Source: Bloomberg
The WallStreetBets-driven mania could prove a risk for the precious metal, which advisers say otherwise deserves to be in your portfolio.
By Charlie Wells and Katharine Gemmell
First it was Bitcoin. Then came GameStop. This week there’s another booming asset to wrap your head around: silver.
Like all else that’s buzzing in the investing world the past few weeks, silver’s turn in the spotlight can be traced to the now-infamous WallStreetBets Reddit group. It didn’t matter to traders that an investment thesis discussed in the forum is linked to decades-old conspiracy theories that have been debunked. Prices for spot silver jumped 12% on Monday to more than $30 an ounce, the highest since 2013.
The surge shows just how much cachet WallStreetBets has gained in just a few weeks, as its members piled into stocks such as GameStop and attracted the attention of billionaire Elon Musk and crypto magnate Justin Sun. The trading army has also forced hedge funds worth billions of dollars to change their investment strategies, acquiring anti-establishment credentials on the way.
But if you don’t want, or don’t have the time, to keep up with the ever-changing interests of the Reddit crowd, but also don’t want to miss a market opportunity if there is one to be had, what should you do?
We called financial advisers in the U.S. and U.K. to get a sense of whether silver belongs in your portfolio. Here is what they had to say:
The asset does have some silver linings.
This, he says, makes the metal a helpful hedge against low interest rates — or high inflation, which would reduce the value of cash holdings.
And unlike paper dollars, physical silver actually plays an important tactile role in the industrial economy. Silver is a key element in solar panels, electric vehicles, and battery cells.
“If we get an economic reopening that’s bolstered by a green recovery, and governments mandate that we stop internal combustion engines and move to electric vehicles, that is a definite tailwind for industrial-silver usage, which I think justifies its position in a long-term holding, within a well-diversified portfolio,” said Stuart Clark, portfolio manager at Quilter Investors in London.
Other advisers flag silver’s physicality as a drawback. Those who hold the actual metal and want to exchange it would need to find a physical buyer. Storage is a major issue as well, said John Bovard, owner of Incline Wealth Advisors in Cincinnati.
“Do you put it in a safe deposit box? Do you put it in a vault at home?” he asks. Both options could get pricey.
The current mania could be risky.
While advisers see a place for silver in a diversified portfolio, they worry about the sudden, seemingly speculative interest in it.
“Social media has monetized and weaponized people’s attention,” Adam Grealish, director of investing at robo-adviser Betterment LLC, said in an emailed statement. “These networks tend to direct people’s attention into a very narrow frame, which is exactly what we’re seeing with silver and what we’ve been seeing similarly with GameStop, AMC, etc. One of the biggest concerns is newer investors seeing a ‘hot’ stock or commodity, but not fully understanding the ramifications of investing in it.”
One ramification advisers mentioned this week is buying too high. Silver’s price hasn’t reached levels it did this week since 2013. They fear attention could suddenly be drawn elsewhere, pulling down the price of silver and burning retail investors who may not be able to afford the losses.
How do you even buy silver?
Investors who have stashed away enough cash in their safety nets and have otherwise well diversified portfolios have a few options for getting in on silver, advisers say.
The first option is literally buying the metal: bars and coins, either online or in stores. “A lot of people can appreciate the utility of that,” Pepper said. “They literally get the feeling, ‘If you want this, you’re going to have to pry it from my cold, dead fingers.’”
A less-direct option is to buy silver ETFs or mutual funds. BlackRock Inc.’s iShares Silver Trust, the largest exchange-traded product tracking the metal, recorded an unprecedented $944 million net inflow on Friday. The benefit of this route is it allows you flexibility in a volatile market, Bovard said. If silver’s price swings dramatically, you can usually sell ETF shares immediately or place orders to automatically sell if the shares fall to a certain price.
Buying companies involved in the silver trade is another indirect route for retail investors. A firm’s shares can sometimes withstand swings in the value of the asset, particularly if the company is well managed, Bovard said. But the opposite holds true, too: A poorly managed silver-mining firm, for example, could cut into gains from a potential rise in the value of silver.
Finally, investors might consider silver futures contracts. Producers use commodities futures to lock in prices for raw materials.
“In many cases the futures market is larger and more liquid than the market for the underlying asset,” Grealish said.
One quirk, however: At settlement, the standard silver futures contract requires physical delivery of the asset. This ensures the futures price reflects the true price of silver at the contract’s expiration.
But it also means that those who don’t trade contracts quickly enough could end up holding the physical asset, even if they didn’t intend to.
In all, retail investors shouldn’t allocate more than 5-7% of their portfolios to precious metals — including gold, silver and even Bitcoin, Bovard said.