How to Invest Silver: Ounce Cost Averaging (OCA)
When it comes to investment, everybody knows about buying at low and selling at high.
Problem is, when is low and when is high?
It feels good to buy while riding the bull thus, common investor buys when thing is going UP. When price is falling, it feels worrisome to buy more. In reality, investors buy the least when price is falling and buy the most when price is moving up.
To solve this, dollar cost averaging strategy is recommended.
“The technique of buying a fixed dollar amount of a particular investment on a regular schedule, regardless of the share price. More shares are purchased when prices are low, and fewer shares are bought when prices are high.” – Investopedia.org
How to invest silver using this strategy?
While dollar cost averaging works best for shares and mutual funds, it is not as straight forward as it is if you are buying physical silver. We recommend buying physical silver instead of paper silver (some US shares on Mines or Singapore’s UOB silver passbook). It is difficult to schedule a regular amount when you are buying in ounce. You might want to look into investing via Ounce Cost Averaging.
Ounce Cost Averaging
The concept is really the same with Dollar Cost Averaging with the difference now instead of allocating a fixed amount of money to invest, we aim to buy a fixed amount of silver in ounce instead.
Let’s take a quick example of how this works:
| Average | High | Low | Ozt | Total Usd | |
|---|---|---|---|---|---|
| Oct-10 | 23.39 | 24.49 | 21.95 | 3 | 73.47 |
| Nov-10 | 26.54 | 28.55 | 24.73 | 3 | 85.65 |
| Dec-10 | 29.34 | 30.7 | 28.41 | 3 | 92.1 |
| Jan-11 | 28.4 | 30.67 | 26.68 | 3 | 92.01 |
| Feb-11 | 30.77 | 33.49 | 28.27 | 3 | 100.47 |
| Mar-11 | 35.81 | 37.87 | 33.88 | 3 | 113.61 |
| Apr-11 | 41.96 | 48.7 | 32.5 | 3 | 146.1 |
| May-11 | 36.75 | 43.61 | 32.5 | 3 | 130.83 |
| Jun-11 | 35.79 | 40.81 | 33.85 | 3 | 122.43 |
| Jul-11 | 37.917 | 40.81 | 33.85 | 3 | 122.43 |
| Aug-11 | 40.2982 | 43.49 | 38.29 | 3 | 130.47 |
| Sep-11 | 41.47 | 41.47 | 41.47 | 3 | 124.41 |
| 34.03627 | 37.055 | 31.365 | 36 | 1333.98 |
^ Ounce Cost Averaging from Oct 2010 to Sept 1st 2011. Data from Kitco.com.
By buying constantly 3 troy ounces every month, in a year time, we accumulated a total of 36 ounces of Silver. Assuming we buy at average every month, the average purchase price is USD 34.03/ozt.
Advantages of Ounce Cost Averaging
- You pay less when the price is cheap
- You do not have to worry too much about timing the market
- You take emotions out from your investment – focusing only in accumulation
- You are able to estimate precisely how much ounces of silver you will have
Disadvantages of Ounce Cost Averaging
- You pay more when the price is expensive
- You may not be able to estimate the precise amount of money to invest regularly
Recommendations
While dollar cost averaging uses a fix amount of money to buy, ounce cost averaging uses a fix amount of ounce to buy. If you prefer to measure your investment in dollar prompt, dollar cost averaging will do fine in most cases. If you are a strong believer in physical precious metals, counting your portfolio in ounces is the way to go.
“Price means nothing. Value is Everything!” – Mike Maloney
References:
- http://www.investopedia.com/terms/d/dollarcostaveraging.asp
- http://en.wikipedia.org/wiki/Dollar_cost_averaging
- http://www.oskuob.com.my/OSKUOB/poppage.jsp?name=dollarcostavg
- http://beginnersinvest.about.com/cs/newinvestors/a/041901a.htm
There's 3 Comments So Far
September 6th, 2011 at 5:14 pm
Good blog! Keep up your great job to share & educate more Malaysians on investing in silver.
September 6th, 2011 at 5:22 pm
Thanks!
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