I began investing back in the mid 2000’s. Besides VTSAX, the only other investment I made was silver. Today I want to review how that silver investment turned out. Would I have been better off buying more VTSAX instead of silver? What are the disadvantages of investing in precious metals.
I still have my receipt from California Numismatics (which I don’t think is in business anymore), so I know the EXACT date I purchased. My silver was purchased on April 8th, 2005 and I paid $7.33 an ounce (this includes premiums over spot).
Silver vs VTSAX 2005 to 2022
VTSAX returns 2005-current
I’m going to use VTSAX as my standard, as that is what I would have bought.
Since April, 2005, VTSAX has a CAGR of 9.16%. In dollar terms, it would have turned $10,000 into $45,373; this is counting dividends. You would have had to endure a max drawdown of -50.84% during that time period. The 2008 stock market crash was the cause of that.
The price of VTSAX was $20.32 back then, and today it is $93.73 (These numbers ARE adjusted for dividends). That investment today would be throwing off $689 worth of dividends annually.
To sum up in terms we can use for our comparison, you could say that it’s a total return of:
354% or 20.82% avg annual return
Now, I realize the problem with this test-No one invests once and never invests in the stock market again. Sometimes, you buy low; sometimes you buy high. However, for the points of this simple review, we are just going to assume an initial purchase and not get complicated.
Silver investment returns since 2005
My total purchase price was $7.33 an ounce and silver’s current price is $18.80 an ounce. However, I’m going to use Ebay as the standard for what the price is. That’s closer to the REAL amount I could get for it minus fees. Rounds are currently bringing around $25 on ebay. Minus the fees, you are looking at somewhere around $22 for a silver ounce.
The return on Silver for the last 17 years would then follow:
200% or 11.76% avg annual return
One main disadvantage of buying precious metals is they are taxed at a higher rate. Long-term capital gains are 22% (No, I’m not a tax professional, just repeating what the IRS has 😛). Meanwhile, long-term capital gains on stocks can be less. In my case, the stock investment would have been in my Roth IRA, so we are talking tax-free.
By the time you take off the 22% tax on the silver, you are looking at
156% or 9.18% avg annual return.
That’s about a 56% difference between the two, or 198% greater returns from the stock market than silver. OUCH! Not to mention, something in the neighborhood of 100% of the stock markets return above was from dividends alone.
Other issues with silver and precious metals
- Initially, you lose because you have to pay over spot
- Less liquid than stocks
The issues of taxes and paying above spot are something you can’t escape with precious metals. It puts them at a disadvantage right from the beginning. I think silver isn’t somewhere you go to make a quick buck!
How do I feel about this?
Honestly, I’m okay with it. I see silver as diversification in my personal portfolio. It’s not as isolated from stocks as gold; this is due to all of the industrial demand of silver.
I’ve never enjoyed having too much of my networth in the stock market. If you have read other articles, you know I have money in silver age comic books; I’m still old-fashioned and like bonds as well. I can’t handle 100% equities, it doesn’t help me sleep at night.
Silver is something nice to look at, hold in my hands; it’s tangible. I prefer the appearance of it over gold; hence why I never owned any gold outside of the IAU ETF a few years ago.
I bought my silver with the intention of never selling, a serious buy and hold forever sort of thing.
Is it an inflation hedge? I personally see no evidence for this.
Silver is currently at $18.80. It has not had a good year; it is down 19%. This is during a period of some of the highest inflation numbers we’ve seen in forty years. Gold is down 8%, so it hasn’t performed much better.
I’ll leave on a positive note-Silver has done a good job of preserving my wealth. It didn’t go down in value. It’s long-term kept up with inflation. It’s appreciated in value; however, as with many things, I think timing is everything. I bought it at a very low valuation and I’ve held for almost 20 years.
You’ll have to decide if precious metals are your thing. I’ll always have 2% of my portfolio in precious metals simply for diversification reasons.
Wishing you the best on the INVESTMENT JOURNEY!