Silver Fever! – How to Buy the Shiny Stuff

This is a guest post from Tom & Nick Karadza, two agents in Toronto, who have built a  very profitable real estate brokerage from scratch. This article was originally written for their real estate investing clients. I’ve asked their permission to include it for you because silver is one way you can protect yourself from inflation, which I’ve written about previously. You can find out more about Tom & Nick at: http://www.rockstarinnercircle.com/ Take it away Tom & Nick:

Real estate investors are a passionate bunch.  And if you’re interested in cash flow and property it also means you have a general interest in wealth and the protection of it.

Gold and silver play a role in our own personal portfolios and lately we’re getting asked about the shiny metals almost daily … that’s what a ten year bull run does we assume ;)

Our interest in gold and silver changed in 2008 during the financial mess.

It went from, “Uh, why would anyone in the world care up those funny rocks.” to “Wait a second, we better figure out their role in history … and let’s make this quick.”

Nothing like a financial collapse to shake things up.

Now, first thing’s first.  We’re not here to tell you that you MUST buy gold and silver.  Getting into that debate does not interest us.  Too many debates on the topic end up like messy mud wrestling matches … they start out great but get ugly – fast.  Make up your own mind.

We believe in creating cash flow and preserving our wealth and have decided for ourselves that gold and silver will play a role for us … for now.

We feel that today’s monetary system almost guarantees that gold and silver will end in a bubble just like other asset classes have – so if you dare go down this path educate yourself.  This is not like investing for cash flow … this is for the big boys and girls.

For starters, if you haven’t already, we highly recommend Mike Maloney’s book, “The Guide to Buying Gold & Silver” as mandatory reading before you make your first move.  It’s a quick read and 100% worth it.  After that you can dig up great books on the Wiemar Republic, the events in Yugoslavia in the early 1990′s, and you can even Google George Washington and the saying around his time, “not worth a continental”, to get a taste of the history of money.

And for a great funny modern day comedic overview of today’s financial policy you won’t want to miss this video “the Ben Bernank” … it’s hilarious.

Back to reality…

If you want some current information from a decent source you’ll want to click here and read this.  The source of the article is known to have a bias against the U.S. Federal Reserve but he’s not a tin foil hat wearing gold bug either.

How Do You Buy Silver?

So, if you make the decision that you’d like to acquire some gold and silver for yourself how exactly do you buy the stuff?

I mean, it’s a physical rock after all right?

For today’s discussion we’re going to stick with Silver but the same process applies to gold almost exactly.

The options are endless, from junk silver, to your Grandma’s old silver serving trays, to certificates and collectibles.  You can find silver everywhere.  I’m pretty sure my Aunt in Europe still has a silver tooth.  Nah, it must be something else.  Regardless, how funny is that?

Anyway, back on topic…

Here are the three options that will fit with most people’s agendas:

Exchange Traded Funds

The biggest one is the Silver ETF SLV.  You can easily buy and sell this using almost any broker and/or any online discount brokerage account.

The nice thing about SLV is that it seems to track the price of silver quite nicely.  So if you’re looking to “trade” and jump in and out of silver this may be for you.  As the demand has increased for silver over the past few years the volatility will only increase making silver ripe for traders who love to jump in and out to make a quick buck.

And the volatility of silver will likely only increase if demand increases like it has been.  Just look at the last four weeks alone … there have been some major swings.

The downside?  If you actually want to know that you own the physical stuff this may not be for you.  If you’re looking to create a basket of silver that is part of your family legacy for many years then you may want to research SLV more deeply.  There are some concerns that it’s not actually fully backed by silver and it uses unallocated silver that sits in the vaults of various large financial institutions.

Statements in the SLV SEC filings like this get many of the Silver bugs up in arms…

“The iShares are intended to constitute a simple and cost-effective means of making an investment similar to an investment in silver.”

Full disclosure … I still own some SLV myself but will likely be moving out of it very shortly.

Physical Silver Trusts

Here in Canada we’re fortunate to have direct access to one of the very few physical silver trusts available.  Eric Sprott has created the Sprott Physical Silver Trust that has physical silver holdings that are fully allocated and stored in the Royal Canadian Mint’s vaults.

Not too shabby.

You can buy and sell this Trust via your online brokerage accounts quite easily.  There are management fees that go along with it but you’ll pay 3% to 4% to buy physical silver from a dealer locally anyway so it’s not insane to charge that.

We highly recommend this one and own it ourselves.  The Royal Canadian Mint is not a financial institution, it’s a Crown Corp and doesn’t lend out its silver like financial institutions are known to do.  They even allow you to redeem for the real stuff.  If anyone walked up to us and said they wanted to own silver but didn’t want to have to deal with handling and storing it themselves then this is the route we’d recommend.

Physical Silver Bullion

OK, get out the tin foil hats, dig the holes in your backyard and let’s get down and dirty.

Just the talk of owning physical silver in polite company can get you stares of insanity.

But hey, if you’re not upsetting some of the people all of the time you’re likely not doing anything worthwhile … or something like that … right?

Full disclosure … we own the physical stuff too.  I occasionally carry around a 1 ounce coin in my pocket to the huge amusement of everyone around me, especially my kids.

Insane?  Likely.  🙂

Just  a quick Google search for silver bullion dealers in your city will turn up a few.  Here’s the thing, some of these places are down right shady.  They talk fast and getting the details of what you’re buying is often difficult.

Here’s what we would recommend to those who don’t want the absolute very best deal but want to know what they’re getting is the real deal:

1. Stick to the dealers listed as “authorized dealers” of the Royal Canadian Mint.  If you’re a beginner at this it’s likely the best place to start.  Then, after you learn the ropes of buying physical silver you can venture out into the wild wild world of local dealers.  Click here for the list.

2. These guys will explain stuff to you but won’t always take the time to give you all the details you’re looking for.  With demand really high right now this is their time to make money so the last thing they’re interested in doing is educating a newbie.  Here’s what we think you should know.  1 ounce Silver Bars and 1 ounce Silver Maples are the way to go if you’re starting out.  If you’re looking to buy a lot them you’ll want to move up to 20 ounce and 100 ounce bars … if you can find them.

3. The dealers will charge anywhere from $2 to $5 over the spot price of Silver (in Canadian dollars) … that’s how they make money.  One nice way to check out the latest prices is to visit Scotia Mocatta’s eStore … click here for that.  That site is what the dealer’s themselves use to track prices …  how’s that for a nice tip?  And you’ll notice that 1 ounce bars are sold out … we’ve never seen that before … make your own conclusions.   The Bank of Nova Scotia has a gold and silver desk on King Street in Toronto where you can walk up and buy physical gold and silver.  There was a line up at the place during a little run up last fall.  You may want to go check it out if you’re in the area … it’s one of the only banks that lets the public walk up and buy gold and silver off the street.  All other banks make you fill out mountains of paperwork and often charge transportation and storage fees … it can be difficult to deal with them.  In our opinion, the authorized dealers are the way to go.

Where to keep the stuff?  A safety deposit box perhaps?  Or maybe a secret spot in a stone wall in Europe?  Reminds me of the scene in the movie, Shawshank Redemption, when Tim Robbins leaves a stash of cash for Morgan Freeman in that wall in the middle of nowhere.  Or, wear it around your neck … we know a few people who do that.  Awesome.  Get creative.

So there you have it … three ways to buy, sell, trade or hold silver.

Remember, do your homework first.  Chasing a crowd isn’t a strategy, it’s foolish and could lead you right off a cliff.

Over the next 12 months you’ll be hearing a lot more about silver …. both from the fans of it and from the haters … for those of you who are investing in it, hold on, it’s gonna be a bumpy ride, but it *should* be a good one!

Until next time, here’s to your life on your terms!

In the States, you can buy Silver Eagle coins at most coin dealers, or online from several websites. More than likely, you’ll have to pay $2.00 to $3.00 more per coin to the coin dealer for their fee. Or you can buy physical silver online at various websites including the US Mint at http://www.usmint.gov/mint_programs/?action=american_eagles.

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