Thursday, July 21, 2011

Q&A With The Doc: Can You Give Specific Advice on Silver for Small Investors?

Lisa writes:
I am a single, working mom who has studied history and can see very well which way the wind is blowing. I don't have much "capital" but this week I made my first metals purchase of 30 oz of silver. I know this is smaller than small time, but I'm curious what specific advice you'd give to very small time investors like me. My thinking is that if the price stays under $50, I should buy one or two ounces at a time when I have the spare cash (I don't want to take any more out of my savings, such as they are), let's say adding an ounce or two every month?
On the other hand, if the price skyrockets in the fall, it may already be too late for me.
Also, do you think there would be any additional value in investing in a small amount of gold (1/4 ounce or less) at this time? I would very much appreciate your thoughts - as well your patience with a small potatoes neophyte.
p.s. I do understand that any advice you give is just that and that my investing decisions are my responsibility.

Great questions.
First of all, no need to apologize for being a small investor!  The little man is who needs the safety and protection of gold and silver the most!

Personally, if I were in your shoes, I would invest all that you can into silver right now, leaving only ~2-3 months worth of expenses in your bank account.
Try to change your mindset to think of gold and silver as your "savings", rather than your savings account which holds rapidly devaluing paper. Think of your traditional savings account as your short term "expense account". 
I personally never hold more than 2-3 weeks worth of expenses in my bank account if that tells you anything.
By purchasing a greater amount now (rather than 1-2 ounces every month), you will achieve a better bulk price for your silver, as well as only pay a single shipping charge (if you're purchasing through an online dealer).  Expect to pay a higher premium (price over spot) if buying silver in only 1-2 oz lots at a time.

If you don't have extra cash in that account that you can convert to silver now, then yes, your plan of purchasing every month is great. This is known as dollar cost averaging, and helps you average out your price entry by buying every month, whether price is up or down. This also takes alot of the emotions out of purchasing silver, and always fretting over whether you should buy now or wait for a coming dip.
That being said though, currently silver is still available at a pretty decent discount (~20% from recent highs near $50), and I expect silver to move MUCH higher over the next 12-24 months.

Yes, I would also recommend some gold holdings if you currently have none...even if 1/4 oz is all that you can afford.

A tip for purchasing small amounts of silver at a time:
Watch ebay late at night and early in the morning for auctions of small lots of 90% face pre-1964 US coins "junk silver". is a good source for the value of each 90% silver coin, and frequently a good deal can be found on ebay.
One other tip...if you frequent garage sales, always keep a sharp eye out for old silverware that is sterling silver (solid, not plated).  My own wife has found around 10 ounces of silver in the past month at local garage sales and paid a total of about $5! (I wrote about this in How to Purchase Silver for 92 Cents/Oz)

For a single working mom with limited capital, I would also recommend attempting to cut non discretionary expenses as much as possible (we don't have cable in our own house and rarely eat out), helping you be able to acquire as much silver and gold as possible with your income. 
I also recommend storing at least 3 months of food and water (things that you can use anyways if a collapse does not happen). 
As a single parent, your family will be depending on you alone to provide for them if/when a hyperinflation/dollar collapse does in fact materialize. Best to prepare as much as possible for the coming of hyperinflation- which will cause severe disruptions in distribution supplies across our country, resulting in severe shortages of goods and food even for those who have a solid currency such as gold or silver with which to purchase items.

Hope this helps Lisa, and good luck!