Silver has served as a valuable asset to investors for many reasons. It’s often used to diversify one’s portfolio, hedge against inflation, and is seen as a “safe haven” to store your wealth. However, silver comes with risks, including volatility, risks related to supply and demand, and the risk of theft if you own physical silver pieces.
Is silver a good investment for your portfolio? That depends on your current investment objectives, your risk tolerance, and how diversified your assets are. Here, we’ll discuss the ins and outs of investing in silver, how to buy it, the pros and cons of investing in it, and how it compares to investing in gold.
Why Invest in Silver?
Silver has been around forever, giving people a sense of stability as a rare, limited-in-supply commodity in which to invest. Among the many reasons why people invest in silver include:
- Hedge against inflation: During uncertain economic times and rising prices, people often turn to silver as a way to hedge their portfolios against loss. This is because silver has historically been a less volatile investment, as well as a commodity that has many uses even today——making it a conservative investment option.
- Safe haven: Investors looking for a safe place to put their money have historically turned to silver as a safe haven.
- Diversification: Diversification doesn’t just mean having different stocks in your portfolio. It also means diversifying the types of assets you hold. Investors looking to diversify the asset classes held in their portfolios often turn to silver as a stable option because it’s less correlated to other markets.
- It’s a tangible asset: One way to invest in silver is to purchase silver bars. For many people, having a tangible asset such as silver provides a sense of security over holding intangible assets such as ownership in a company.
- Multiple uses: Silver serves as both a precious metal and an industrial metal. In other words, silver is used as both a form of currency and also has many uses for manufacturing various products.
Understanding the Risks of Investing in Silver
There are things you should know before you invest in silver to avoid damaging your portfolio performance. Before you add silver to your portfolio, understanding the risks you may be exposing yourself to is essential. Some things to consider before investing in silver include:
- Silver can be a great way to diversify your portfolio and hedge against loss. However, it is also subject to the law of supply and demand, which can result in unpredicted, sharp changes in price.
- When buying silver, you pay the current price plus a premium. It’s wise to compare the premiums of different broker-dealers to ensure you get the best price possible.
- As with all types of investments, there is the risk of fraud. Steer clear of any broker promising guaranteed returns, who sends you spam mail and phone calls, or who claims to make a lot of money with little risk.
- Silver and precious metals are often purchased on margin, increasing your maximum potential losses. This can be very risky because you are using borrowed money to buy more of the asset, and you’re paying an interest rate for the borrowed money.
- Certain industries such as technology may replace silver in their products with other materials. This would ultimately lower the demand for silver and thus, its price.
You may purchase silver as jewelry or collectible coins, too, but they may not be liquid assets and their value may solely depend on what a buyer may be willing to pay.
How To Invest in Silver
In most cases, your investment bank will have access to multiple ways to purchase silver—whether it be through silver funds, futures contracts, or companies that benefit directly from silver’s price. Here are ways in which you can invest in silver.
Purchase Silver Bullion
Silver bullion refers to silver coins or silver bars. You can purchase physical pieces of silver as an investment from a trusted bullion exchange or local bullion dealers. Investors profit from purchasing bullion silver when they buy it at a reasonable price and hold onto it until its price rises, then sell it for a profit.
Invest in Silver ETFs, ETNs, or Mutual Funds
You can invest in silver funds through your bank or investment broker. There are many exchange-traded funds (ETFs), exchange-traded notes (ETNs), and mutual funds that own silver and whose prices are directly correlated to silver's price. Purchasing a fund that owns silver can be convenient if you don’t want to own physical pieces. It may also be more liquid with the ability to sell your shares back to the open market.
Precious metal ETFs may be taxed as collectibles and subject to higher capital gains tax.
Silver Futures Contracts
Speculative investors can purchase silver futures to bet on the rising or falling price of silver. Silver futures often have options for high amounts of leverage, enabling investors to purchase even more by using their broker’s money to leverage their position. Keep in mind that leveraged positions also come with higher amounts of risk.
Buy Stock of Companies That Mine Silver
There are publicly traded companies whose operations include mining silver. These companies own large amounts of land with silver mines and are involved in the production of precious metals such as silver. These companies profit from the price appreciation of the silver they produce, as well as increasing the output of their mining operations. Notable publicly traded silver mining companies include First Majestic Silver (NYSE: AG) and Wheaton Precious Metals (NYSE: WPM).
Buy Stock of Silver Streaming Companies
Silver streaming companies are companies that purchase silver from silver mining companies and profit from the growth of silver. Owning stock in silver streaming companies, such as Royal Gold or Franco Nevada, may be another way to add silver to your portfolio and directly benefit from its growth.
Pros and Cons of Investing in Silver
Silver can be used as an inflation hedge
Silver is not directly correlated to asset markets
You have the option to own tangible pieces of silver
Silver can be a costly asset to purchase
Silver may be difficult to store
Tangible assets can get lost or stolen
- Silver can be used as an inflation hedge: If rising prices bother you, you can protect your portfolio by investing in silver. It has a track record of rising in times of rising prices.
- Silver is not directly correlated to asset markets: The stock market and real estate market are examples of asset markets. Silver doesn’t have a direct relation to the economic conditions of asset markets, making it a great option for diversifying your portfolio.
- Own tangible coins or bars: Owning actual silver coins or bars is satisfying to some investors in that they can see and feel what they have invested in. Furthermore, silver is a weatherproof material that can withstand various conditions such as water, fire, and damage.
- Silver can be expensive: Because silver has a limited quantity in the world, it is considered a rare commodity. As a result, bullion dealers often charge hefty premiums to maintain their business of buying and selling precious metals.
- Difficult to store: Owning physical pieces of silver takes up space and can become a heavy asset to own. Finding a place to store and move heavy silver can be difficult.
- Misplacement and theft: Like owning expensive jewelry, owning silver has the risk of being lost or stolen.
Investing in Silver vs. Investing in Gold
Gold and silver are both valued precious metals, but they may have subtle differences when it comes to investing.
|Investing in Silver||Investing in Gold|
|There is a larger supply of silver available and as a result, it is less expensive than gold.||There is a smaller supply of gold available and as a result, it is more expensive than silver.|
|Silver is a better inflation hedge than gold because of industrial use. This means that in a strong economy, the demand is high, and in a weak economy, the demand is lower.||Due to gold’s lack of need for industrial use (as compared to silver), it is a weaker inflation hedge compared to silver.|
|May be more volatile than gold||Is less volatile than silver|
Frequently Asked Questions (FAQs)
Is now a good time to invest in silver?
As with any investment, the timing of when to buy is dependent on the current market and the investment objectives of each investor. Silver can be a great investment opportunity for any investor looking to diversify or hedge against different market conditions in their portfolios.
Is silver a good long-term investment?
One could base their decision to invest in silver on its historical performance; however, past performance is no guarantee of future performance. Consult with a financial professional to determine the long-term suitability of silver for your portfolio.
Is buying silver bars a good investment?
Buying silver bars can be a good investment for the investor looking to hedge their portfolio against current economic conditions, who would like the benefits of having tangible investment assets, or who simply wishes to diversify their portfolio holdings. However, like most other assets, investing in silver carries risk.
Morgan Stanley. "Gold vs. Silver: 5 Key Differences You Should Know."
Charles Schwab. "ETFs and Taxes: What You Need To Know."