Capital Gain or Dividend Yield

What type of investor you are depends on what type of investment return you are getting. Refer to everything you have invested or consider investing, very often they boil down to ONLY 2 types: capital gain or dividend yield (or sometimes both).

Capital Gain

Buy low, sell high would get you capital gain profit. When you identify an undervalue asset, you buy it with a low price, keep the asset for few years and then sell the asset at a higher price. Take your selling price minus your buying price, if that is a positive number, you are profiting from capital gain.

Silver investment falls into this category. Silver is an asset where you invest when the price is low and sell when the price is high. Typically, it takes a number of years for investor to achieve a minimum double digit profit (percentage) return. Take a look at an example of capital gain at work in silver history price.

silver price history

We won’t pick the bottom or peak because that is simply unrealistic. Assuming you bought silver in year 2009 at price $12 and sold your silver in year 2011 at price around $29. You are making a good profit of 140%. In other words, if you have put in RM10,000 into silver in 2009, your initial capital has become RM24,000. Such return is not too bad for 2 years of waiting.

However capital gains work in both ways. Any asset that involves capital gain will experience market cycle. Price will go up and price will come down. We call the cycle as bull market (price keep going higher) and bear market (price keep going lower).

current silver price

In this example, we picked a price at $34 in July 2011 and hold the silver for 2 years and here we are silver price at $20 in July 2013. We are experiencing a lost at almost 50%. In other words, if you have put in RM10,000 into silver in 2011, your initial capital has become RM5,000. It is a painful experience to make a 50% loss.

Anyone who bought silver in the past 2 years would have experienced bear market and the pain of capital loss. The good news is at the point of writing, precious metal is believed  to have bottomed. If you have bought silver in the past 2 years, now could be the turning point for silver. If you have not bought any silver, you should give serious consideration start buying small amount of silver especially gold silver ratio suggests current silver price is relatively cheap.

Dividend Yield

You receive dividend yield as return when you invest X amount of money and after a period of time, you receive Y amount of dividend (or some call Y as interest) – regardless what is the value of your initial capital. The financial assets that gives dividend yield includes fixed deposit, REIT and dividend stocks. Silver could not be categorized into investment that gives Dividend Yield because silver does not produce cash flow.

Some investors are consistently buying silver in bulk at a low price and selling the silver with a profit margin. That gives the investor cash flow. However, I would not view this as investment gain (dividend yield) because this involves certain amount of labour wiork, which is more appropriate to be view as running a trading business.

Summary

Silver is a simple investment where you profit by buy low, sell high. If you are looking for an asset that you can buy at low price now and sell at higher price in the future, silver is one of the most undervalue assets in the market. Remember, in order to sell high, you first need to buy low. Nothing is going to happen if continue sitting at the side line watching without taking action.

Silver Malaysia eBookIn the eBook: Practical Guide For Investing Silver In Malaysia I discuss 4 strategies you can use immediately to help you achieve capital gain in silver investment. The 1st strategy is designed for beginner. 2nd & 3rd are for average investors. 4th are for the pros. Click here to find out more.

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