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Hi there , honest Money and Warren , thank you again for an awesome show . My question for the week is we've heard a lot of talks about investing in gold . Especially during COVID time , the gold price shot through the roof , but there's little talks about buying silver . Silver is a precious metal and the reason why I'm asking this question is a friend of mine .
He has been stockpiling silver because it's a precious metal . It's used in a lot of things . How come there's no talks about investing in silver ? What are your thoughts of it , and I'd love to hear what recommendations you have . Thank you .
Welcome to Honest Money . We're answering your questions today , and the first one comes from Charles , about silver . And I think it's an interesting question , charles , about silver . And I think it's an interesting question , charles , investing in silver . It's very similar to investing in gold .
So you're buying a commodity , so you're buying something which doesn't generate any rent , doesn't generate any dividends , doesn't generate anything . It just kind of sits there and you might have to pay some money to look after it .
If you buy a lot , you'll have to pay a vault to store it for you safely , and so your logic in buying it will be that you think someone will buy it from you in the future at a higher price than you will have paid for it today .
That sounds very obvious , but there's a huge amount of psychology that goes into this , because people tend to buy those precious metal commodities like gold and silver primarily when they're worried about the future , they're worried about political risk or they're worried about geopolitics , where there's wars and they're worried that the whole system is going to fall over .
So those people that think that the financial system is going to collapse , those kinds of concerns then they'll buy a physical commodity that can be traded when perhaps money can't be used anymore . When money's electronic and the systems go down , at least you've got something you can trade .
The other group of people that will buy a physical commodity will be those that are worried about inflation . So they'll buy it because traditionally gold and silver have been a good hedge against inflation . When inflation is rising , the price of those commodities go up .
So making the call to buy into those now you have to decide what you're worried about or , if you're not worried about anything , what are other people worried about so that you can make some money out of this ?
You know there's no point in buying an asset which sits in , you know , in your basement for the next 10 years and then you sell it one day because you got tired of it and it's just cost you money , taking up space and , you know , taking away from growth that you could have had in other assets . That's called an opportunity cost .
So , as you can probably gather already , I'm one of those that's not a big fan . I think there are people that have made lots of money out of trading gold or trading silver and I think that there will be times when it'll work incredibly well for them .
But there are also long periods of time 5 , 10 , 15-year periods where people could really lose money on a commodity , and when they buy it at a very high price because the world's in a very high state of fear and these people believe that the world's going to get even worse .
And then they buy their commodity and six months or a year later the world's better off , the state of fear reduces and they're sitting with an asset where they're paid 1,000 and it's now worth 500 . And they've got to wait to see if the world's going to get fearful again . And it's a tough way to kind of make a living .
So for me , I think I'm not a big fan of holding either gold or silver . So your question was quite specific why silver as opposed to gold ? The answer , charles , I think is pretty basic it's just cheaper . It's just per ounce or per kilogram . It's simply cheaper . So people find it a bit more affordable .
There are some more industrial uses for silver than there are for gold , and so the market for silver might be a little bit more diverse . I always think if you're going to go for the standard in terms of if you're buying it for safety , then there's a reason why it's called the gold standard . Go for the highest standard . Go for gold .
Go for the highest standard , go for gold . If you're trading and you believe that there's an inflation story or something like that , then maybe you buy silver . And I guess the other option is that you don't buy any of those . You just buy an exchange-traded fund that has gold or has silver as its underlying value . So you don't even need to store the stuff .
You could just buy it as you would any other exchange traded product . So potentially there is an answer there for some people .
When you study , well , when I study the world's wealthiest people around the world and I look at where they allocate their money , some of them and these are families that are sitting on enough wealth to fund four or five generations of the family .
They'll typically have , I don't know , you know four , maybe 10 , or at most , 10% of their assets in a commodity , and that's really pure insurance . They're not trying to make money out of it . They hold it so that if the unforeseen happens , you know the world goes into a major war . You know the aliens attack or something .
Whatever it is like , whatever it is that we can't foresee today . They've got something that's of value that they can , you know , use in pieces to trade for something else that they don't have . So they really store it for really like a real doomsday scenario , which is great when you're worth you know billions of dollars .
But if you like the rest of us not worth that kind of money and you wouldn't mind building your capital to get there , just buy companies . Just buy exchange traded funds or buy a general equity fund where you buy businesses that are going to generate growth , that are going to generate profits and generate dividends .
Reinvest those and let the money grow and don't worry too much about the commodities . Don't worry about what your mate is doing , charles . It's not that exciting , it just makes him feel good . I hope that helps and thanks for your questions .