Investors who want to invest in silver should be aware that this form of investment is also very complex. There are numerous aspects that have to be considered. Anyone who does not find out enough runs the risk of making costly mistakes. So that you can avoid every pitfall when buying and selling silver, we have listed 21 mistakes in silver investment in the article below, along with how to avoid them.
Frauke Deutsch: why you can trust me as an expert on the subject of silver investments
With my company BullionArt I have been active in the market for fine silver sculptures for almost 20 years. Over that time I have acquired extensive expertise and varied experience in trading silver. Accordingly, I know from my own experience exactly what has to be watched when investing in silver.
Mistake 1: doing no research
Anyone who wants to invest their money should research beforehand exactly what they are investing in. This basic rule applies to every kind of investment. Just because silver as an investment appears at first glance to be a far simpler proposition than shares, for example, that by no means implies there are not a great many things to consider.
Interested investors should find out comprehensively about the silver market before buying silver. At the same time it is advisable to gain an overview of the basics of investing itself.
Mistake 2: buying silver at record highs
The silver price is subject to considerable fluctuations. Anyone who enters at the wrong moment risks losing money. At the very least the potential return could turn out noticeably lower. When the silver price races from one record high to the next and everyone is buying silver, wise investors do better to wait.
The ideal moment to invest in silver is when the silver price is comparatively low. Of course it is difficult for private investors to judge when the price will rise or fall. An important indicator of a potentially favourable entry point is the gold-silver ratio. It gives an indication of whether silver may currently be over- or undervalued compared with gold.
Mistake 3: selling at lows
Besides the right moment to enter, the moment of sale is also of decisive importance. Since the point of an investment is the return to be achieved, as an investor you want to sell at the highest possible price. But what if the silver price suddenly slumps?
All too often investors panic when prices fall rapidly and sell at a loss, for fear of losing even more money. Panic selling of this kind is usually not a good idea, however.
A look at the past shows that the silver price has fallen sharply several times and has recovered from it every time over the course of time. Investors with a long-term horizon should therefore be patient during interim lows and wait until the price rises again.
Mistake 4: making emotional decisions
Emotions and investing are not a good combination. It is a big mistake to let feelings guide your own investment decisions. Fear and greed lead to wrong decisions that can become costly.
Anyone who wants to invest in silver should be guided solely by facts. The basis for this should be a well-founded analysis of the market situation and of your own financial position.
Mistake 5: investing only in silver
We at BullionArt are convinced by silver as an investment. Even so, we advise all investors against putting their money exclusively into silver. Anyone who puts their money into a single asset makes themselves dependent on a single market. If the market situation deteriorates, this can result in considerable losses in your own portfolio.
When investing, diversification is everything. Investors should spread themselves as broadly as possible and invest in a wide selection of different assets. Besides precious metals such as silver and gold, shares, bonds, ETFs, property and much more come into consideration here. A diversified portfolio can offset price losses in particular asset classes.
Mistake 6: paying no attention to storage
Another aspect investors have to take into account with an investment in silver is the cost of storing and securing their silver. With larger quantities of silver in particular, it may be necessary to store it in a secure place such as a safe. Alternatives such as external storage with a specialised company can be even more costly.
One advantage of silver art as offered by BullionArt is the fact that figurines in silver need no special storage but can simply be put on display for decorative purposes. Thieves and burglars do not hit on the idea that the sculptures are real silver.
Mistake 7: buying forgeries
Where money is earned, criminal energy is usually not far away. The danger of buying fake silver is quite real. Anyone who wants to invest in silver should therefore make sure in every case to buy from a reputable supplier. Dubious suppliers like to lure customers with surprisingly low prices. Anyone who is not careful can make a costly mistake.
The sculptures by BullionArt, by contrast, are certified silver and genuine limited works of art. Here customers are not buying a pig in a poke.
Mistake 8: ignoring market news
Anyone who wants to invest in silver successfully inevitably has to become familiar with developments on the silver market. Ignoring market news can be a costly mistake. The danger of entering or selling at the wrong moment is many times higher in such a case.
Investors should make an effort to stay up to date on important developments on and around the silver market. This includes trends and developments in the various industrial sectors in which silver is used. These include the chemical industry and the solar industry. If the figures in relevant industrial sectors rise or fall, this can also affect the silver price in the medium term.
Mistake 9: having no exit strategy
With every investment the exit strategy is also of great importance. Anyone who wants to earn money with silver will at some point have to sell it again. But when exactly, and at what price? To answer these questions you need a concrete investment goal and an exit strategy based on it.
Investors may also want to pass their silver on one day. In that case too, a plan set out in advance can matter, for instance in order to avoid excessive inheritance tax.
Note: our sculptures by BullionArt are not purely investment objects, which is why in most cases our customers keep them for life.
Mistake 10: a lack of patience and unrealistic expectations
One of the biggest mistakes investors can make is being impatient. A successful investment usually goes with a long-term horizon. It is certainly possible to achieve returns with short-term speculation on the silver market. For private investors in particular, however, this is a risky undertaking that not infrequently ends in high losses.
It is a mistake to assume that investments made in silver (or other asset classes) will pay off immediately. It often takes years before price developments on the silver market allow worthwhile returns. Patience pays off in most cases.
Mistake 11: ignoring tax aspects
Where profits are made, the state and the tax office are usually not far away. With silver this is no different from shares and other capital investments. With an investment in silver there are several tax aspects that have to be considered.
For one thing, value added tax of 19 per cent is payable when buying silver. Investors should be sure to take this into account, as it also affects a later return.
Capital gains tax is also payable on a profitable sale of silver. In that case the corresponding profits must be taxed at your personal marginal tax rate. Here there is at least an allowance of 1,000 euros per person per year.
Important: capital gains tax only has to be paid by anyone who sells their acquired silver again within 12 months. Anyone who keeps their silver for longer than a year does not have to pay tax on profits arising on a later sale.
Mistake 12: insufficient liquidity
Liquidity is an aspect investors should on no account leave out of consideration. It can always happen that money is needed at short notice, whether for a spontaneous purchase or an emergency. Anyone who then does not have sufficient liquid funds has, in the worst case, to sell part of their investments.
Anyone who wants to invest in physical silver should therefore always have sufficient liquid funds to cover costs arising spontaneously, without having to touch the silver reserves straight away.
Mistake 13: excessive leverage
Using leverage in investing is very risky. Leveraged investment products can bring very high returns when things go well. When things go badly, however, losses are possible that go far beyond the capital employed. The same applies to using borrowed money when investing. The risks are usually hard to calculate, especially for private investors.
In principle it is not advisable for private investors to use financial leverage excessively when investing. That also applies when buying silver. You should invest only as much money as you actually have available – ideally less than that, in order to keep a financial reserve.
Mistake 14: too short an investment horizon
Investing in silver successfully requires a long-term horizon. In the 1990s the silver price stood between 4 and 5 dollars per troy ounce for a long time. In 2024 the silver price is over 30 dollars per troy ounce. Patience pays off.
Mistake 15: ignoring the effects of inflation
Inflation is a constant companion. In recent years consumers have faced a considerable rate of price increases. This has led to a considerable loss of purchasing power. Inflation also has effects on the market for precious metals.
Gold is readily regarded here as the crisis currency and inflation hedge par excellence. Many investors use silver as protection against inflation too. At the same time the matter is more complicated with silver than it may appear at first glance.
Inflation affects not only consumers but the economy as a whole. If central banks raise base rates to combat inflation, this has negative effects on many branches of the economy. That in turn can lead to reduced demand for raw materials. Since silver is used in many industrial fields, this can also have adverse effects on the silver price.
Mistake 16: confusing paper silver with physical silver
Silver is not simply silver. That is to say: not every investment in silver amounts to buying physical silver. Numerous financial products exist on the market that allow investors to invest in silver without owning any silver at home themselves. Examples are funds that track the silver price.
Investment products of this kind can be backed by physical silver. They therefore certainly represent an alternative for investors who do not have the means to store larger quantities of silver themselves. At the same time, such “paper silver” also comes with additional costs. The ongoing fees that funds charge their investors reduce the possible return over the long term.
Mistake 17: lacking knowledge about silver mining shares
Another way investors can invest in silver is through silver mining shares. Companies active in silver mining benefit from rising silver prices, which in turn can have a positive effect on their share prices.
At the same time, silver mining shares also offer a way to use a certain leverage effect. Gains in operating efficiency at mine operators can likewise lead to rising share prices. In this way investors may under certain circumstances achieve higher gains than by buying silver itself.
At the same time, an investment in silver mining shares also carries risks: if the silver price or demand for silver falls, share prices fall too. Beyond that, technical difficulties, environmental regulations or geopolitical instability can have a negative effect on the share price.
Mistake 18: ignoring market manipulation
Like many other markets, the silver market is susceptible to market manipulation. Large players have repeatedly manipulated markets in their favour in the past. For investors this represents an additional risk.
In manipulated markets, price movements can repeatedly occur that investors cannot foresee and equally cannot follow. With short-term speculation in particular this is very dangerous.
To minimise this risk it is therefore advisable to keep up to date with the latest market developments and, as far as possible, to avoid short-term speculation or even buying on credit.
Mistake 19: ignoring interest rate changes
Interest rate changes by a central bank – particularly the US Fed and the European ECB – can have a large influence on the silver price. For one thing, changes in interest rates can affect the value of a currency.
At the same time, interest rates also have effects on the economy itself. While rising rates have a negative influence on economic growth, falling rates can spur growth. Since a large part of the demand for silver comes from industry, economic developments also have a considerable effect on the silver price.
Mistake 20: not understanding silver coins vs. bars
Investors who want to invest in silver mostly face the choice between silver bars and silver coins. The most important difference between these two investment products is the production cost.
Producing silver bars is easier and less cost-intensive than minting silver coins. These higher costs are in turn passed on to customers. With smaller units of silver these additional costs are proportionally higher than with large units. Measured by the additional costs, large silver bars are therefore usually the cheaper investment, even if the price itself is higher because of the large amount of silver used.
Mistake 21: too many short-term trades
Costs always arise when buying and selling silver. Besides transaction costs, these include value added tax. If silver is sold again within 12 months of purchase, any gains must also be taxed. Added to this is the risk that goes with short-term speculation. In short: trading regularly involves costs and risks.
Anyone who wants to invest in silver should see it as a long-term investment rather than short-term speculation. In this way the costs and taxes arising can be minimised and the risks reduced.