How to invest in silver, a precious metal that both diversifies your portfolio and rises with new tech industries
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- You can buy silver in two basic ways: physical bullion (bars, coins) or silver-backed securities (stocks, funds, ETNs).
- While bullion is a "purer," more direct way to own silver, securities are easier to hold and can appreciate.
- Silver offers a long-term hedge against inflation and stocks, but also benefits from certain industries' growth.
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Savvy investors often step outside the comfort zone of conventional paper investments - stocks, bonds, and funds - and into more exotic, hard assets. Silver is one such. Like other alternative investments, it often performs in an opposite way to traditional securities: its price rising when theirs falls, and vice versa. So it can be an invaluable way to diversify a portfolio.
Silver is more than a stock market hedge, though. As a physical commodity, it has an intrinsic value, which means it's immune to inflation - the rise in prices that erodes the value of paper, government-issued currencies. Given its inherent worth, some investors also see it as a safe haven against political and economic turmoil, similar to its more glamorous cousin, gold.
But silver is much more affordable than its yellow-metal cousin. Also, unlike gold, silver is valued for its widespread industrial uses - including innovative, high-growth tech industries like solar energy and electric autos.
All these factors have precious metal experts like Giancarlo Camerana, a strategic advisor at QORE Switzerland feeling optimistic about the performance of silver in the coming decade. What it comes down to, he says, is "a combination of bullish factors: increased demand from both the industrial sector and financial investors as they worry of the ongoing currency debasement and the possible dollar devaluation."
How do you invest in silver, anyway? Here's what interested investors should know.
How to invest in silver
There are a variety of ways to invest in silver. But for individual investors, the buying options boil down to two basic forms:
- Physical silver, or bullion (the most direct and obvious way to invest)
- Silver securities, such as stocks, funds, and exchange-traded notes (less of a pure play, but more convenient)
Physical silver
The physical metal is known as bullion. Investment-grade bullion typically refers to silver that's 99.9% pure. It comes in the following forms:
- Bars - Bars consist of solid silver weighed by the troy ounce that's been poured or pressed into stamped blocks. They're available for purchase from reputable metals dealers like If you're starting here, aim for smaller ounce-counts, as they'll be easier to sell off if need be.
- Coins and rounds - forget about rare or collectible coins here, which have numismatic value beyond their silver content. We're talking solely about specie issued by government mints for investment purposes only. Some of the most popular coins include the Silver American Eagle, the Silver Canadian Maple Leaf, and the Austrian Silver Philharmonic. Rounds, as their name implies, are the same shape as coins, but not official legal tender.
- Junk silver bags - These are bags of dimes, quarters, and half-dollars issued by the United States Mint prior to 1965, at which point it switched from using silver in its coinage to other alloys. Anything minted before that time could be upwards of 90% silver, so while it has no collectible value (thus the term "junk"), it does have a value based on its purity.
Bullion in its various forms is generally available from precious metals dealers. Be sure to look for a well-established one: JM Bullion, APMEX, and SD Bullion are among the most reputable. Many banks also sell silver bullion.
Silver stocks
You can invest in individual stocks that give you exposure to the silver industry. There are two major types of silver companies:
- Silver mining stocks - Also called "silver miners", these are stocks that invest in every stage of silver production, from exploration to refining. So when production is soaring, so are the prospects for these companies - and vice versa, of course. For silver stocks, Camerana recommends Pan American Silver (PAAS) and Fresnillo (FRES:LSE) , the world's largest silver mining company, which is listed in London. Other major players include Endeavor Silver Corp. (EXK) and Fortuna Silver Mines (FSM).
- Silver streaming company stocks - Instead of digging themselves, some companies make an agreement to finance a mining project in exchange for a portion of future profits, which are then meted out to shareholders. First Majestic Silver Corp. (AG) is one of the largest streaming companies.
You can buy silver stocks as you would shares of any company, via a brokerage, investment app, or online trading platform.
Silver ETFs and Mutual Funds
Instead of relying on a single stock, you can also invest in an exchange-traded fund (ETF) or mutual fund that bundles together multiple silver-related assets. Some contain shares of silver company stocks, while others invest in the metal itself or in futures contracts.
ETFs and mutual funds are purchased through brokers or trading apps, or through the investment companies that sponsor them.
Silver exchange-traded notes (ETNs)
Among the most complex of the silver-centric investment options are exchange-traded notes (ETNs) and exchange-traded commodities (ETCs). They track an underlying asset (in this case the price of silver), like the funds, but the major difference is that ETNs and ETCs are actually debt instruments.
A silver ETN operates like a mix between a stock and a bond; when you own it, you own a debt rather than anything physical, which tempers your risk. When the note matures, you get a lump sum tied directly to the price of silver - if it's risen during your possession of the note, you'll see that as a return.
The silver ETC is similar, except that it actually holds physical silver as collateral, while the ETN just tracks silver's price moves.
Some investors prefer ETNs to ETFs. Both track an index, but ETFs respond more to market investor demand than they do the actual price of the asset. so sometimes ETF investors miss out on gains because the fund fails to accurately move with the underlying commodity - what's called a tracking error. With ETNs, the value is based directly (and solely) off the market price, so tracking errors are vastly reduced.
Among ETNs, the VelocityShares 3x Long Silver ETN (USLV) is one of the best-known. Others include the iPath Silver ETN (SBUG) and the X-Links Silver Shares Covered Call ETN (SVLO).
What's the best way to invest in silver?
Each silver investment method comes with its own advantages and risks.
Investing in bullion is traditionally vaunted as the purest form of investment: You own the actual metal, and it can be bought and sold for an amount equivalent to silver's market or spot price per ounce (plus a small mark-up - usually more for coins than bars). But storage and insurance costs mount quickly.
And bullion provides no interest or dividends. You can't appreciate any gains on your coins or bars until you actually sell them - hopefully for a higher price. Even then, there are transport costs and other fees to eat into returns.
Silver stocks, funds, and ETNs, on the other hand, add some sterling diversification to your portfolio without making you shell out for storage space. They're more liquid, trading daily as they do. And of course, there's the convenience of buying and keeping them in a regular investment account. "Paper silver," as Camerana calls these securities, are "an easy and often less-expensive way to get exposure" - especially if you opt for a silver ETF or mutual fund.
But they're an indirect investment. Just as with any company, a silver company's operating costs, reserves, and management all play a factor in its performance; so can the political and economic conditions in its native country. As a result, silver stocks can be volatile, exaggerating the already sharp price swings silver is prone to.
Even miners aren't always quite as pure a silver play as one might hope, as silver is often mined alongside or extracted from other metals.
The financial takeaway
What form of silver to invest in depends on your own desire for convenience and appreciation, and your risk tolerance. Owning silver bullion is the most direct, purest play. But owning silver-based securities is more economical and offers a chance at appreciation.
While it certainly looks like a promising moment for silver, with its industrial uses predicted to expand in the next decade, there are no guarantees. Silver is vulnerable to recession in ways that gold is not. If the tech industry begins to lag, silver prices will fall, which will hit you in your pocketbook whether you're invested in the physical metal, a silver streaming company stock, or anything in between.
Still, silver as a sliver of your portfolio makes sense anytime - as a diversifier, if nothing else.
Related Coverage in Investing:
Is silver a good investment? A beginner's guide to silver and the role it can play in your portfolio
How to diversify your portfolio to limit losses and guard against risk
Warren Buffett bought 3,500 tons of silver in 1997. The purchase helped make Thomas Kaplan a billionaire.
Beginner's guide to investing in gold: The major ways to buy and trade gold, and the benefits and drawbacks of each
A 20-year precious metals veteran breaks down why Reddit traders' silver squeeze fizzled out - and shares his best advice for investing in the commodity as a bull market remains intact
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Thursday, February 11, 2021
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