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Silver Is Today’s Ideal Portfolio Insurance


Over the last decade, the stock market has been quite kind to investors. Currently, the Dow is over 25,000, up from below 8,000 in 2009. Many Americans have fared well with stock investment and have built sizable equity portfolios. But what can you do if you have substantial investments in the stock market and are looking for some form of portfolio insurance?

Several Ways to Insure A Stock Portfolio

There are several routes that an investor can follow to insure a portfolio that is rich in stocks. One way is to reduce stock exposure. The downside to that is one never knows when the market will drop and upside potential is cut out. A second method is the conservative use of options: Buying puts against the stocks you own can offer good downside protection in some cases. The third route that investors can take is to invest in precious metals, which tend to “zig” upwards when the stock market “zags” down.

Silver: The Ultimate Portfolio Insurance

In a recent article by William Silber, which appeared in MarketWatch on Mar 7, 2019, silver is cited as an ideal form of portfolio insurance in today’s market. According to Mr. Silber, “Fear drives up precious metals prices”. For example, in the week after the Lehman Brother bankruptcy in 2008, gold and silver moved up 15%.

Mr. Silber argues that precious metals are similar to other forms of insurance, and is particularly suited to hedge against a stock-heavy portfolio. Similarly to insurance, a good time to buy it is when the premiums are lo. This is exactly that case now with silver, he suggests. According to the article, it has “Declined by more than 65% from its 2011 peak while gold is off by about 30%”. Buy some silver now, Mr. Silber argues, while it is cheap.