Three Lessons I Learned From Starting to Invest in Silver

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Three Lessons I Learned From Starting to Invest in SilverInvesting in silver is an exciting and rewarding area with which to get involved. This last year alone, silver is up more than seventy-five percent. It would be a mistake to think that investing in silver is necessarily easy and nothing but nonstop one directional gains.

The truth is that silver like all investments has its ups and downs all the while it is moving in a general uptrend. There are three lessons that I learned when I started investing in silver that can benefit you and save you a painful and steep learning curve. You will read about these in the subsequent paragraphs.

Lesson Number One – Be Careful with Leverage

Leverage is the ability to multiply the purchasing power of your money when you actually buy an investment. With precious metals, you are capable of leveraging anywhere from two to one to twenty-five to one your investment dollars, depending on the investment vehicle that you utilize. Now, this may have you wide eyed with wild excitement at the thought of how much money that you can make if you can buy ten thousand dollars of silver with only a thousand dollars of your own money.

The problem with this amount of leverage is that silver does not move up in a straight line. If you buy it and then it pulls back on a significant correction, then you can suffer such terrible losses that you are forced out of your positions at a crushing loss. Consider my example before you jump all over the leverage train with silver.

I had a margin account that I set up with Monex Depository. They permitted me to buy one bar of silver in cash and to leverage three more bars with margin. So long as silver held level, this was not a problem. The dilemma arose when silver dropped five dollars per ounce on a severe pullback. This represented an over twenty percent correction.

Because the value of my additional three leveraged bars of silver was down so steeply, I was forced to sell one of the bars at a terrible loss. Later this same year, silver took off, and it is about to finish the year up over seventy-five percent higher. My remaining three bars are up nicely, but I still got badly burned in a year when silver posted a phenomenal return.

This happened to me with only four to one leverage in silver. If you had owned silver at a higher leverage of ten to one or even greater, then you likely would have been forced out of the entire investment at a total loss of your original investment dollars. This is why you have to be so careful with leverage, especially higher amounts of leverage. Only small moves become exaggerated by the power of leverage. This can make you a tremendous amount of money when silver prices directly move your way, and it can also cost you dearly if they move against you over the short term.

Lesson Number Two – Be Patient

Another critical lesson that I learned in my silver investing is that you have to be patient when you pursue this type of investment. Silver does not always make dramatic moves in your favor. Just because you have bought it on a pullback does not mean that it will take right back off. The truth is that sometimes nothing meaningful happens in the silver price for even weeks at a time.

Other times, you will buy into the gray metal and then the price will seem to immediately begin going down. You can quickly be under water with this investment and that can not cause you to panic. When you are holding a negative position with your new silver investment, you will just have to be patient and wait for the price of silver to come back. Depending on how far down the price goes after you buy it, this could require months or even a year’s worth of time before the price moves back to the level at which you purchased it.

This is why investing in silver is not for the panicky or the faint of heart. If you are a person who bites your nails with every tick that an investment makes against you, then you should be very careful with investing in silver in the first place. Silver proves to be the most volatile of all precious metals. This stems from the small amount of silver that is actually available to be traded on the investment markets.

When you are going to invest in silver for the medium to long term time frame, then you will certainly have to be patient. If you can not stand being in the red for even a few weeks or months, then you should look into some other less volatile investment. At the very least, you should only buy as much silver as you have cash for, so that you will not watch your losses become multiplied by the double edged sword of leverage. There is no sense in losing sleep at night over an investment.

Lesson Number Three – Conquer Your Greed

When you are making investments in silver, you will also need to learn how to conquer your greed. This is certainly a case of easier to say than to do. Greed, like many of the human vices, is both powerful and ingrained deep into our beings.

You may be wondering what greed has to do with making an investment in silver. Greed is the one factor that stops you and everyone else from cashing out on an investment position once it is in profits. This can seem to have a positive result, especially if the investment continues to go your way. Unfortunately, if the investment goes from profitable to a losing position, then it is a terrible consequence. This happens to investors all of the time.

The lesson to take away from the vice of greed is that if your silver investment is in profits, then you should not end up with a losing position in it later. While you wait for it to go up even more, silver may instead begin a correction that wipes out all of your hard won gains and takes you months to get back into profits. The old saying that there is no such a thing as a bad profit is especially true with silver investments. Fight to overcome your own personal greed.

One way that you can do this is to set a reasonable goal at which point you will sell your silver investment. You would do this before you buy the silver. It might be that you say when silver is up ten or fifteen percent from your entry point that you will agree to sell your position and take your profits. There is no reason that you might not re-enter silver again later when the price pulls back and corrects temporarily.

Just because you take a profit now does not mean that you will never become involved with silver again at some other point in the future. It just means that you will lock in your gains and have something to show for your time and trouble.

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