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You have heard the debate over silver. One side says buy silver as a hedge against inflation and a protection of your assets in the event of a financial crash. The other side says that silver has no real value because it is just a metal that sits around collecting dust – i.e., you cannot use it to buy a loaf of bread. So which side is right? Is it smart to buy silver or not?
Every successful investor knows that the foundation of success is diversification. In other words, you do not put all your investment eggs in one basket. If you do, you are risking losing everything. Diversification reduces risk by putting your money in multiple vehicles that are likely to react differently to market forces.
The question of whether to add silver to your portfolio or not is based partly on the idea of diversification. But not just diversification as a means of protection. Diversification can also be a means of growth as well. That growth potential is why you should buy silver.
Find a Good Ratio
Before explaining how diversification can produce growth, talking about finding a good ratio is appropriate. The ratio of silver to the rest of your investments is a question a lot of inexperienced metal buyers struggle with. The general rule is to base silver on the amount of money you have in bonds and annuities. The ratio is 10 to 1. Every dollar in silver should be offset by $10 in bonds and annuities.
What if you do not have bonds or annuities? What if you only have stock holdings? The 10 to 1 ratio still works, but you will have to find something that makes you comfortable. The thing to understand is that your silver holdings should be a significantly smaller allocation that provides security over quick returns.
Moving on to growth, do not be fooled by the current illusion that investment in silver is short-term only. That thinking is based on the annual cycle gold and silver tend to follow. That cycle dictates that silver peaks in April, falls between May and June, stabilizes in July, and begins to pick up again in December. The cycle has little to do with long-term silver holdings.
Using Silver to Fund Growth
Silver and other precious metals are commonly promoted as a hedge against inflation. That is absolutely true. But that brings us back to the argument that you cannot use silver to buy a loaf of bread. To have any real value, you have to buy silver at a lower price and then sell at a higher price so that you have cash to purchase what you need. Therein lies the secret of using silver to produce growth.
Right now, we are seeing a concerted effort by central banks to devalue currency. Why? Because they are trying to spur positive inflation. Remember that inflation can be both good and bad. It is bad when income does not keep pace; it is good when it encourages economic activity by giving businesses more cash to work with.
There are three reasons central banks devalue currency as a way of producing good inflation. The first is to boost the value of exports. When a nation's currency falls, the cost of its exports to foreign markets also falls, making them more attractive to consumers. This increases demand, which then spurs growth at home.
The second reason is to reduce trade deficits. Increased exports occur alongside decreased imports when currency is devalued. Trade deficits begin to shrink in line with the balance of payments as a result. Once again, this encourages economic growth in the country where currency is being devalued.
Finally, currency is devalued in order to reduce the amount of interest nations pay on the money they borrow. This has less of an effect on stimulating the economy, but it does help some.
The point of all this is to say that if you buy silver at the same time currency is being devalued you are essentially getting in at the low point. The value of silver will only climb as currency goes lower and good inflation takes hold. Bear in mind that this is no short-term strategy. It takes several quarters of persistent currency devaluation to realize growth potential from precious metals like silver.
Selling Your Silver
Assuming you buy silver now to take advantage of currency devaluation, when and how do you sell it? That depends on how long you want to hold on to your investment. One way to look at it is to play silver and gold together. Their growth rates tend to rise and fall inversely.
You could buy silver now and then let it ride to the end of the year. Silver should peak somewhere between December and April of next year, at which point you could sell just enough to cover your profits while leaving the original amount in your portfolio. Take that profit and purchase gold instead. Ride the gold until the difference between the metals peaks, then take the profits from gold and put them back into silver as the difference corrects.
The Best Places to Buy Silver Online
This Year Might Be Different
The point of all the information provided here is to suggest that 2017 might be different compared to what silver has shown us the last couple of years. There are a number of strong signs that indicate silver is not going to sharply decline as it normally does. There is a reason companies like J.P. Morgan are aggressively increasing their silver holdings.
Silver could be on the verge of a big run-up thanks to global currency devaluation, improving European and American economies, and all the optimism displayed since the election of President Trump. There is no guarantee that silver will boom in 2017, but it is not likely to bust either.
Silver should be part of your portfolio because it affords growth opportunities. If you don't have any, there is no better time to buy silver than right now.
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*by andreascy*
