There is now a growing interest in silver is as a store of value; due to this popularity governments around the world have started to mint silver coins again. This interest is in part driven by the uncertainty surrounding fiat currencies globally. The Silver Accumulation Account is an account where the investor agrees to put aside a certain amount of currency in silver each month. Silver accumulated in this account can later be sold back, for cash or withdrawn as physical metals.
What is dollar cost averaging
Dollar cost averaging is an important approach where a certain amount of money is put aside on a regular basis, usually monthly into an existing account. In this case, the money is set aside to purchase a set amount of silver coins for example, 50 or 100 grams. This approach takes advantage of the only certainty in the commodities market – the prices will fluctuate, up and down over time.
By buying a fixed amount of silver e.g. 50 grams at a set interval, you are buffering the ups and downs of the silver market. Your fixed amount of silver per month will cost more when the prices are high, and cost less when the prices are low. That means, by committing to purchasing a fixed amount in weight, the average price paid can be lower than the average market price of silver.
Start a regular savings plan
A regular savings plan is a disciplined approach to take advantage of the benefit of dollar cost averaging and to make above average long term returns. With this plan, a regular amount of money is set aside to purchase a fixed amount of silver coins.
Illustrative Example
Assume that an individual in 1990 decided to put aside some money every month, to purchase 50grams of silver, regularly for the next 20 years.
The price at which he purchases the silver will be silver spot price plus a 30% premium (for physical). So, each year, he will have 600 grams of silver (or approximately 19.2oz) in his vault / storage: over the next 20 years he would have accumulated 12,000 grams of silver (or 384oz). We have assumed that the silver purchased on a monthly basis is made at the average spot price (plus premium) to facilitate the illustration. Below is the calculation of the gains and annual compounded rate (assuming that he decided to dispose of his accumulated silver today at current spot price of c. $21.00/oz).
Silver Prices (1990-2009) | ||||||
Year | Average (Spot) $ | Physical/oz $ | 50g/mth $ | cost /yr | g/yr | Oz/yr |
2009 | 14.66 | 19.06 | 30.49 | 365.91 | 600.00 | 19.2 |
2008 | 15.02 | 19.53 | 31.24 | 374.90 | 600.00 | 19.2 |
2007 | 13.39 | 17.41 | 27.85 | 334.21 | 600.00 | 19.2 |
2006 | 11.57 | 15.04 | 24.07 | 288.79 | 600.00 | 19.2 |
2005 | 7.22 | 9.39 | 15.02 | 180.21 | 600.00 | 19.2 |
2004 | 6.65 | 8.65 | 13.83 | 165.98 | 600.00 | 19.2 |
2003 | 4.85 | 6.31 | 10.09 | 121.06 | 600.00 | 19.2 |
2002 | 4.60 | 5.98 | 9.57 | 114.82 | 600.00 | 19.2 |
2001 | 4.37 | 5.68 | 9.09 | 109.08 | 600.00 | 19.2 |
2000 | 4.95 | 6.44 | 10.30 | 123.55 | 600.00 | 19.2 |
1999 | 5.22 | 6.78 | 10.85 | 130.25 | 600.00 | 19.2 |
1998 | 5.54 | 7.21 | 11.53 | 138.38 | 600.00 | 19.2 |
1997 | 4.90 | 6.37 | 10.19 | 122.23 | 600.00 | 19.2 |
1996 | 5.20 | 6.76 | 10.81 | 129.78 | 600.00 | 19.2 |
1995 | 5.20 | 6.76 | 10.81 | 129.72 | 600.00 | 19.2 |
1994 | 5.29 | 6.87 | 10.99 | 131.92 | 600.00 | 19.2 |
1993 | 4.31 | 5.61 | 8.97 | 107.65 | 600.00 | 19.2 |
1992 | 3.95 | 5.13 | 8.21 | 98.50 | 600.00 | 19.2 |
1991 | 4.06 | 5.27 | 8.44 | 101.25 | 600.00 | 19.2 |
1990 | 4.83 | 6.28 | 10.05 | 120.60 | 600.00 | 19.2 |
Total | $3,388.79 | 12000.00 | 384 | |||
Premium to spot | 30% | |||||
(assumption) | Value today | $8,064.00 | Price/oz | $21.00 | ||
Gain | $4,675.21 | 138.0% | ||||
ACR= | 4.43% | over 20 yrs | ||||
Source: The Silver Institute, London fix | ||||||
The total cost of accumulating 12,000 grams of silver coins: ($3,388.79) while the current value of the silver (@$21.00/oz) would be $8,064.00, giving a gain of $4,675.21 (or 138% over 20 years). Hence, the annual compounded rate of return (ACR) is 4.43% p.a. which is very commendable given the ups and downs we have experienced in the global financial markets over this period.
As silver prices continue its upward trend, the returns from this accumulation account will continue to improve.
**
Chris Gan
1 Oct 2010
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