-- Posted 18 May, 2010 | | Discuss This Article - Comments:

Diversification is the most important part to any solid financial plan, and precious metals are no exception.  Silver investors should plan to diversify within their silver holdings to protect their wealth and to allow for opportunities to profit in the future.

Diversification in Silver

The variety of silver products available to investors is unreal.  From junk silver and American Eagles to the generic silver round and bars, silver investors have more choices than any other kind of investor.  However, despite having numerous choices, silver investors often choose to buy only their favorite coin, bar, or round without effectively diversifying their metal portfolio.

Size Diversification

Size is one area where many silver investors fail to diversify.  Rather than owning a few 1 ounce rounds, 10 ounce bars or bags of junk silver, many investors just buy the same kind of silver week after week, year after year. 

Most investors would be better served with at least some size diversification to protect themselves from surging premiums or a shortage of a certain type of silver.  For example, a silver investor who typically buys 1 ounce coins is paying a far higher premium per ounce than an investor who purchases 10 ounce bars. 

The same silver investor could easily drive down his or her cost per ounce by making larger purchases, as well as purchasing small coins.  The same is also true for buyers of large silver pieces; they fail to account for the times when small coins or rounds may be suitable for barter, or when they can make a few dollars in times of crisis premiums.  When fears about Y2K emerged, premiums on small silver coins skyrocketed, while the premiums on bars remained mostly flat.  In that case, an investor could have easily sold or traded his small coinage for larger bars, increasing his net silver holdings.

Purity Diversification

Contrary to popular belief, there is nothing wrong with owning junk silver coins from pre-1964 American mints.  Although these coins are not 99.99% pure, they are 90% silver and rise and fall in value proportionally with silver prices.  For extreme scenarios, these coins also serve as spectacular bartering commodities, having satisfied the need for smaller denominations and weights for small transactions.  Since many investors tend to look over silver that is not 99% pure, bags of junk coins sell at a discount to other products with the same weight, making them a great bargain for an investor.

Be Careful with Numismatics

Although the American Eagle silver coins are not numismatics, and they actually sell for a price close to the current silver spot price, they do have collectable value.  If you've ever shopped for bullion, you've found that these coins are often the highest price, but offer little extra value to investors.  For this reason, try to avoid coins in which collectors are a large part of the purchasing volume.  Collectors are largely disinterested in total weight and instead want attractive pieces that fit into a collection.  Other silver rounds, such as presidential rounds or Olympic rounds, also have similar collector appeal, so avoid them if your number one goal is to obtain the most silver for your dollar.  There are probably better deals to be found in the same place.

Dr. Jeffrey Lewis

www.silver-coin-investor.com