The prices of gold have been rising, thus, prompting many investors to allocate a greater portion of their earnings to gold investments. Investors have been choosing between gold exchange-traded funds (ETFs), gold bullion, mutual funds, and sovereign gold bonds (SGBs) depending on their financial goals. However, investors inclined toward portfolio diversification may want to put their money in commodities beyond gold. For investors such as these, does investing in silver help?
Viral Bhatt, Founder, MoneyMantra said, “Yes, investing in silver can help investors diversify their portfolios. Silver is a precious metal that has been used as a form of currency and investment for centuries. It is also a valuable industrial metal, with applications in a wide range of industries, including electronics, solar power, and jewellery.”
Silver is hailed as gold’s poor cousin that can charm equally, albeit more with its white sheen than with its price increase. However, there is a catch. Silver’s price movement has nothing to do with market volatility. This means that irrespective of which direction the market sways, a gradual price rise in silver benefits investors, especially, those eyeing long-term earnings by investing in this metal.
Bhatt adds, “Silver has a number of characteristics that make it a good investment for diversification. First, silver is a non-correlated asset, meaning that its price movements are not closely related to the price movements of stocks or bonds. This means that investing in silver can help to reduce the overall risk of a portfolio. Second, silver is a relatively illiquid asset, meaning that it is not as easy to buy or sell as stocks or bonds. This can make it a good investment for investors who are looking to protect their wealth from market volatility.”
Dev Ashish, a SEBI-Registered Investment Advisor and Founder (Stable Investor) views silver investments differently. This financial planner has his eyes fixed on gold investments than silver. Ashish shared, “Given how gold is a true hedge against uncertainties compared to silver, the major allocation should be to gold and not silver. The reason is that gold is much better insulated during economic slowdowns as silver is also used in industries and is linked to the economic cycle. Let’s say if a 10 per cent allocation is to be made to precious metals, then between 7-10 per cent can be to gold and a smaller 0-3 per cent to silver. And if an investor has a comparatively small portfolio, then it’s better to focus on getting the basics right on the allocation of equity-debt instead of trivial ones like whether to invest some amount in silver or not.”
Does putting money in silver ETFs help?
Amidst all the chaos surrounding the silence regarding debt silence in the US and India slowly gearing up its manufacturing sector, should one look forward to investing in silver through ETFs? This question is more pertinent now as Mirae Asset Mutual Fund launched the Mirae Asset Silver ETF new fund offer on May 29, 2023. The fund offer available till June 06, 2023, has prompted investors to inquire if this is the right time and way to invest in silver.
Rishabh Parakh, Chief Play Officer, NRP Capitals explained, “Retail Investors should majorly focus on four major asset classes:
- Fixed Income - from PPF, EPF, NPS, FDs
- Equity - Mutual Funds & Own Business
- Real Estate - own residence, shop/factory
- Commodity - Gold
Exposure to silver is not required. Long-term returns for silver are not that great and silver as an investment needs to be timed.”
Are NFOs worth considering?
Investors are unsure if they must put some money regularly in the recently launched Mirae Asset Silver ETF fund offer or wait to see its performance. Suresh Sadagopan, MD & Principal Officer, Ladder7 Wealth Planners advises, “Gold is a better investment asset than silver. Silver also tends to move along with gold, but has a higher beta. Also, silver has industrial uses. At this point when there is a potential slowdown globally, Silver as an asset class can hence get impacted. Hence, one could consider gold investment first before moving to invest in silver.”
Tanvi Goyal, Founder, Wealth Aware has a more elaborate take on the same. Goyal elucidated, “I recommend investors to create their major portfolio based on asset allocation. As per the asset allocation strategy, investors have to earmark a percentage to one asset class. For instance, if an investor decides to keep 60 per cent in equity, 20 per cent in debt, and the remaining 20 per cent in precious metals (of course after understanding their risk profile), then when the price of any asset is down, they can add more to the basket."
"As per this strategy, the investors need not fear the downturn in the price of an asset over the long term. As far as silver is concerned, it will always be attractive to Indian investors, and investing in a silver ETF mutual fund on a regular basis can help investors to keep their portfolios hedged against inflationary pressures. Many fund houses have launched silver ETFs in the past two years. Investors can choose to invest in any of them after analyzing the expense ratios and tracking errors, which should be on the lower side,” added Goyal.
Every kind of investment comes with its sets of benefits and disadvantages. Putting money in silver has its pros and cons depending on how one looks at it. Bhatt explains, “Overall, investing in silver can be a good way to diversify a portfolio and reduce risk. However, it is important to understand the risks involved before investing.”
Investing money is not an easy task considering its myriad nuances that most people are unaware of. One way can be to assess all your financial goals, risk appetite, and your view on finances before deciding when, where, and how to invest. Another way out can be to seek professional advice who would help you sort out your finances and investments with equal zeal.