Why I am Liquidating my Lending Club Account

After giving my Lending Club Fail post some further thought, I have decided to cash out my position in Lending Club notes. This decision did not come easily, and I have rolled this idea around for a while now.

I will exit my position by not-reinvesting any of the cashflow from the notes and then periodically pulling out the cash. I have about 5K in Lending Club, so this could take a while. I have several reasons for doing this, and I’m going to use this blog post to rationalize the decision. Also, I bought some shares of Lending Club stock so I have a few thoughts on that below.

img-lending-club-dashboard

The Return is Not that Impressive (given the risk)

When I initially decided to fund a Lending Club account, my goal was to chase double digit returns. This may sound stupid, but I’m young and stupid so what can I say. After a year and a half of so of investing with LC I am right around a 6.5% return. Nothing to sneeze at, but a far cry from what I was originally gunning for. Plus, I think these Lending Club notes are pretty risky, so I am not sure if a 6.5% return is justifiable.

I will admit that part of the poor returns are due to an over-aggressive and poor strategy on my part. And as an aside, my goal here isn’t to bash Lending Club notes. I am just calling this as I see it, and as it applies to me. Some people with Lending Club accounts are seeing double digit returns, and I think that’s awesome. Personally, I’m looking to scale back my position and seek out a greater return.

I’d Rather Invest in an Asset Backed Security

One of my biggest problems with Lending Club is the fact that the notes are unsecured, and I think I can find less risky debt to buy that will yield a similar or better return. I’m not sure what lengths LC goes to in order to ensure the note perform (eg, what their collection process is like if the borrowers don’t perform). I can speak from anecdotal experience that there are significant chargeoffs on these loans (especially if you invest in the riskiest) and I don’t see any reports of LC collecting on any of this bad debt. If they are, that money sure as hell isn’t finding it’s way back into my account. Since LC takes their cut off the top, it’s not really clear to me what Lending Club’s incentive is to make sure these notes continue to peform to their maximum potential.

Sure LC claims to have measures in place, and I’m guessing they sue on some of these notes, but they are probably not as aggressive as a credit card company. Credit card companies sue on their notes. If you don’t believe me, take a trip to your local Courthouse on small claims court day. 75% of the people there have been sued by debt collectors.

So with all of that in mind, there seem to be a lot of internet crowdfunding start ups in the real estate space. The nice thing about this is there is an asset to levy upon if the shit hits the fan. Sure that asset may fluctuate in value, but I doubt we will see the categorical clusterfuck that we saw during the great recession. If the loan to value ratio is appropriate you mitigate your downside and have some collateral.

I’d Rather Invest in Something that Runs Counter-Cyclical to the Stock Market

Lending Club advertises itself as an investment that runs counter-cyclical to the stock market, conjuring visions and safety and stable returns. On the surface that may be true. Lending Club notes don’t seem to have the gyrations of a stock. However, on a more macro level I am not sure if this is accurate. I will be very curious to learn what happens to a Lending Club portfolio if the economy tanks for an extended period if time.

img-lending-club-vs-stock

This is uncharted territory, as Lending Club hasn’t been around through a recession yet. Who knows, maybe these notes will hold up fine. Or maybe we will see a massive default rate. It’s anyone’s guess and at this point given the somewhat soporific returns of my note portfolio, I’d rather have some liquidity to potentially invest in something that I know runs counter to stocks.

Lending Club Stock

OK, I’ve spoken enough about liquidating my LC portfolio. And I don’t know if I will completely liquidate it, but I want to at least cash out half of it and pare back my position. My guess is this could take a while, although I already withdrew $75 after the first week of turning off auto-reinvest.

What I want to do now is talk about Lending Club Stock. LC stock has floundered since it’s IPO, and it recently took a beating after all the controversy with the CEO.

I have a small portion of my portfolio that I use to play around with individual stocks, and I have decided to go long on LC and picked up $2,000 worth of shares at $4.20/share. Right now it’s trading a little below $5. I have no idea where it will go (hopefully up, obviously), but knew that the price was approaching book value, and despite my personal misgivings with LC, I still think the business model has legs. I don’t know how long I will hold this stock – this is pure speculation. Akin to going to Vegas and putting 2K on black.

If it goes up much higher I’ll probably just sell and invest the proceeds in index funds (where the majority of my money is). But I thought this could be a cool opportunity to pick the stock up at a discount so lets see what happens. I’ll probably win the Darwin Award for personal finance blogging. As always, this is certainly not investment advice.

I’ll let you know what happens. My goal with the blog is to share my successes and failures, and if this fails like my original Lending Club experiment did, then I’ll let you know.

My Lending Club Experiment Fail

Lending Club is a much talked about investment strategy in the personal finance blogosphere. Perhaps because it has a robust affiliate marketing program behind it. That seems to rule much in the world of professional blogs (if it doesn’t make dollars, then it doesn’t make sense). At any rate, you have a number of folks singing the praises of Peer To Peer (P2P) lending, with LendingClub being P2P’s lending chosen son.

And the value proposition is exciting; at least on paper, if you read the highlights. Here is a chance for the little guy to be a bank, and loan people money at credit card interest rates $20 at a time, diversified over a pool of borrowers. It’s supposed to throw off lots of cash and offers the prospect of double digit interest rates, without the volatility of stocks. Sounds fantastic.

Like many who read the articles, I too decided to give P2P lending a whirl. At the time (late 2014) the stock market seemed to be climbing higher and higher, and the thought of investing in something like treasury bonds didn’t excite me. I wanted to cordon off a small piece of my portfolio and have it be a skunkworks of sorts – invested in things like individual stocks, precious metals, and consumer debt. The rest of my money is invested in diversified low cost index funds with Vanguard, so this is experimental stuff.

After reading MMM’s very cavalier approach on investing in P2P lending (just crank the automated investing dial over to the highest risk / highest reward section and damn the torpedoes) I decided I would follow a similar approach. I figure what the hell, I’m not going to loan my money to random people for some average return. I want an awesome return.

Unfortunately, LC didn’t have this same high risk / high return setting that MMM apparently had at the time, so I spent a few hours researching Lending Club strategies and landed on a strategy (which was tested on Nickle SteamRoller, a P2P lending analytics site) that purported to yield results in excess of 20%. This strategy involved only investing in the riskiest classes of notes with some filter that theoretically sifted out the best smelling turds in the toilet.

What could possibly go wrong?

I started with $2,500, the minimum required to qualify for LC’s automated investing program. Unlike some people, I had zero desire to hand pick loans. I also decided to automatically add $25 a week to my account. I am pretty sure I threw some more money in there (another $500 here or there over the first 6 months or so). Currently my portfolio is valued at just over $5,000.

And originally I seemed to be starting out that the 20%+ return advertised. It was pretty sweet. It actually stayed in the high teens for several months (6 months? I don’t really remember), but it slowly started to decline.

Initially I was cool with it. After all, 20% returns are pretty crazy. It was unlikely that the portfolio would keep that momentum forever. I’d be fine if it generated a return in the high teens.

But every time I logged in to Lending Club, the returns would slowly decline. I figured if it was still yielding 12% or whatever then that’s fantastic. Double digit returns of any kind would be welcome at my house.

Then it dipped below 10%. I reviewed the statements, and saw that each month my earnings were slowly going down. Then in January 2016, my losses from delinquent loans exceeded the interest I received. Here is a spreadsheet of my results in all their gory detail:

Statement DateAcct TotalInterestLossesTotal Earnings
11/30/2014
2517.7818.09018.09
12/31/2014

2551.7934.58034.58
1/31/2015
2638.6337.46037.46
2/28/2015
2678.0840.11040.11
3/31/2015
3325.9148.68048.68
4/30/2015
3480.6255.64055.64
5/31/2015
3734.1154.41054.41
6/30/2015
3921.4463.52063.52
7/31/2015
4090.5569.3624.0545.31
8/31/2015
4451.3161.91061.91
9/30/2015
4593.8667.223.4743.73
10/31/2015
4770.8476.9223.4553.47
11/30/2015
4923.4173.823.3350.47
12/31/2015
5067.2186.4543.2843.17
1/31/2016
5175.0277.9394.26-16.33
2/29/2016
5,213.84
78.25
137.19
-58.94
03/31/20165,366.1995.0246.6448.42

Ouch. A pretty swift kick in the nuts here, although I suppose I shouldn’t be too surprised. I was chasing unusually high returns, so to see it come crashing down on my head was always a possibility.

At that point I decided to adjust my automated portfolio settings, and shifted to a less aggressive strategy. It’s too early to tell if this will turn my Lending Club ship around, or if my portfolio is destined to be an “outlier” in the Lending Club promotional material.

Lending-Club-Returns-for-Diversified-Accounts-by-Portfolio-Age

Looking Forward

So keep an eye on this post, as I will update it periodically and will continue to invest. Needless to say, I’ll be interested to see if I can right this Lending Club disaster train, or whether my portfolio will continue to go off the tracks. At this point, it is what it is. I can’t sell these notes like I can sell a stock, and don’t feel like trying to sell off these defaulting loans one dog at a time on the LC marketplace.

Instead, I’m going to ride it out and let this post serve as an example for people interested in Lending Club. I’m not here to say that Lending Club is a bad investment. Plenty of people have demonstrated that LC has the ability to generate stable returns (at least, over the past few years while we have been on a bull market).

I think it has the potential to be a decent investment and it’s a cool idea, but if you aren’t careful it’s possible to lose money on these loans. So it will be real interesting to see what happens if the economy shifts further south. After all, these are unsecured personal loans. There are no hard assets to back these up. People take out Lending Club loans to do things like refinance credit cards, pay off medical debt, etc. There is no real estate mortgaged or collateral pledged.

With that said, I hope Lending Club is suing some of the people who default on these things. I know regular credit card companies are quite litigious, and I have seen plenty of folks sued by big banks over defaulted credit cards. On average they probably collect 30 cents on the dollar, but it’s something.

But it begs the question, does Lending Club really care if people default on these loans or not? I suppose at some point they would care, if the level of charge offs got so high that it significantly effected the average rate of return. As it stands, I have no idea. Lending Club claims to sell charged off loans to third parties who try to collect on those loans. These parties usually take these on a contingency, so they get a good portion of any recovery. Then whatever is left trickles back to the issuer of the note (theoretically). Lending Club admits in their own FAQ that “recoveries on previously charged off loans are infrequent.”

Now I am not writing all of this because I am mad at Lending Club. I’m not, and at this point I don’t regret the decision to invest (and again, I purposely picked a risky strategy), but since there seems to be an overwhelming amount of positive press on investing with Lending Club, I’d like to play the role of devils advocate here.

So the way I see it there are 3 major problems with investing with Lending Club:

  1. These are unsecured loans, meaning there is no collateral to recover in a default;
  2. There is little liquidity with this investment; and
  3. These don’t necessarily, run inversely with the stock market, and I am guessing a major downturn with the S&P will also hurt your LC portfolio.

All of this equates to a pretty risky investment in my book.

But still, Lending Club may have its place in a portfolio. The jury is still out for me.

Some Final Thoughts

It was important to me to write this article, even though it’s somewhat embarrassing to talk about. Like most people, I have an ego, and the thought of admitting to the internet that my investment went sideways was not my first instinct. I’d much rather write about how this investment yielded double digit returns, and that I’m an investment rockstar.

But I want this blog (which is really a glorified diary at this point) to be real. I want it to reflect the highs and lows of my businesses, and my investments. I want to celebrate the victories but also identify the losses. I don’t want it to be some candy coated crap. The reality is most of what I have done in business is swimming upstream and I have been shaped by my mistakes. I like to think I have learned from them. A whole lot of learning has gone on in my short existence.

Hopefully someone will learn from this experience, and maybe one day it will spark a discussion.

My Journey as an Affiliate Marketer

As I have alluded to in some other posts, one of my wealth creation and income supplementation strategies is through building income producing websites.

By no means am I an expert on making money online. In fact, if you follow my “journey” through this blog post you may decide that this is not a particularly fast or easy way to make money. There are far more exciting rags to riches stories out there, and I have definitely learned things the hard way, and depending on your definition of success, I don’t have a ton to show for it.

With that said, I have had fun working on websites. The biggest success is that I managed to leverage my experience in learning search engine optimization (SEO) and affiliate marketing to develop a website for my off-line business (my law firm). My law firm’s website has had a tremendous impact on my bottom line, and if it wasn’t for the success that I developed through that website I am not sure I would have been able to develop a viable business as a solo lawyer opening an office right out of law school with no connections, moving to a city I had previously never been to before, with no money and a pile of debt. This is a story I touched on in my student loan refinance story post.

So I digress somewhat (as usual), but I think that this point is worth mentioning as I lay the background.

What is Affiliate Marketing?

First of all, I am guessing some people reading this article have not heard of affiliate marketing, which merits a quick explanation. Affiliate marketing is the process of attracting online traffic (people browsing the internet) and sending them to someone else’s website (like Amazon.com). If the people you send to Amazon buy products within a certain time period, then you earn a commission on that sale.

Everything is tracked through unique links called affiliate links. While I initially thought the whole “make money online” concept was some sort of scam (and it can be, if you fall victim to bogus make money online courses, pyramid schemes, etc), this is very much a legitimate means of generating income and people have made big bucks in affiliate marketing, selling display advertising, selling their own online products, etc.

My “Web Portfolio” Today

I have a handful of little income producing websites, and one larger website that by far generates the bulk of my online income. In 2015 I recognized approximately $16,000 in revenue through these websites, which is around $1,300 a month. Not enough to live off of, but a nice supplement to my income. It was also about twice as much as I made in 2014, so I am happy with the year over year progress (and would be extremely happy to see that number double in 2016, although I don’t think that will happen this year).

Needless to say, websites could be a real boon to someone who is looking to retire early. To generate $16,000 a year in income from a traditional portfolio following the 4% rule would require $400,000 in assets. And to generate that much free cashflow from rental real estate, you would need to manage a significant amount of real estate. Some investors try to generate net cash flow of $100 per month per rental unit (after vacancy, property management, capital improvements, etc), so under that assumption you would need a dozen rental properties to generate that level of net income. Hell, cut that in half and say you need 6 rental properties to generate $1,300 a month in free cashflow. That’s a lot of property to manage and dollars to deploy.

The point is, if you work hard and play your cards right, it’s possible to create a full time income through online businesses relatively in a manner that is relatively easy compared to earning your dough “the old fashioned way”. Plus, all you need is a domain name, some hosting, and a lot of time and energy.

Of course on the flip side websites can be far riskier investments than a traditional portfolio, and have other potential issues.

The Beginning

With all of that background out of the way, lets talk about my introduction to making money from websites. It started in the summer of 2010. I used to waste a ton of time on the miscellaneous section of the BodyBuilding.com forums. This was basically a huge time waster (like most forums), but it was pretty entertaining. Through that forum I stumbled across a thread on affiliate marketing, where one of the members shared an example for starting a small niche website that made money through Amazon.com’s affiliate marketing program.

Being somewhat entrepreneurial in spirit, and sorta tech savvy, I thought this was a cool idea and it made sense to me. After all, I bought stuff on Amazon all the time, and I used to make websites when I was in middle and high school (GeoCities anyone?). I knew that Amazon was a perfectly legitimate business, and the thought of earning a commission on sales sent to Amazon.com intrigued me. So a couple hours and a $10 domain later I had constructed my first niche website. The website was centered around a product I used myself and I built the little website as a proof of concept.

Low and behold after a few weeks I had made my first dollar online (my first $10.90, to be specific).

Amazon Associates Earnings August 2010

From there I was hooked.

I spent the next several months trying to build out more small niche websites (typically 5-10 page websites) focused around a single product. This was met with some level of success (around $100/month in earnings). Beer money for a broke grad student, but not enough to make a significant dent in my financial future. I quickly realized that unless I was in a position to hire people to generate the content and somehow scale this, I would have a hard time making a meaningful amount of money. Plus, little websites are all well and good, but it’s not something you can really devote a lot of creative energy to. I wanted to build something bigger.

Bigger Websites

I decided that instead of building tiny websites that focused on a single product, to target a broader keyword that had several products under it.

If I was targeting “Hamilton Beach Model XYZ 4 Slice Toaster” before, then I was going to target “Hamilton Beach Toasters” now, and instead of having an article on one specific toaster, I was going to write about several different models offered by one brand.

This seemed to work, and my earnings slowly grew. So I decided to target multiple brands on one website, and make an authority website. An authority website is exactly what it sounds like – an authoritative resource on a particular topic (or “niche”). So now the target was “Toaster Reviews” and under that I would have articles/reviews on several different brands, all different types of toasters, etc.

I liked this approach over the little 5 page websites, as I felt it scaled better for me, and that I could put more eggs into one basket. This is all well and good… until the basket breaks.

Now I have neglected to mention that while I was learning about SEO and Affiliate Marketing, I was getting into some of the underbelly of search engine manipulation. Specifically, I was using paid services to try and game my way up the search engine results, so that my website would get more traffic faster, and make me more money.

This was going great. My little website was exploding with traffic and my income was climbing to $500 a month, and then almost $1000 a month. As a broke grad student, this was starting to make a real difference for me. It paid my rent and then some. Sweet! I was on top of the world.

Disaster Strikes

Then one fateful day in April 2012 disaster struck. I checked my stats one morning to find that my traffic was demolished. It was 1/3 of what it was the day before. Horrified, I checked the SEO and affiliate marketing blogs and forums to see what happened. Apparently, my website was hit by an update to the Google search algorithm called “Penguin”.

Penguin was designed to penalize sites that did shady things like buy links. Unfortunately, that is exactly what I was doing. Overnight my traffic and income took a huge dump. Needless to say, but this was a depressing time for me. But this was also a valuable lesson.

The Slow Climb Back

Smarter people would have abandoned this project and simply started a new website. I know plenty of people who did that.

The problem was, that I am stubborn as hell and I really liked my website and the topics I was writing about. I had started to build a “brand”, and I didn’t want to give it up. So I stuck it out over the next several years. I did all sorts of things to try to get my site out of the Google doghouse, and I vowed to never use paid SEO services again (specifically, link building services).

I slowly built the website back up over the years, and in 2014 I got the traffic and earnings back to where I was in 2011, and then last year I had my first year of continuously making over $1,000 a month online (which is a nice milestone).

In many ways the project was a failure. My hourly rate would be laughable (I have probably spent thousands of hours on the project). But I learned a lot and was able to take the lessons learned, apply those lessons to my law firm’s website, and generated hundreds of thousands of dollars in revenue. Plus, my hobby website continues to generate an income.

Passive Income

There is a great allure to seek “passive income” through online businesses. People have these same dreams with real estate. Anyone who has been in this business (or the real estate business) for any length of time will tell you that passive income is mostly a myth. Sure, if you can bootstrap a business to the point where you get over the hump, to where the business begins to develop significant positive cashflow, then you can reinvest those proceeds into tools, employees, and other investments. Eventually you can develop passive income. But to get there takes a lot of time, effort, and mistakes along the way.

And there are dangers with online businesses. Affiliate offers can fold, search engines can change their algorithms, and competition can try to undercut you. The internet has changed dramatically since I started, and those who can stay at the front of the wave can make big money.

I will say that this website has developed into a great asset for me. My day job involves exchanging my time for money. I can scale through employees to some extent, but if I don’t drum up the business, lock in the client, and do the work, then I don’t get paid. With my affiliate website it does generate income every day, and if I decided to stop working on it the website would likely still generate a healthy income for the foreseeable future. The $16,000 generated last year definitely made its way to my bottom line.

Future Goals

As I look to the future I want to continue to develop my online businesses. My “job” has shifted more from author to editor (although I still regularly write articles). I realize that I only have so much time that I can dedicate to projects, so I am trying to be cognizant of that as I juggle my various obligations.

Ideally, I would love to get to the point where I am generating $10k a month in revenue through online businesses. If I was doing that well I would be tempted to either pull the plug or at least scale back on my law practice pretty seriously. Presumably by then I will have built up substantial assets and paid down all of my debts. Then maybe I could experiment with slow travel, or at least take more than a long weekend off.

That would require increasing my business by a factor of 10. I think that is possibly with my current website, but will not happen overnight. Lets just say I don’t see myself quitting the ole day job any time soon.

Conclusion

So that was a rambling introduction to my experience with online businesses. I think it’s a fantastic hobby, and has the potential to be a real business. In fact, people are now viewing websites as an asset class. There are brokers that help buy and sell websites, and income producing websites regularly sell for multiples of 20-30x their monthly earnings (which is a pretty sweet ROI, provided that the website actually maintains its income). There are predators who build websites with dubious SEO practices specifically to sell the websites (the ole “pump and dump”) so like with any investment, do your diligence and caveat emptor. It’s not all puppies and rainbows when it comes to buying income producing websites.

While I don’t intend to turn this into a “make money online blog” I think using websites to accelerate (or support) financial independence is an interesting angle that I haven’t seen much of in the personal finance community. Which is odd, as most personal finance blogs make money (in fact, that is the point of most of these personal finance blogs – it is an entire industry). And there is nothing wrong with building websites to make money. Websites can provide value to their readers, and the owners should be compensated.

At any rate, I am happy to dive further into the subject if there is interest.

Investing in Silver? Six Reasons to Consider

On a whim I recently purchased approximately $1000 in physical silver. Well, I shouldn’t say on a whim. I have been curious about buying some sort of precious metal with cash for a while now, but I more or less woke up in the morning, decided to buy silver, and had $1000 of the shiny stuff before lunch.

Silver prices are at a 5 year low. With the recent turbulence in the stock market you have to think that people will start looking to precious metals again as a “safe investment” over traditional stocks and bonds. I am not sure how “safe” silver is. Those that bought silver in 2011 for $45/ounce lost their shirt. It has steadily declined over the past 5 years:

5-year-silver-chart

Has it reached the bottom? Who knows. Maybe it will continue to decline. Or maybe it will plateau for years, as it appears to have done from 1985-2003. Or maybe it will head back up into the clouds. I won’t pretend to know for sure, but obviously I am long silver at this point. My thoughts and rationale on buying physical silver are as follows:

1. You can pay cash for it.

There are so few investments you can pay for with cold hard cash that have any kind of liquidity. I bought my silver at a precious metal shop, and apparently they take cash. This is pretty cool if you happen to be sitting on some greenbacks for whatever reason. Of course you pay for the privilege – in my case I paid $1.50/ounce over spot. This seemed on par (actually a little better) than buying from large websites.

Of course there are interesting precious metal mutual funds, and funds that give you some other forms of exposure to precious metals (like Vanguard’s Precious Metals and Mining Fund). These funds may be a better bet if you are not going to be paying with cash, as you can avoid paying as large of a transaction cost.

2. No sales tax.

If you buy over $500 worth of silver you don’t need to pay sales tax in my state. That’s pretty sweet.

I realize that this varies from state to state. If you are in a state that does charge sales tax on silver then you are stuck paying the tax or buying online (and then paying the sales tax voluntarily – right?).

3. There is liquidity.

Apparently you can take this silver stuff to various coin shops and precious metal dealers, and they will pay you the spot price on the spot. I asked my silver seller why he paid spot (and not X% of spot), and he told me he pays spot because when he buys it from the mint he pays spot plus a markup, plus shipping. So to pay spot to a guy walking into his store is a good deal for him, because then he can sell it back with his markup and not have to pay shipping or the markup from the mint.

Other physical assets can be a lot harder to unload, so the ability to drive to a coin shop 5 minutes from my house to liquidate my silver holdings at spot price is great. If only buying and selling real estate was so simple.

Silver is sold in various configurations: 1 ounce pieces, 5 ounce, 10 ounce, 100 ounce, etc. I opted for 65 1 ounce rounds (coins). The price per ounce was all the same so I figured it would be nicer to have the rounds so that if I wanted to sell some off (or trade some in a post apocalyptic future – you know, for drinking water or bullets or something) I would have an easier time with the rounds. They come in little plastic containers so it’s not like they are rolling around loose. Plus they are just cool.

So theoretically I could offload this stuff tomorrow if I needed to. Of course you pay for the privilege of buying physical silver – a markup of $1.50 an ounce in my case. This is pretty steep when you consider the price per ounce currently is around $14. That’s over 10% right off the top. Silver will need to gain some ground before I even break even on this stuff. But still, the silver trader is performing a service so I made the purchase.

4. It’s an interesting hedge against traditional investments.

In times of economic uncertainty people seem to flock to precious metals. The stock market has only grown more volatile over the past 15 years and while I firmly believe that over a long enough timeline my portfolio of US stocks will go up and to the right, I am expecting to see some down cycles.

If the market goes down far enough to jack up the price of silver substantially, then I can cash in and potentially move the money into something else. If the silver market continues to drop, then I will likely continue to buy. My timeline for this investment is 10 years minimum (maybe 20 or 30+?). Of course if silver were to go back up to $40 an ounce tomorrow I’d likely sell.

5. Appears to be More Volatile than Gold

At its height gold was trading at $1,900 an ounce. Now it’s around $1,100. Silver, on the other hand, maxed out at $48/ounce (and currently it is around $14). I like the added volatility with silver. I have a long investment horizon, and it seems like there is greater potential for it to swing up. At least based on past performance.

6. The “Prepper Factor”

I really did not buy this stuff in anticipation of a dystopian future. I realize there are people who buy physical silver and gold in anticipation of WW3. The guy I bought silver from told me about people that apparently buy $5k a week from him, and introduce themselves as “John Doe”. They are paranoid that the government will find their silver and take it away (presumably with their guns).

While I am as suspicious of the government as the next guy, this didn’t factor into my decision making at all. There are bigger fish to fry than my 65 ounces of silver.

As for using this if the “Shit Hits The Fan,” I don’t think it’s a problem to have some cash handy for a natural disaster, but I am not convinced I will have a chance to exchange my silver for MREs any time soon.

Cons to this Investment

I see a number of disadvantages to buying physical silver, gold, or other precious metal commodities. The first being, you need to keep it somewhere. In my case I tucked it away into a safe deposit box, which costs me ~$100 a year (which may otherwise be unnecessary).

It also throws off no income. When you consider other investments like buying debt, dividend bearing stock, certificate of deposit, website, cash flowing rental property, etc, silver and gold will never cash flow.

Plus no one has a crystal ball so who knows what the market for silver will do over the next 5, 10 or 20 years. Hopefully it will at least pace inflation, but who knows for sure. It may continue to go down or do nothing for a long period of time. There certainly are safer investments.

So the investment cost me money from the start, costs me money each year to store, may not appreciate in value, and does not throw off any kind of income.

When I think of it that way it seems like a pretty dumb investment.

Thankfully my investment horizon should be long enough to iron out any kinks, and this is a small portion of my portfolio. I think there are dumber things I can do with $1000 than buy than silver at $15 an ounce, so I am not too worried (famous last words).

Final Thoughts

If you can afford to hang on to it for a long time I think it’s OK to speculate on a little silver. That’s what I consider my purchase: speculation. I speculate that it will eventually go up in value, but I really have no clue, and I’ll be OK if it doesn’t.

I will say if it continues to decline I will continue to buy, and sort of dollar cost average my way into it. I think we will continue to see volatility in the stock market, and we will ultimately see the price of silver rise. Otherwise I would not have bought it.

However, I have approached this with a long term mentality. 65 ounces of silver is not going to make or break me, and represents a small portion of my small portfolio. I certainly wouldn’t sell my condo or cash out my IRA to buy silver, and if this investment loses significant value in the future I am “OK” with that.

So lets see what happens. I think it will be fun to keep my eye on the silver market in the coming days.