With the U.S. stock exchanges at all-time highs and real estate prices through the roof, smart investors are looking for other opportunities to diversify and grow their portfolios.
Precious metals are often considered a “safe” investment, but gold can be prohibitively expensive, and it’s likely that an investment in gold is going to appreciate slowly.
Silver, on the other hand, is ready for a boom. It’s down nearly 64% from its high in 2011, and demand is expected to increase. One of the reasons for the forecasted demand increase is because, unlike gold, silver is still used in a variety of industrial applications.
Today, you can find silver in electronic devices, commercial equipment, electric vehicles, and x-ray films. As stockpiles of silver continue to decline, the law of supply and demand dictates that silver prices have nowhere to go but up. As of the publication date of this newsletter, silver is one of the most affordable investments available, and as the masses discover how undervalued it is, prices could rise rapidly.
How to Invest in Silver
There are more ways to invest in silver than ever before. You can hold it physically or invest in paper assets. We’ll outline all of your options and discuss the relevant pros and cons.
Physical Holdings
Physical silver can be heavy and illiquid, but if you’re looking strictly for an investment that appreciates and you have a safe storage space, then these factors aren’t likely going to be a deterrent.
Bullion Bars
Silver bullion is a bulk form of silver. It can be purchased as a bar or ingot (block). In the U.S., you can buy it from most banks in various weights, often starting as small as 10 ounces. You can also purchase bullion from authorized dealers and jewelers, though there may be a slight markup.
Even Amazon sells silver online; however, you can incur risk by having to trust the legitimacy of an online seller.
Commemorative Coins
Coins are an alternative to bars, and they have the advantage of functioning as currency if there’s ever a catastrophic financial situation. However, keep in mind that commemorative coins come with a premium of anywhere from 5% to 20%. This means that silver has to appreciate substantially just for you to break even.
Paper Options
If you don’t want to take possession of silver, then there are a variety of ways that you can own silver strictly on paper. You can buy and sell it with ease, allowing you to trade it actively while potentially profiting from price fluctuations.
Exchange-Traded Product (ETP)
Referred to as an ETF (Exchange Traded Fund), this is a way to hold silver and trade it as a paper asset in the stock market. The first ETF was launched in 2006 on the New York Stock Exchange under the ticker symbol SLV.
When you own an ETF, you can buy and sell silver without physically having it and storing it. Instead, the fund buys and holds the silver for you, which further depletes the supply and pushes the price of this precious metal higher.
Futures Contracts
If you’re not confident that silver prices are going to rise, you can buy a futures contract. Futures contracts are also a way to leverage your investment because you can control a large amount of silver with a small payment. Instead of paying for the entire amount of silver you want to buy upfront, you would instead enter into an agreement to buy (or sell) the silver at a specified future date. The amount you pay when you originate the contract is a margin deposit.
For example, you could enter into a contract for $100,000 worth of silver for an initial investment of just a few thousand dollars. These investments can be risky; however, as leverage means that you can potentially sustain large losses.
Silver futures contracts are executed through the COMEX exchange at the CME (Chicago Mercantile Exchange).
Derivatives (Options)
Like a futures contract, a derivative is an agreement to buy an investment at a specified price on an agreed-upon date. However, unlike a futures contract, which requires the investor to buy (or sell) the silver, options give investors the right to buy or sell, but they are not required to do so.
Derivatives can also be risky, and the risk depends on a variety of factors. Both futures contracts and derivatives are recommended for advanced investors only.
Silver Certificates
Silver certificates were used as legal tender and were circulated between 1878 and 1964. Though they are technically still legal tender, they are more of a collector’s item than anything else.
Bottom Line: Historically, silver has been used as a hedge for a variety of risky investments. That alone should earn it a place in any investor’s portfolio. When you add in other factors like the government’s tendency to print money on autopilot, the increasing use of silver for industrial applications, and the undervalued price it’s trading at today, silver can be a potentially rewarding investment play.
