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Is silver better than gold as a retirement investment?

January 27, 2016

By Richard Barrington | MoneyRates.com Senior Financial Analyst, CFA

Gold, silver metals

Q: With gold getting so beat up, do you think silver is a good investment for retirement savings?

A: Though they don't always perform the same way, gold and silver have similar problems as retirement investments. That does not necessarily mean you should rule them out entirely, but if you invest in them you should view them only as a small part of a very broadly-diversified portfolio.

Both gold and silver prices peaked around 2011, and since have been in a long descent. That may not be such a bad thing - buying on the way down is certainly better than buying at the peak. Still, the bear market in these metals that lasted for several years illustrates some of the problem with these kind of commodities.

Problems with investing in commodities

There may be certain issues with investing in commodities like gold, including:

Irregular income

Investing in commodities, whether it be metals like gold and silver, foods like grains or energy sources like oil, is very different from investing in savings accounts, bonds or stocks. They produce no regular income like savings accounts, bonds and dividend stocks, nor do they produce regular earnings like stocks to form a basis for future prices. They simply represent an asset that can be bought or sold. Depending on whether or not the price goes up, you will either profit, break even or lose money.

Volatility in value

This makes them highly speculative, and thus subject to large swings in value. Between their volatility and lack of income production, they are often not very suitable for retirement investment portfolios in which the owner needs to count on redeeming value from the assets at regular intervals.

May be hard to predict in market

Again, commodities in general tend to by highly speculative, but metals like gold or silver may be especially prone to speculation, because unlike grains or oil, they are not completely consumed when used. Metals, especially in the form of jewelry, can largely be recycled, so supply and demand is less subject to normal market dynamics.

Commodities as an inflation hedge

A popular reason for investing in commodities is as a hedge against inflation. However, keep in mind that at any given time, inflation might be driven by a particular part of the commodities market. Thus, an investment in silver or any other particular commodity may not mirror the general move in inflation. This is why, if you want to invest in commodities as an inflation hedge, it is advisable to do so via a well-diversified basket of commodities. Even so, if inflation turns out to be driven by wage pressure rather than commodities prices, your inflation hedge might not work out.

Unless you have some particular knowledge of the gold and silver markets, there seems no particular reason to favor silver over gold. Both are already well into a sustained price slump, but given the history of these commodities, those slumps can last a long time. To be fair, the low inflation environment has not favored investments that are often viewed as inflation hedges. However, keep in mind that there is no guarantee that they will respond as expected if inflation heats up.

Comment: Do you invest in metals like gold and silver? Do you feel like it's enough for retirement income?

More from MoneyRates.com:

Which investments perform best against inflation?

Is gold safer than CDs and money market accounts?

Should I buy silver for my portfolio?

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