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The Investopedia defines diversification as a risk management technique that mixes a wide variety of investments within a portfolio. The rationale behind this technique contends that a portfolio of different kinds of investments will, on average, yield higher returns and pose a lower risk than any individual investment found within the portfolio.
Diversification is a model that also applies to physical silver bullion investors, so it is valuable to take a few minutes to consider how this would apply.
There are countless silver products available to the silver investor which, in my opinion, makes diversification a fun exercise. There are four categories within a physical silver portfolio worth considering.
Rounds / Coins / Bars
Have a mixture of legal tender coins, rounds, and bars to diversify in terms of silver bullion forms.
Legal tender coins are coins that have been issued by a specific country that have a currency value, like the American Silver Eagle or Canadian Silver Maple. These coins are guaranteed in terms of purity and quality by their particular country of issue.
Rounds are essentially silver medallions minted by various private mints that have no legal tender status. Examples include the American Buffalo or the Sunshine Mint rounds. These medallions are usually excellent value for money, for they are priced towards the bottom end of the silver bullion market.
Finally, diversify by purchasing bars from reputable refiners, like Johnson Matthey or the Sunshine Mint. These bars (and the rounds or medallions) are generally the cheapest way to own silver in South Africa.
So, having a mixture of the above is something that certainly makes stacking and investing in silver more visually pleasing and enjoyable as you admire the detailed artwork of each bullion type.
Non-numismatic / Semi-numismatic
Serious investors, especially those who purchase high volumes on a consistent basis, often purchase the lowest prices bullion product. This is indeed wise, for the strategy is to purchase the most amount of silver for the least amount of Rands. However, diversify by purchasing a little silver that may be considered semi-numismatic, like the Australian Silver Kookaburra, Chinese Silver Panda, and the Somalian Silver Elephant.
These coins change design yearly and will undoubtedly add an additional dimension to potential future profits. For example, I recently purchased a 2008 Australian Silver Koala for over R1200.00. I paid that because I wanted to own all of the release years since 2007, and that was the fair market related price for the 2008 release. Another example of growth is the 2010 Chinese Silver Panda currently selling for around $80.00 (the release price was just over $20.00 4 years ago)
Series Bullion
Several mints release special bullion coins series over a two or three year period. For example, the Royal Canadian Mint released two bullion coins per year from 2011 to 2013 in a series called the ‘Canadian Wildlife series’. Although these silver bullion coins were priced very close to the Canadian generic Maple silver bullion, the complete six coins in the series currently sells for double the price of six silver Maples (if you are lucky to own the complete set).
The latest releases (1st in the sereis) that I would recommend is the Peragrine Falcon from the Birds of Prey Series by the Royal Canadian Mint (total of 4 coins to be released over 2 years), the Year of the Horse from the Lunar Series by the Royal British Mint, and the ½ oz coin from the Royal Australian Mint called the ‘Great White Shark’, part of the Wildlife Series. If previous releases are anything to go by, diversifying by purchasing these first in the series coins will almost certainly yield excellent returns.
Size Counts
The final diversification technique relates to the weight of the silver bullion variety. Although the majority of investors stick to one ounce coins or bars, it is worth considering both fractional silver bullion (e.g. half, quarter, or tenth troy ounce silver rounds, and even 1 gram bars) and larger bars or coins (e.g. five or ten ounce denominations, and perhaps even 1 kilogram bars and coins).
Although fractional silver almost always carries a higher premium per full ounce, it is extremely practical to own if the time ever comes to use silver for bartering or trade.
Larger bars and coins, on the other hand, have a lower cost per troy ounce, making them the one of the ‘cheapest’ forms of silver bullion purchase.
So, over the coming months. This will ensure exposure to a broader market when the time comes to offload a portion of one’s stack.
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