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A Beginner’s Guide to Gold and Silver Investing

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If you’re seeking alternative investments and portfolio diversification, you can follow several different strategies. The problem is that many of these options don’t provide much yield. For example, ten-year U.S. Treasury bonds yield less than 2% annually. But with precious metals like gold and silver, you’re likely to do better than bonds.

A lot of people don’t realize that since the beginning of 2000, gold has actually outperformed the S&P 500 (SPY). Back then, gold was trading at less than $300 per ounce. And in 2019, gold had reached $1,500 per ounce! Silver has also done quite well over the years. It’s increased hundreds of percent in value.

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Why should you invest in gold and silver?

Now, there’s no guarantee that gold and silver will continue to increase in value. And it’s always possible that they can lose value. Still, the allure of these precious metals has endured for centuries. Gold and silver have been around for much longer than the stock market. And during the deep stock-market crash of 2008–2009, gold and silver held their value better than the S&P 500.

Precious metals have earned respect as a form of money for more than 5,000 years. You might see people in India and other countries wearing gold a lot in public—and that’s more than just a fashion statement. Traditionally, many cultures store value in gold and silver as an ancient and enduring asset.

Silver is sometimes called “the poor man’s gold.” That’s misleading, as wealthy people invest in silver, too. Moreover, silver has more industrial (real-life) uses than gold. Silver actually tends to outperform gold during bull markets in precious metals. However, silver also tends to fall more sharply during bear markets in metals.

If you don’t mind greater volatility (bigger moves to the upside and downside), silver can be a good addition to a diversified portfolio. On the other hand, perhaps you’d prefer something that moves slower and steadier. In that case, gold might be the better choice for you. Or you can own both gold and silver for even greater diversification.

Don’t expect a money manager at a big bank to recommend buying gold and silver. Chances are they won’t even mention precious metals. They tend to stick to stocks, bonds, mutual funds, and sometimes annuities. Gold and silver aren’t in their “wheelhouse,” so to speak.

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Owning physical gold and silver

So, if you want to own gold and silver, you’ll need to take charge of your own finances. However, owning physical gold and silver isn’t for everyone. There are other ways to profit from precious metals indirectly. (More about that later.) Still, technology has made it somewhat easier to own physical gold and silver.

Back in the old days, you had to get in the car and drive to a precious metals dealer to get gold and silver. Today, you can order it online get it shipped to you. However, I don’t recommend using Amazon (AMZN) or eBay (EBAY) to order precious metals. Instead, I prefer reputable professional dealers. The best dealers offer coins and bars with low shipping costs. Also, they offer prices close to the “spot” price (the price of the metal when it comes out of the ground).

As always, let the buyer beware and read the fine print. You have to research each company and invest carefully. Some physical gold and silver dealers I’ve used successfully are ITMTrading.com, ZanerPreciousMetals.com, Apmex.com, and JMBullion.com.

Remember: for an investor, the idea is to buy gold and silver close to the spot price, not the prettiest bars and coins. It’s fine to own some coins for numismatic (beauty and historical) value. However, your best investment value will come from buying physical metals at a low price. It’s the eventual price appreciation (assuming that happens) that would make your investment worthwhile.

The main hassle with physical precious metals is storing them securely. You probably don’t want to store them in your home if you can help it. Renting an off-site safe deposit box is generally a good idea. However, the cost of this storage will cut into your profits from your gold and silver’s price appreciation. You also might choose to insure your metals. But again, that option will cost money.

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An alternative to owning physical precious metals

If you have a brokerage account that allows you to buy and sell exchange-traded funds or ETFs, you have an alternative way to profit from precious metals. However, precious metal ETFs aren’t exactly as good as owning physical gold and silver. As the old saying goes, “If you don’t hold it, you don’t own it.”

There are ETFs that track (or follow) gold and silver prices. When the precious metals’ price goes up, the price of the ETF is supposed to go up. On the other hand, the price of the ETF is also supposed to follow the price of the metal when it goes down. ETFs usually do a pretty good job of tracking the gold and silver prices, but they’re not perfect.

So, using ETFs means that you won’t capture the price movements of the metals exactly. It also means you won’t experience the comfort and security of having the assets in your physical possession.

The main upside of using ETFs is that you won’t have to pay for shipping, storage, and insurance costs. There’s also the advantage of not having to worry about your metals getting stolen or lost. Plus, you can buy and sell ETFs quickly and easily through many online brokers. Physical gold and silver usually take more time and effort to buy and sell than ETFs.

A popular gold-tracking ETF is SPDR Gold Shares (GLD). Meanwhile, a well-known silver-tracking ETF is the iShares Silver Trust (SLV). Many online brokers will allow you to buy and sell these ETFs when the stock market is open. Just be sure to learn about any commissions and fees associated with buying and selling these ETFs before investing in them.

Are gold and silver worth the hassle?

Ultimately, your individual circumstances will determine whether owning gold and silver is right for you. You can own the physical metals if you prefer being able to hold the assets in your hand. Alternatively, you can trade the ETFs for enhanced speed, convenience, and cost-efficiency. No matter what you decide as an investor, gold and silver are worth investigating for their lasting value and age-old allure.

Want to learn more about personal finance and how to invest your money smarter? Check out
Retirement Investing: Yes, You Can Do It Yourself.

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