So what is the best strategy to purchase silver?
Silver Buying Strategies: A Guide
Once you’ve made the decision to invest or hedge with silver, the next step is figuring out your best strategy for buying silver. Because every one's economic situation is different, I will not attempt to give you a one size fits all approach to buying silver, but rather show you some different options to help you find the one that works for you.
Most of these strategies work for both physical silver and paper silver.
In this article:
- Lump Sum Buy and Hold
- Dollar Cost Averaging (DCA, long term)
- Combination Lump Sum and DCA
- Flipping Silver for Quick Profits
- My Personal Silver Purchasing Strategy
Lump Sum Buy and Hold -
This strategy works well for someone who has a large sum of cash and has been exploring a variety of places to invest it. I have heard of people getting a lump sum through various means, including proceeds from the sale of a large-ticket item like a house or vehicle, an inheritance, cashing out a retirement account or 401k, or the old fashioned way, simple long term savings.
The person who employed this strategy likely wants to build a massive position in silver quickly, and has decided that the current spot price is reasonable, with a reasonable expectation of going up in the near to long term. This person must also be confident enough in their research that they can stomach an immediate drop in the price of silver, eroding the value of their stack by thousands and tens of thousands of dollars (remember, you only lose money when you sell).
This is best suited for someone who believes a large scale collapse is imminent, or that they missed the boat when it comes to silver, and it’s time to play catchup.
Dollar Cost Averaging -
This strategy is part of a general investing strategy in which the investor puts in an equal amount each buy, usually once or twice a month. This allows you to smooth out the highs and lows, hence the term “averaging,” and gives you a consistent accumulation plan.
With physical silver, it is almost impossible to spend the exact same amount each month, whereas with mutual funds you can do this. I would recommend instead using a modified DCA strategy whereby you buy the same amount of physical silver
Combination Lump Sum and DCA -
This strategy is a hybrid of the lump sum purchase and the dollar cost averaging (DCA) strategies. It is best suited to someone who cannot quite pull the trigger on a 1,000 ounce bar, but wants to build a decent position right away. The solution is a compromise.
In our hypothetical 1,000 ounce bar dilemma, our buyer would decide to buy 500 ounces, known as a Monster Box if he is buying silver coins, and buy the remaining 500 ounces monthly, 50 ounces per month. Ideally he would set the same date, such as the last business day of the month.
Flipping Silver for Quick Profit -
Another way to buy silver is to purchase a large quantity with the hopes of taking advantage of the metal’s volatility by quickly flipping it for a profit. The easiest way to do this is by trading paper silver futures contracts on the COMEX market.
Silver is known for its swings, and if you have a large enough position, at least $10,000, you could take advantage of small upward movements in the price and make regular, modest profits. Be mindful of the bid and ask spread, which basically means the second you purchase, you are in the hole until the price can climb above the bid, which is your profit territory.
Another trading option is a Silver Pool Account, like those offered by Kitco.
My Personal Silver Purchasing Strategy -
First off, I want to say that I personally feel that silver should be purchased for the long term. I have a target sell price in my head, but I don’t see it getting there soon. It may never get there, in which case I will pass my silver stack on to my children and instruct them to do the same.
The silver market is just too volatile to be hoping on moonshots with the price.
Second, I want to say that I don’t think anyone should be purchasing silver with money that is meant for necessities.
Third, I generally trust the advice that one should have a diverse portfolio, and not more than 20% of their assets in precious metals.
Disclaimers aside, here’s how I buy silver. I have decided to dollar cost average my purchases, so each paycheck I buy a small amount of silver, the same amount each time. I also scrape together extra cash left over at the end of the month, or by selling items of Craigslist, and save that amount until it can buy me an amount of silver equal to 50% of my stack. If I like the price at that time, I buy more. Then, start the saving over, while maintaining the regular DCA buys.
You should also have a Dip Fund that can side untouched until silver hits a crazy low number. For example, if silver hits $10 an ounce for some crazy reason, you better be sure I’ll have an envelope of cash to take advantage.
Your personal silver buying strategy should be based largely on your economic situation (age, savings, debt, income), as well as your economic outlook (pessimistic, doomsday?). Whether you go all-in and pull the trigger with a lump sum purchase, or dollar cost average your purchases, you are well on your way to diversifying and building an insurance policy that is recognized in nearly every country on earth.
The bottom line is: you must set a silver purchasing strategy that makes sense for you, and stick to it, even when things get volatile. Those who win stick to their plan.
- Current Melt Value Of Coins - How Much Is Your Coin Worth?
Coinflation measures the current metal or melt value of U.S. circulating coinage, pre-1965 silver coins, and gold coins. Coin values are updated daily.
C E Clark from North Texas on September 08, 2012:
With so many people investing in silver these days, this article has a lot of good information. Very useful and informative. Up, useful, and will share with my followers!
marriedwithdebt (author) from Illinois on January 04, 2012:
Hey Eyeballkid. The recent drop in POS has me encouraged, because I can get even more for the money. This is because I'm in long-term.
I haven't been comfortable enough or done the research on the miners to jump in there yet. I'm focusing most of my discretionary money towards paying off my student loans (will be debt free except house in 7 months).
At that point I will look into expanding my portfolio, maybe fund a Roth IRA. I just don't know. I'm scared of the global currency markets and think there are a few more ticking time bomb bubbles out there.
Thanks for reading
Theeyeballkid on January 04, 2012:
Great hub MWD, I like your strategy. I try to set aside a fixed amount each month to accumulate silver. That said if it goes below $25 I will be going in much bigger. Silver is undervalued I believe in comparison to gold, but because it is still a relatively small market is prone to take downs (often the big drops happen on Sunday night when the Asian markets open)
How do you like the miners?, some of the Junior producers are looking dirt cheap at the moment. I worry about the outlook for the market, but its tempting to start building a position in the miners that are ramping up production.
marriedwithdebt (author) from Illinois on October 17, 2011:
Thanks for looking and for your input!
Gracie L Sprouse from Virginia on October 17, 2011:
Very well written and organized. Good information that's easily understood.