The Seven (Potentially) Deadly Sins of Silver Investors

by Adam Jay Doolittle

The Seven Deadly Sins committed by silver investors destroy wealth, leaving investors discouraged and broke. These seven (potencially) deadly sins are: overindulgence, haste, sloth, irrational exuberance, ignorance, pride, and dogmatism. Although the seven sins are committed by beginners more often, experienced investors can commit any of theses sins as well.

1. Overindulgence – many silver investors are carried away by the hype of investing in silver. And these investors go out and buy up too much silver at one time. Remember, regardless of the market outlook, or the future of society, more than 10% of your entire investment portfolio is too much. An ideal portfolio allocation is around 7%–11%. If you are just beginning in silver: start small. Here’s another tip for beginners, it’s a good idea to start in physical silver investments such as coins, and bars, before investing in more leveraged silver investments. Get some real metal holdings to build your foundation of wealth before making other metal investments.

2. Haste – Similar to the last sin, silver investors should pace themselves when making an investment in silver. A prudent investor would spread out her investment into multiple purchases–known as dollar cost averaging. Dollar cost averaging works by averaging out the entire portfolio; for example, if the price of silver is at $13, Joe buys a little. Then next month the price fell to $12, and Joe buys a little more. Joe’s average investment is now only $12.50. Instead of if Joe bought all he could at $13, he’d be at a loss. Pace your investments to use dollar cost averaging to your advantage.

3. Sloth – With this sin, investors are lazy with proper storage. Many silver investors think the original investment is the end. However, the investor now has to properly store her investment, or risk losing. It’s your silver, so keep it that way. Keep the bulk of your investment in a safe place; this includes a personal safe, a bank safe deposit box, or a public storage facility. Whatever you use, make sure proper storage happens.

4. Irrational Exuberance – The number one rule of investing is “don’t lose money.” As such, large doses of speculation can cause an investor to lose huge sums of money. Speculation is speculation. Not investing. But depending on your goals and tolerance for risk, very moderate levels of speculation can increase the return on investments for your portfolio. If you do decide speculation is right for you, then options and futures contracts are excellent speculation tools.

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June 29, 2010

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