfolio. This article was not meant to dissuade you from investing in silver. It is more of a cautionary piece to make you aware and think about the possible drawbacks of investing in silver. Afterall, you don’t want to put down your hard-earned money into an investment before weighing all the pros and cons.
Read Also:
What Determines the Price of Silver Bullion?
Making a Sale: Your Complete Step-by-Step Guide to Selling Your Silver
4 Things To Know Before Investing In Gold
What does trading ‘futures’ mean?
Based in the Pittsburgh, PA area, Brian holds full-time employment as a Warehouse Manager for an electronics firm. Brian enjoys wealth building, investing, gardening and the great outdoors. Brian holds a B.A. in Environmental Studies from the University of Pittsburgh and an MBA from Robert Morris University.
