If you have had experience investing in precious metals in the past then you probably already know the answer to this question. On the other hand, fractionals might seem like an attractive option for newbie metal investors. If you don’t know what fractionals are, they’re gold, silver, and platinum bullion that are sold in fractions of an ounce. For starting investors, purchasing an entire ounce of gold or platinum can be a hefty cost. Seeing these fractional pieces of bullion may make you consider purchasing them as they are often cheaper.
But herein lay the vital question, are they worth it? And if not, why?
Premiums, Premiums, Premiums
If you take a look at the current spot price of any metal you’ll notice that the price being offered by dealers likely will be higher. No you’re not getting ripped off by any means. The dealer needs to make a marginal profit on the cost of silver in order to keep their business running and pay employees. This increase in cost is also known as the “premium” on the cost of bullion. However, not all products have an equal premium, for instance silver tends to come with higher premiums than gold.
Fractional gold, silver, and platinum also come with a higher premium cost. If you’re looking to invest - this premium is essentially considered lost money, as you may or may not make it back in the long term. Ideally, any precious metals investor is going to want to spend as little as possible on the premium of a product. When we look at the cost of 1/10, or 1/2 ounce gold, there comes a higher premium, and even if you have an ounce of fractional gold, you will likely have spent significantly more than you would have if you bought an ounce. At current prices, 10 pieces of 1/10 ounce gold will cost you a whooping $172 (USD) more. You would be better off purchasing less expensive silver and trading it in for gold at another time.
Secondary markets may not always be applicable to all investors, but some of us occasionally dip into buying and selling privately. This means that we’re not selling to a dealer, but to another precious metals investor. Often people on the secondary market will only purchase bullion that comes in a well-known form and from a well-known source. These can be gold/silver, Kurggerands, Maples, and American Eagle 1oz coins, but likely not any fractionals. If you’re looking to do business with other investors, they may not be interested in any fractionals you have.
You Just Want Them
It’s enough justification to purchase something if you just want it. You don’t need to have a specific rationale for purchasing a half oz coin that you think looks cool. You’ll probably be able to find an online dealer who will purchase it, you just won’t likely make any money back from the premium you’ve spent. If you’re hoping that it will become worth more as a collectible in the future, ensure that you’re doing your homework and seeing how historically these types of coins do. As for myself, I’ve picked up one or two collectible 1 oz silver coins, but I’ve never invested heavily in them. But if they pique your interest, by all means buy what makes you happy. When it comes to silver, owning the metal itself is really what creates value for the person stacking it.
Generally, when we’re speaking about purchasing fractional coins, many of them are collectible pieces and mostly have numismatic value. Numismatic value is entirely different (although somewhat correlated) with the metal value of a coin. I won’t get into it here, but deciphering the value of a coin with collectible significance is a lot more complex than simply looking up the spot price of your chosen metal. You will need to do a significant amount of homework on this value system. I would suggest speaking to a local coin dealer or finding an online forum prior to choosing this as an investment route. Personally, I choose the safer alternative of bullion that is purely attached to metal cost.
I wish I could have given a simple yes or no answer throughout this article. Unfortunately, as with all things pertaining to economics - the answer is much more complex than that. I would stray away from developing a large portfolio of fractional pieces, but it doesn’t hurt to pick up a few items that you think are cool along the way. The best way to build up your silver investment is to purchase small amounts over a long period of time, and if you’re not having fun doing it you’re not going to be able to adhere to this habit. Happy stacking everyone!