Diversifying within one's precious metals portfolio

Hi. I own some junk silver that I keep in a safe deposit box. I also own about $10K each in a Silver ETF (SIL) made up of silver mining companies and a Canadian silver fund that holds actual silver and some gold (CEF). I bought into these funds back in April. So far I have found the return on these investments to be disappointing. What puzzles me is that when silver goes up, the price of these funds doesn't necessarily follow suit and the inverse of this is also true. A good friend holds a lot of junk silver, but advises that one's portfolio should also include other silver-related securities, because the good ones (he emphasizes that there are healthy ones and rip-offs so one must do due diligence in researching) have excellent growth potential and are a sensible complement to holding actual silver (bullion, junk, etc). As a secondary consideration, I have found that junk silver/physical bullion is bulky/takes up a lot of space (I have filled up my large safe deposit box at a local bank. So what about it? How many of you posters/silver bugs believe that it is advisable to diversify one's precious metals portfolio by buying some non-physical investments? If so, what do you believe is a sensible percentage allocation between bullion and non-physical? What silver funds do you own? Thanks for sharing your views.

 

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I think this is the order of the best silver investements

1. physical silver bullion (american silver eagles #1, junk 90% US coins #2)
2. bullion backed silver ETFs such as SLV (1:1 relationship with silver bullion)
3. double long silver futures ETFs such as AGQ (double the gains and double the losses)
4. silver miners

i agree that there are times the miners will outperform the bullion, I dont think this is one of those times.

JMHO

 

I think you need to decide if you're investing...which you say you're doing...or speculating..which you ARE doing.

 

It's important to understand what you own and why. The mining companies haven't done as well as the metal. I've read two reasons for this. One is that a lot of the money that used to go into the miners is going into the GLD and SLV. The other is that the miners typically lag the bullion price but go up more on a percentage basis over the full cycle. CEF is good but as a closed-end fund, the premium or discount fluctuates, and not necessarily in the same direction as the metal. Also, CEF is a PFIC so if you don't have it in a tax deferred fund, you will have to file form 8621 and make a QEF election, otherwise the tax on your gain becomes 100% if you are audited.

That said, I'm a believer in diversifying in the manner you suggest. Just make sure you understand what you buy since these things don't come with instruction manuals.

 

While I may move my inflation protected bonds into PSLV and a basket of mining stocks at some point in the future (right now I am happy where I am at with the current state of affairs, but that is subject to change), I am not counting on actually seeing any of that. I don't like GLD and SLV because they are not representative of how much physical metal there is, and I am uneasy about their longterm stability, but if I could somehow use SLV to get physical (not sure on the exact minimum) in exchange for my 401K then I would use it for that end.

I also will not ever trust a bank safety deposit box, because that's the first place that will get hit if there is a confiscation. Or if there is a bank holiday good luck getting your hands on it.

As such I am as heavy into physical as I can be, and I recommend having the means to protect yourself from thieves to anyone who would go that route.

 

And a third reason is that a lot of mining companies just aren't worth a tinker's cuss. Some companies do make finds, but don't have the means to develop them and end up selling out to one of the "majors" for a song. Other companies with concessions/properties/deposits in sketchy countries run into trouble with local authorities. Other companies make a find and issue more stock to "develop" it, thereby diluting the existing stock. Still other companies just have sorry management.

 

Cloudsweeper99, thanks for sharing your insights and information (particularly about the market dynamics of the two types of funds that I hold). My CEF holdings are in a tax-deferred account, so thankfully I don't have to worry about filing the required paperwork at this time. My reason for holding these two funds are to diversify and not depend solely on my physical bullion to preserve my 'wealth' (I'm not rich by any means; I am just using this word for lack of a more apt term) in the event of a major economic collapse. All told my precious metals (bullion and securities) currently comprise about 18% of my total investment portfolio. I feel pretty good about my asset allocation at this time. I think there is a very fine line between investing and speculating. If I am in fact 'speculating', I hope that I am at least doing so somewhat responsibly (I'm not risking the lion's share of my money on highly volatile investments). Things can obviously change, though. Thanks again for sharing your perspective and experience

 

I also will not ever trust a bank safety deposit box, because that's the first place that will get hit if there is a confiscation. Or if there is a bank holiday good luck getting your hands on it.

Read more: http://www.cointalk.com/t190618/#ixzz1VbnO70Hz

Groan... I didn't even think of that. I had no idea that was a risk. I guess since I have some fear of a major economic collapse, it is naive for me to not have realized it, though. With my current living situation, buying a monster safe for the home is not an option for me. So I don't know where else I can safely store my bullion. Maybe digging a hole in the ground.lol

 

Everything I've read says if you're not in possession of the silver or gold, you're wasting your time and money.