How to Invest in Silver
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Although gold is the most popular precious metal among investors, silver also has strong qualities to consider. While many metal investors find gold appealing because of its historical function as a store of value, silver has numerous uses in the manufacturing sector, with industrial uses that range from renewable energy to auto parts to medical supplies. It’s also more affordable than gold.
Like gold, silver can provide a safe haven during times of stock market turmoil and a hedge against inflation. The metal also remains a highly sought-after commodity with a long history of use as hard currency and for industrial production.
Below, we explore the best ways to invest in silver as well as the benefits and risks to consider.
Table of Contents
- The best ways to invest in silver
- The benefits of investing in silver
- The drawbacks of investing in silver
- Is silver a good investment in 2023?
- Investing in silver FAQs
- Summary of how to invest in silver
The best ways to invest in silver
There are many different ways you can add silver to your investment portfolio. But if you decide to invest in this precious metal, make sure to consider your broader financial goals, timeline and risk tolerance. These factors will help you determine the most financially advantageous way for you to invest in silver.
If you're still unsure about whether or not the investment is a good choice for you after studying this guide, talk to a financial advisor. Your best bet is to consult with a fiduciary, who is required to recommend what is in your best interest.
Silver bullion
Buying silver bullion — that is, silver bars or coins — or collectible minted silver coins is the most straightforward way to buy silver. You may want to buy silver coins and bars to supplement a portfolio of paper assets like stocks and bonds. However, be aware that investing in physical assets creates some unique conditions for investors.
How to invest in physical silver
Investment-grade silver is at least 99.9% pure. You can buy fine silver bullion from online precious metals brokers — like JM Bullion, where you can buy gold and silver — as well as from storefront dealers, pawn shops, some jewelry stores and specialty retailers.
If you want to buy silver bullion coins or bars, acquaint yourself beforehand with the spot price — that is, the current trading value — of silver. While coins are marked-up to reflect their rarity and condition, the price of pure silver bullion is based on the value of the metal itself.
Each type of silver purveyor has pros and cons. You can get silver of guaranteed purity from online brokers, but they tend to mark up the silver they sell. Some broker premiums, especially those for limited-edition collectible coins, can be steep, and you have no guarantee of making your money back even if you plan to own silver for a long time. You might be able to save money by purchasing silver in person from a numismatic dealer or jeweler. However, the trade-off could be compromising quality or purity, either of which could hurt you when it comes time to sell your silver.
Pros and cons of physical silver
Buying silver bullion yourself cuts out the middleman that other investments may have, but there are still associated costs you need to consider: sales tax, dealer markups and the cost of storing and insuring your silver to protect it from loss or theft. You may choose to store it at home or in a bank safe deposit box.
Although silver is a highly sought-after commodity in financial and industrial markets, the metal itself might not be as liquid as silver futures or silver exchange-traded funds (ETFs), which are still backed by actual silver but can be quickly and easily sold via a broker or online trading platform.
Silver mining stocks
If having to store bulky silver bars or coins doesn’t sound appealing, investing in stocks of silver mining companies may be a better fit for your investment style. Companies that mine silver generally do so either as an adjunct to gold mining, or they mine silver along with other industrial commodity metals, like aluminum and copper. Investing in silver companies provides you with the benefits of investing in this precious metal without having to own the physical metal yourself.
How to invest in silver stocks
Finding silver company stock to buy isn’t quite as straightforward as picking gold company stocks. Companies that mine silver might not exclusively, or even predominantly, focus on that metal. If your goal is to invest in silver, research mining companies’ holdings and operations in order to determine how much of their business is actually in silver as opposed to other metals.
Investing in silver stocks is done the same way you would invest in other stocks. You can use an online trading platform or stockbroker.
You can also buy stocks in precious metals streaming companies, which are firms that provide financing to the companies that actually perform the mining operations.
Pros and cons of silver stocks
Owning stock in silver companies gives you exposure to investor demand for this safe-haven asset during times of market volatility, but doesn’t burden you with the expense and hassle of buying and storing physical silver. Silver mining stocks are easy to buy and are more liquid than silver bullion, with transparent pricing and a highly efficient market.
Although silver is a sought-after commodity by precious metals investors as well as buyers for industrial and manufacturing usage, tracking down the best silver stocks takes a bit of legwork because most precious metals miners focus on extracting gold. Companies that mine other types of metals and minerals, such as lead and zinc, may also not place as much focus on silver production.
Silver ETFs
ETFs are buckets of securities, like stocks or commodities, you can trade throughout the day with an ordinary brokerage account. Silver exchange-traded funds hold silver-backed assets. Some ETFs, such as iShares Silver Trust, hold physical silver bullion, while others, such as Global X Silver Miners ETF, hold stocks of silver mining companies. According to ETF.com, there are a total of nine silver ETFs that trade on U.S. markets.
How to invest in silver ETFs
You can buy and sell silver ETFs with an ordinary brokerage account. These trading platforms and apps have resources available to help you research the composition and performance of an individual silver ETF before making a purchase.
Pros and cons of silver ETFs
ETFs are a low-cost and popular way to hold positions in multiple companies across an index like the S&P 500 or within an industry sector. There are gold ETFs as well as silver ETFs, in addition to other commodity-focused ones that hold assets backed by products, such as oil or copper.
That said, silver ETFs are narrowly focused investments. While they can be part of a well-diversified portfolio, most financial advisors recommend keeping precious metals investments between 5% and 10% of your total nest egg to avoid over-concentration that can heighten your risk.
Because of their specialized nature, silver ETFs have higher expense ratios, which is the cost of managing the fund. The average silver ETF expense ratio is 0.73%, compared to just 0.16% for the average broad-based equity ETF, according to ETF.com. Silver ETFs backed with actual pure silver can also be subject to less favorable tax treatment because they’re classified as commodities rather than paper assets, like stocks or bonds. This categorization means they can be taxed at a higher maximum capital gains tax threshold.
Silver futures
Another way to invest in silver is with silver futures. These financial instruments are contracts in which the buyer agrees to purchase silver at a predetermined price on a specific date at some point in the future.
While silver futures are convenient because they can be easily traded with an ordinary brokerage account, they’re not recommended for beginners. That’s because trading silver futures requires a fair amount of familiarity with trading in general and with how the futures market operates in particular.
How to invest in silver futures
If you want to trade silver futures, many brokerage firms and trading apps have the functionality to do so. However, you may have to fulfill additional requirements on account of the greater complexity and increased risk of loss.
The primary commercial function of futures markets is to allow investors to reduce their risk by hedging against unexpected price movements. Investors can take long positions — betting that the underlying asset's price will rise — or short positions, which entails predicting a drop in value.
Pros and cons of silver futures
Trading in silver futures contracts instead of buying silver can give you more flexibility as well as the opportunity for greater leverage on your investment. But there’s risk. Keep in mind that futures contracts are financial instruments only intended for sophisticated investors who understand the mechanics and risks of futures trading.
Futures trading takes place on centralized futures exchanges, which provides consistency and transparency. Unlike ETFs and mutual funds, you won't pay management fees if you buy silver futures, and taxes are divided between the short- and long-term capital gains rates.
Make sure you’re familiar with how the futures market operates broadly and how silver futures are priced and traded. Educating yourself about how these contracts are structured and your obligations should you enter into this type of trade is crucial. If you don’t have the time or inclination to become proficient with this segment of the market, another type of silver investment might be a better fit for you.
The benefits of investing in silver
Investors seeking out alternative assets might find attributes of silver appealing. Like other precious metals — including gold, platinum and palladium — silver can serve as a hedge against inflation and rising interest rates. It can help protect your portfolio from market volatility.
Wealth preservation
One of the key benefits of silver is that it’s a store of value. It’s also a sought-after commodity across multiple sectors of industrial supply chains. Investors often seek out precious metals because they likely won’t lose value when inflation rises. Some silver-backed assets can even be bought and held in a silver and gold IRA, potentially helping to preserve the value of your retirement nest egg.
It's a safe haven
Like other precious metals, the value of silver tends to move inversely to the stock market. During times of market turmoil — such as a pandemic or recession — when stocks tumble, silver may hold or even grow its value as investors flock to these kinds of assets.
Portfolio diversification
Silver is used in a wide range of goods, from medical supplies to car parts to solar panels. You can buy physical silver or stocks in silver companies or invest in funds that hold silver-backed assets. Adding silver investments to your portfolio will help diversify your investment spread. Diversification is important because it helps reduce your risk of losing money on your entire portfolio when one area takes a hit.
The drawbacks of investing in silver
No income generation
Silver doesn’t generate income in the form of interest or dividends, so even if you plan to buy and hold silver long-term, the only increase in value you’ll realize is when you sell it. Investors who buy stocks and bonds benefit from the value appreciation that comes from compounding over time, but silver, like other precious metals, also can’t add value to your portfolio via compound interest.
Price volatility
While investors use precious metals such as gold and silver to counterbalance stock volatility, the price of silver in the short term can be volatile and may even lose value. If you plan to buy silver, you likely want to approach it as a long-term investment so you won’t be forced to sell it at a loss.
Storage and insurance costs
Unlike a stock portfolio, silver bullion is bulky and can be at risk of theft. If you plan to invest in physical silver, you must factor in how much you’ll need to pay to store and insure that metal, whether you keep it at home or in a safe deposit box.
Is silver a good investment in 2023?
If you’re trying to determine if investing in silver is the right move for you, you must consider your long-term personal finance goals, risk tolerance and timeline. Make sure to do your own research and seek information from well-regarded, unbiased sources — don’t depend on guidance from companies that make their money from selling silver. If you need investment advice, consult a financial advisor who is a fiduciary and is obligated to put your best interests first when giving you investment recommendations.
Investing in silver FAQs
Is it better to invest in silver than in gold?
How much money should I invest in silver?
What is the minimum amount I can invest in silver?
When is the best time to invest in silver?
Generally, investing experts recommend against trying to time the market when it comes to buying or selling silver. Instead, if you plan to buy silver over a period of time, you can use a technique like dollar-cost averaging to mitigate price fluctuations in the silver market to which you would otherwise be exposed.
Like other precious metals, silver should not be considered a short-term investment, particularly if you plan to buy physical silver coins or bars. Precious metals are less liquid than stocks, bonds or funds, and precious metals dealers tend to mark up the silver they sell. That means the value of silver will likely have to rise before you can even break even, let alone earn a return on your investment.
Summary of how to invest in silver
Silver is a popular precious metal for investors seeking portfolio diversification, a hedge against inflation and wealth preservation. Investment-grade silver is defined as having a silver content of at least 99.9% purity. You can buy physical silver bullion coins or silver bars from online dealers, jewelry stores or pawn shops, but make sure to factor in the expense of storing and insuring your precious metal.
If you want exposure to silver but don’t want to buy the physical metal, you can invest in silver company stocks, silver ETFs or silver futures contracts. Many online trading platforms offer silver stocks and ETFs, and some may be available to buy and hold in an IRA. Silver ETFs that hold the stock of silver mining companies offer more diversified exposure than just buying stock in a single mining company, which can help mitigate risk. Silver ETFs backed by pure silver have less favorable tax treatment.
Some brokerages also permit silver futures trading, although there may be additional requirements due to the greater complexity and risk involved. Silver futures are sophisticated financial instruments that aren’t suitable for beginners because the ability to increase leverage — and potential gains — also means losses can be magnified if the value of your investment falls.
Before investing in silver, conduct your due diligence, seek unbiased advice and consider your personal finance situation and retirement goals.