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My significant other received a gift from a family member in the form of silverware. The exact value is not known but it is likely enough to cover 6+ months worth of expenses if it were sold. It is stored in a place of residency to be used in case of emergencies. I estimate it is a significant portion of her net worth. She doesn't have any sentimental attachment to the silver as far as I know. She is quitting her job soon, so needing an emergency fund is an un-likely but real possibility.

Her arguments for keeping the silver around:

  1. She will be less tempted to spend it frivolously since it is so illiquid (She is generally very financially responsible and has great credit so this doesn't seem necessary to me).
  2. It is ostensibly covered by renter's insurance if it is stolen.
  3. The silver will increase in value over time so she should hold it as long as possible.
  4. It is protected from identity theft.

My arguments against keeping the silver:

  1. FDIC insurance is better than renter's insurance, and funds in a bank are more secure than physical, precious metals.
  2. An emergency could coincide with a decline in the price of silver, forcing her to sell at a loss.
  3. The illiquidity of the silver makes it a poor choice for an emergency fund. If the money was needed urgently it could take days/weeks to cash out. You can't pay rent or medical expenses with silver.
  4. The price of silver may not keep up with inflation, whereas a rewards checking/savings account could yield as much as 3-4% with almost no risk.
  5. From an asset-allocation perspective, it is a huge over-allocation to precious metals.

Is it reasonable to keep the silver around as a 6+ month emergency fund, or would she be better off selling some or all of the silver and keep it in a low-risk but liquid form?

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assume monthly expenses of 5K, so six months of expenses is 30K; they will need a personal articles policy to cover an item that valuable. –  mhoran_psprep Jul 15 at 19:24
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@blahshaw you'd want to explicitly list it in the policy. Otherwise, if it gets destroyed and you go to the insurance company, they'd be like suuuuuuuuure you had 10K worth of silver... :) –  Patches Jul 15 at 20:55
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Where can I get one of these rewards checking/savings accounts yielding 3-4%?! –  Craig W Jul 15 at 21:49
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@CraigW My local credit union offers 3% on the first $10k if you make at least 10 debit purchases per month. There is a Paypal savings account yielding about 4% on $5k after fees. There is also the Mango Money savings account that is 6% on the first $5k. There are hoops to jump through but they are safe from market down-turns as well as inflation. –  blahshaw Jul 15 at 23:14
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You need to edit the question to say the sivlver is in the form of silverware. (Infact I suggest that is possibly even worth asking a seperate question) –  oxinabox Jul 16 at 3:16
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4 Answers 4

up vote 20 down vote accepted

If it were me, I would convert it to cash and keep it in a liquid account.

The assumption that silver will increase in value is misguided. From 1985 to 2002, it was flat. It's gone up and been far more volatile since then, and there has been significant declines which could eat at the stability of an emergency fund.

Precious metals are speculation, not investing. They do not create wealth.

Investing is typically considered too volatile for an emergency fund, more so keeping the money in metals.

Making it more difficult to get to, like keeping it in a separate account might also fight against frivolous or accidental spending.

Also there tends to be high transaction costs when liquidating metals. I found the best way is to use eBay.

After some further comments and clarification here I suspect you are dealing with something else. Namely, the "white picket fence". Again, this is supposition, but perhaps she envisions the two of you married and hosting a dinner party using the passed down silver. This could be a strong emotional bond, and as such it could trump the logical arguments. Keeping it as an emergency fund: foolish. You helping her keep it because you are planning a life together: smart.

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She mentioned that she is willing to sell it in an emergency so I don't think that any sentimental value is in play here. –  blahshaw Jul 17 at 20:25
    
A few years back I found a company that makes precious metal ingots that are made in such a way to allow smaller ingots to be broken off like squares from a chocolate bar. combibar.com/products/… –  user14218 yesterday
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If you were asking if you should buy silver for an emergency fund, I'd say no. But, you already have it...

Note: I wrote most of the below under the assumption that this is silver bullion coins/bars; it didn't occur to me till the end that it could be jewelry.

Both of you have good arguments for your points of view. Breaking it down:

Her points
1. A very good point. And while she may not be irresponsible, maybe the invisibility of it is good for her psychology? It's her's, so her comfort is important here.
2. Good. Make sure it's explicitly listed on the policy.
3. Bad. I think it will as well, at least the long run. But, this is not a good reason for an emergency fund -- the whole point of which is to be stable in case of emergencies.
4. Good. Identity theft is a concern, though unless her info is already "out there", it's insufficient for the emergency fund. And besides, she could keep cash.

Your points
1. Iffy. On the one hand, you're right. On the other hand, Cyprus. It is good to remember that money in accounts is in someone else's control, not yours, as the Cypriots found out to their chagrin. And of course, it can't happen here, but that's what they thought too. There is value in having some hard assets physically in your control. Think of it as an EMERGENCY emergency fund. Cash works too, but precious metals are better for these mega-upheaval scenarios. Again, find out how having such an EMERGENCY fund would make her feel. Does having that give her some comfort? A gift from a family member of this much silver leads me to assume that her family might have a little bit of a prepper culture. If so, then even if she is not a prepper herself, she may derive some comfort from having it, just in case -- it'll be baked into her background. Definitely a topic to discuss with her.
2. Excellent point. This is precisely why you want your emergency fund in some form of cash.
3. Bad. You can walk into any pawn shop and sell it in a heartbeat. Or you can send it in to a company and have cash in days.
4. Bad. If you know a savings account that pays 3%-4%, please, please, please tell me where it is so I can get one. Fact is, all cash instruments pay negligible interest now, and all such savings are being eroded by inflation.
5. Maybe. There is value to looking at your net worth this way, but my experience has been that those that do take it way too far. I think there's more value at looking at allocation within a few broad "buckets" -- emergency fund, savings (car, house, college, etc), and retirement fund. If this is to be an EMERGENCY fund, as per point #1, then you should look at it as its own bucket (and maybe add a little cash too).

Another thought to add:
This is a gift from a family member -- they gave her a lot of silver. Of course it's your SO's now, and she can do whatever she wants with it, but how would the family member react if she did liquidate it? If that family member is a prepper, and gave her this with the emotional desire to see her prepped, they may be upset if she sold it. It just occurred to me this may be jewelry. Your SO may not have sentimental attachment to it, but what about the family member's sentiments? They may not like to see family silver they loving maintained and passed on casually discarded for mere cash by your SO. Another thing to discuss with her.

Wrap up
Generally, you are right about not keeping a 6 month emergency fund in silver. But there are other factors to consider here. There's also the fact that it's already bought -- the cost of buying (paying over market) has already been taken.

Edit -- so it's silverware
Ah, so it's silverware. Well, scratch everything, except how the family member feels about, which now looms large.

This doesn't have much value as an emergency fund. Nor really as an investment. If you did keep it as an investment, think of it as an investment in collectibles/art, less so in precious metals.

If no one will get upset, I'd say pick out the nicest set to keep for special occasions, and sell the rest. Find out first if it has collectible or historical value. It may be worth far more than the pure weight in silver. Ebay might be the way to go to sell it.

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The silver is in the form of silverware. –  blahshaw Jul 15 at 23:34
    
@blahshaw well then, that's a different story. I've updated my answer. –  Patches Jul 16 at 0:08
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@blahshaw Bullion coins are the easiest -- everyone wants pure silver in easy to identify form. There's also the fact that with those, the only thing that matters is the silver. Everything else, including numismatic coins (old coins that were used as currency in the past), are priced more on the collector value than on the precious metals they contain. In the case of silverware, the easiest, but also the lowest payoff, is to send it off to one of these places that melt it down for the metal. The question there is, what percentage of it is silver? Better to sell it as silverware. –  Patches Jul 18 at 16:56
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@blahshaw To be clear, I'm saying DON'T melt it. At the very least, get it checked out by someone that knows what they're doing. It would suck to melt the whole thing down for a few thousand only later to realize's it's Faberge worth $7K a place setting. There's stuff that's easy to sell to any old Joe (bullion), then there's stuff that's worth spending time to seek out a buyer for. –  Patches Jul 18 at 17:02
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@blahshaw Either way, silverware is not an emergency fund :-D –  Patches Jul 18 at 17:03
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People normally hold precious metals as a protection against the whole system going down: massive inflation, lawlessness, etc. If our whole government and financial system broke completely and we returned to a barter economy, then holding silver would likely turn out to be a good thing.

However, precious metals are not very good hedges against individual calamity, like losing your job. They are costly and inconvenient to sell and the price of these metals fluctuates wildly, so you could end up wanting to sell just when the metal isn't worth much.

I'd say having some precious metal isn't unreasonable, but it should not make up a major portion of one's total net worth. If you want protection against normal problems, especially as a person of limited means, start with an emergency savings account and paying down debt. That way fixed costs will be less likely to turn an unfortunate turn of events into a personal catastrophe.

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I don't see any evidence of this. If cans of food are scarce, which person will give you his can of food for a useless lump of metal? –  Almo Jul 16 at 14:24
    
Point taken. I would say food storage is good for even worse calamities, where food production and distribution has shut down. All depends on what kind of SHTF scenario has occurred. In the presence of massive inflation without other problems, I would still expect cans of food to be available, for example. –  farnsy Jul 16 at 16:00
    
@Almo history, for example ww2 and related refugees, has a huge number of examples where people were able to obtain food, transportation, shelter and life-saving services by gold or jewelry, where their other assets would have been useless. –  Peteris Jul 16 at 18:57
    
The post says "the whole government and financial system broke completely" in such a case, it's unlikely precious metals would help you long. The WWII example still has government and financial systems in place. –  Almo Jul 16 at 22:12
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Jewelry is vital in times of war.

It is easy to hide & transport and can always be used for accurate barter thus is ideal for emergencies.

Aside from these circumstances, it is a huge opportunity & carrying cost for precisely the reasons you named.

The amount of jewlry kept should be held in the amount of one year's expenses risk adjusted for your neighborhood becoming a war zone.

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The only vital thing in times of war is a gun. Everything else - you just take from people who don't have guns. –  littleadv Jul 16 at 3:52
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So, I think technically the last time my neighbourhood was a war zone is 1646, when the Parliamentarians took it from the Royalists. Naturally past performance is not necessarily a guide to future value, but should I aim to keep approximately one day's expenses in jewellery? ;-) –  Steve Jessop Jul 16 at 11:31
    
@littleadv You expect your spouse & children to fight? –  quantycuenta Jul 16 at 13:22
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@quantycuenta: littleadv expects they either do that or get robbed for their jewellery, I think. –  Steve Jessop Jul 16 at 14:55
    
@SteveJessop Ah, so the risk of war was misjudged, and the window to evacuate relatives was missed? How unfortunate. –  quantycuenta Jul 16 at 15:41
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