The Hottest Trade in the World Right Now

Scott, 

My grandfather bought two 1kg silver bars in 1987 for $701, which was all he could afford from his savings. He’s been hiding them in my parents’ house for 39 years as an investment for my sister and me. I just found out about them, and silver’s gone bananas. Should I cash out now and move the money into stocks for better long-term growth? What’s your take on precious metals versus equities?

Nathan

Hi Nathan,

For all the things Gramps could pull out at the kitchen table (his false choppers, a laminated funeral notice for someone named Trevor, his prostate exam results) … that is a pearler!

Silver is the hottest trade in the world right now:

Until it dropped an alarming 26% this weekend, it had notched up gains of 50% this month … and that’s on top of the 145% it gained last year.

“Traders are OBSESSED with Silver”, shouts a headline from CNBC.

Alright, enough of the shouting. Let’s see what it means for you:

Gramps’ silver bars have increased in value from $701 to around $7,836 over the past 39 years.

That’s a compound return of 6.4% per year.

That’s better than a slap on the rod with a Murray cod (as my grandfather would say).

But don’t forget: you’ll pay CGT on the profit. And silver dealers charge outrageous buy-sell spreads, so you’ll lose a decent chunk to margins.

Now if Gramps had instead invested that $701 into an Aussie shares index fund and ticked “reinvest the dividends”, that $701 would be worth around $20,200 today.

More than double.

Plus, unlike the metal bars, you’d be getting a tax-paid dividend of around $800 a year which you could spend, or reinvest to compound your money.

I know what I’d do!

I’d take Gramps out for a slap-up dinner and thank him for being the best granddad in the world. A lifetime ago he invested his savings into you and kept the faith.

And that’s worth its weight in gold (or silver).