Guest Post: How to Budget to Buy Silver

People can be overwhelmed when purchasing silver (or gold). Here are some ways to go about it to maximize your ounces and minimize your dollars. This is also a good back-to-basics for anybody who hasn’t been able to add to their stack in a while…

How to Budget to Buy More Silver

By Josh Wilson

Many of today’s investors have learned the importance of including alternative assets in their portfolios. The reason is basic: Not all asset classes move in lockstep, as some zig while others zag. Owning alternative assets – precious metals, real estate, commodities, etc. – is a time-tested way to diversify your risk against a crash in stocks or bonds. Silver can be an important addition to an investment portfolio, because it has unique characteristics and is much more affordable than the other precious metals.

Invest Wisely

To stay ahead of inflation and build wealth, you have to put some of your savings at risk. Safe investments pay very little, but there are good ways to invest in risky assets such that you have some control over risk. Usually this involves diversification and asset allocation. Diversification means holding a wide array of assets and asset types so that you aren’t putting all your eggs in one basket. Thus, instead of buying one or two stocks, you would buy into a fund of stocks, so that you won’t be hurt if any one stock suddenly goes punk.

Asset allocation involves deciding which asset classes to own and how much savings to put into each class. As we mentioned earlier, you benefit from having a wide variety of assets that move independently of each other. That way, a bear market in one might coincide with a bull market in another. Many investment advisors recommend you allocate at least 20 percent of your money to alternative assets.

Save to Invest

Any investment plan ultimately relies on cash, which is why it’s optimal to begin saving early in life, although it’s really never too late to start. After you accumulate enough cash for a rainy-day fund, it’s time to start putting additional savings to work. The last thing you want is to let your money loaf in a bank savings account where the interest is often low. Even a high-rated CD is probably paying only about 1 percent.

The Joy of Silver

Silver is a popular alternative asset, because its price is often decoupled from stock and bond prices. If you look at historical charts of all three, you’ll see that their prices often rise and fall separately from each other, thereby lowering the overall volatility of your investment portfolio. Unlike gold, which has been trading recently above $1,300 an ounce, silver sells for about $17/ounce. That means you can afford to buy silver in multi-ounce lots and therefore get a good price. The problem with gold is that it costs more per ounce when you buy it in fractional amounts.

For example, recently, a 1-ounce American Eagle gold coin was selling for $1,336, while the 1/10-ounce version cost $143. If you bought 10 of the smaller coins, you’d be paying $1,430, or $94 more than the price of the larger coin, to get the same 1 ounce of gold.

For that same $143, you could buy seven American Eagle silver coins at about $19 each and still have money left over. It’s plain to see that, for modest amounts, its more efficient to buy silver.

To increase the efficiency of purchasing silver, consider opening a self-directed precious metals IRA. The precious metals dealer acts as custodian for this account, in which you can contribute money from your savings, take a tax deduction on the contributions, and buy precious metal bullion – coins and bars – for the long term. You don’t pay any taxes on the money in your IRA until you withdraw it. Currently, you can contribute $5,500 a year to your IRA ($6.500 if you’re 50 or older), which is a good start to your savings program.

Dollar Cost Averaging

Timing a market is risky. Dollar cost averaging is a way to apply your savings over time to reduce timing risk. It’s really quite simple – budget a fixed amount of your income each month to savings and then use the money to buy silver. By spreading your purchases over 12 months, you average your cost without having to worry about timing. On months when the price of silver is low, you’ll be able to buy more. The reverse is true when prices are high. The net effect is to accumulate more silver at low prices and less silver at higher prices. Thus, your average cost tends to be less than the average price.

Do It Now

There is no time like the present to increase your savings. You can usually find a few ways to spend less on current expenses and divert the money into savings. Over time, this can add up to a nice nest egg. Include alternative assets like silver in your savings program to help lower risks, and consider using an IRA to invest your savings.