What is Silver and Gold Investing?
So if silver and gold are not about becoming rich, what is silver and gold used for?
Before we get into great detail as to what silver and gold can do for you, let’s look at exactly at the idea of “becoming rich”. People can get philosophical when it comes to defining wealth (health, happiness, love etc), but for the sake of context, we define “wealth” and “becoming rich” as “having more money than you can spend”.
To achieve that, one has to:
- Spend less and/or
- Earn more than you can spend.
One of the ways to earn more is to invest in things that obviously will give you the money in return. This could be in the form of stocks, bonds and real estate. These are essentially instruments that pay you back more money than you spent on them. They are able to generate profitable transactions that you may directly or indirectly be responsible for. In other words, they exist to create or provide an essential product or service which generates more money.
For examples, buying Samsung stocks means you are purchasing equity or simply put a share of the Samsung business. Samsung itself makes money by producing and selling a Samsung product or service that serves a need. If sales are good, you earn a share of the profit. If sales is bad, you’re sharing the loss.
Although it’s possible, the main role of silver and gold is not about making profits and earning more because silver and gold do not continually generate income or create profits. If you take the above scenario of a business, having a share of gold will not generate money from any sale of product or service. Gold itself is the product, much like how a Samsung phone is a product. It won’t make sense for you to expect the Samsung phone to generate money on its own!
So why do people buy gold and silver then?
In the financial world, gold and silver serve as a hedge instrument; a way of protecting oneself against financial loss or other financially adverse circumstances. In other words, silver and gold keep things constantly affordable. Remember the point about spending less? That is how silver and gold helps; you spend fewer dollars and cents with gold and silver because prices of items when measured with silver and gold, remains affordable.
Let’s look at this in simpler terms: Imagine having a gift voucher that allows you to exchange it with anything in a department store at any time regardless of the how much the price might change over the years, with no expiry date. That voucher is a valuable instrument for you to protect yourself against scenarios where you would have to pay more for something because of inflation.
Well, gold and silver generally work along that parallel.
So… what is Inflation?
Jus as they are people who are confused about silver and gold investing, many people also truly do not understand what inflation is, defining it as the rising cost of living.
In reality, inflation describes a very complex scenario where the value of something used as money drops. An example of this scenario would be a diamond ring. Buying it new from the store requires a lot of money. Let’s take it that the price of the diamond ring cost about $2,000. But as soon as the diamond leaves the store the diamond ring will not be able to buy anything that cost $2,000.
Simply put, when something (like money) that used to be valuable loses its value overtime, you end up getting less than what you could before. Hence, you need more of that money to buy you the same thing. Unlike the above scenario though, drop of value doesn’t happen immediately. Instead, it happens gradually over a period of time, thus we grow to readily accept it as the normal.
How does inflation even happen? How did money become less valuable?
In summary, there’s simply too much money chasing after too little products.
You may think that having a lot of money in the world is good. But it really depends on what kind of money we have and who owns that money.
We can go into the explanation of how having more money in the economy causes inflation to happen, but we have actually found a video that explains it in a simple and effective way:
So inflation makes us pay more and more…
What we can buy with a certain amount of money ten years ago is not the same as what we can buy today. An item that cost $50 ten years ago can cost $75 today.
But actually the correct way to think of it is: $50 buys us less today than it could ten years ago.
Remember: The value of the things we need did not rise. It is the value of our money that is falling!
… while we are actually being paid less and less…
Even though the average wage of Singaporeans have increased over the last 10 years, our ability to purchase goods have not been quite the same as before.
Take a look the two infographics (right) from our Instagram account (we would be pleased if you could even follow it!). It will help you understand it better:
If Singaporeans are paid in gold, we would be earning less than we did 10 years ago. #fact #singstat #gold #wealth #investment #wage #singapore #singaporean #inflation #simplified #silvercoinssg
A photo posted by Silver Coins Singapore Pte Ltd (@silvercoinssg) on
In Chapter 2…
We will explore the benefits a silver and gold portfolio can offer.