Investing in Silver: What’s the Worst That Can Happen?

I made these observations in mid-2003. Back then, silver was roughly $5.00 per ounce, and many people thought I was crazy for what I was writing. Since 2003, it has risen all the way up to $49.00 per ounce and come back down to a more reasonable $25 per ounce. Junk bags are still worth their face value, but their cost is now 5x what they used to be, so at the time of this writing, you are only guaranteed a 13% return on your initial investment (October 2013)

That said, I still enjoy the dialogue between Will Rogers and Wiley Post and hope you will, too.  

 One thing hasn’t changed: silver is still a good investment.


If you are a “dyed in the wool” precious metals investor, then you can just go on to the next chapter.  However, if you are still on the fence about making a purchase, then this chapter is for you.


One of my favorite investment stories is about Will Rogers. He used to say that few people have ever lost as much money as he and his pal, Wiley Post, had lost with their investments. As the story goes, Will Rogers was eating breakfast in a hotel dining room one morning when Wiley Post ran downstairs and said he had just talked with his broker on the phone. He told Rogers that this time his broker promised him that they could make it all up on this one oil deal, and they would get they biggest return on their investment ever! Mr. Rogers calmly swallowed his scrambled eggs, slowly looked Wiley in the eye and said, “At this point in my life I am more concerned with the return of my money than the return on my money.”


I believe that there are many people at a similar junction in their life. They are not interested in knocking one out of the park anymore; they just want to come through this downturn with what they have left intact. A money market fund, where many people stow their investment dollars, is a guaranteed way to lose with currency devaluation.  If you read history, you will see that inflation is coming and there is no way to stop it.


So what is a confused investor to do?


What about an investment that is guaranteed by the U.S. Government not to go down more than 32%, yet still has an unlimited upside potential? It has all the upside potential of Enron five years ago, but with a guaranteed floor of 68% of your initial investment. It also has 5000 years of momentum going for it as well.


I am talking about 40% silver junk bags. These bags contain 2000 pre-1965 Kennedy half-dollars that contain 40% silver by weight. They are sometimes called clads because they only have silver on the outside with a non-silver core. A bag of these coins has approximately 295 ounces of silver in each bag. Currently these bags sell for about $1,472—including shipping to your door.


While the buy/sell, or bid/ask, spread is fairly high (about $.74/oz, compared to other silver investments that run from $.28 to $.55 per oz.) there is one advantage.  If the price of silver drops 32%, you can just take your silver clads to your neighborhood bank and turn them in for face value ($1000.00) in Federal Reserve notes (dollars).  There is your guaranteed floor on 40% junk silver bags. That is it; that is as bad as it gets.


On the other hand, if silver doubles in the next few years, you might get a +75% return on your original investment. The higher silver goes, the better the investment looks. What else can offer this little downside with an unlimited upside potential as well as act as a hedge against inflation?


A $10,300 investment will purchase seven bags, weighing roughly 55 pounds each, and totaling almost 400 pounds. While this much bulk (remember there is 60% base metal along for the ride) is hard to store, it is also hard for a thief to carry off while you are not looking. A single bag is a little bigger than a bowling ball. Imagine a thief trying to run down the street with seven bowling balls that weigh 400 pounds!


There are very few investments in the market today in which you can only lose a third of your principal and the chance to double your investment is a very strong and real possibility. Whatever you do, please don’t count out precious metals as a potential investment for your investment portfolio.

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Since 2001, Larry LaBorde has sold gold, silver, platinum and palladium for investment to clients in the U.S. and around the world through his firm, Silver Trading Company LLC. The firm also offers guidance about metals storage options. We love your feedback! Please email Larry with your thoughts about this article or your questions about metals or storage.

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