Silver is a store of value and a completely different type of investment than stocks (shares).
Since a stock represents the value of a company, its value can drop to zero. However, silver represents the value of a commodity. This means that it always has an intrinsic value.
That may sound like an advantage (and it is). However, investing in silver has disadvantages such as: B. Acquisition costs, which are often higher than stocks, and, in some cases, the hassle of finding a place to keep your silver safe.
The good news for those looking to invest in silver is that there are ways to maximize the benefits while minimizing the disadvantages. This article describes different ways you can invest in silver.
Precious metal funds
Deciding to invest in silver through a mutual fund or ETF are two of the easiest ways to get started. While there are ETFs that invest exclusively in silver (as we’ll see next), this is unusual for mutual funds. However, there are mutual funds that invest in precious metals as a category. Examples include:
- Invesco Oppenheimer Gold- und Spezialmineralfonds (OPGSX)
- Franklin Gold and Precious Metals Fund (FKRCX)
- USAA Precious Metals and Minerals Fund (USAGX)
There are also many precious metal ETFs to choose from. The Aberdeen Standard Physical Precious Metals Basket Shares ETF (GLTR) and the Invesco DB Precious Metals ETF (DPB) are two popular options.
ETFs are one of the most popular ways to invest in silver. No special brokerage license is required to invest in silver ETFs. Investing in an ETF is the same as investing in a stock – you just buy some ETF stocks and you now have a silver position.
Most ETF investors buy SLV when they choose to invest in silver. Note that unlike stocks, ETFs have an expense ratio. The expense ratio for SLV is 0.5%. An expense ratio is a fee charged to investors by an investment company for managing the ETF.
By investing in SLV, investors don’t have to worry about silver shipments until they hit 50,000 shares. For most, this will never be a problem.
Tax consequences for commodity ETFs
Commodity ETFs have some special tax consequences that should be considered. SLV falls into the category of commodity ETFs. SLV is covered by real silver, which is a commodity. The IRS treats SLV taxation as if you were holding real silver.
Typically, when you sell an ETF that you have held for over a year, you pay long-term capital gains taxes that are a maximum of 20%. However, commodity ETFs are taxed in the same way as collectibles. For SLV, the maximum long-term capital gain rate is 28% instead of 20%. However, lower-income people are not taxed as much and in some cases may not be taxed at all.
To find out how much you’re taxed (or taxed at all), check the K-1 schedule or Form 1099-B that your broker provided you with. Taxes are a complex issue as each person’s situation is different. It is best to work with a tax advisor to determine your taxes on commodity ETF profits.
Silver Miner ETFs
With silver mining companies, you can be indirectly exposed to silver and there is no silver shipment to worry about. Silver miners are a company that offers an additional level of complexity and risk in addition to investing in silver.
In addition, the silver mining business is tied to the performance of silver. If the price of silver goes down, so will the investments of silver miners. However, this is not a one-to-one relationship. If silver falls 10%, miners could fall 5% or 20%.
You can invest in silver mining companies with the SIL ETF. You can also invest in junior silver mining companies (which are riskier) through the SILJ ETF.
When you’re ready to take an even higher risk, you can invest in the individual silver mining stocks. Remember, however, that an ETF spreads risk across multiple companies, while investing in individual miners does not provide diversification.
Futures and options
Using futures or options to invest in silver is more advanced than some of the others we’ve talked about. You should also know that your brokerage account must be approved for futures and options trading before you can begin.
Futures are contracts that trade at the silver spot rate. The spot rate is the current rate for a certain silver weight. Usually the spot is based on an ounce of silver. Trading futures is the closest thing to the actual silver price.
With a futures contract, you can speculate on the price of silver or accept physical silver. When you let the futures contract expire, you must take delivery. For most people, they avoid delivery by selling their contracts before they expire.
Futures and options use more leverage than stocks and ETFs. You need to be very careful when trading these leverage instruments. Silver-based options contracts are derivatives on silver ETFs. Silver futures options contracts are derivatives of the silver futures contract.
When it comes to futures options, a leveraged instrument is trading you for a leveraged instrument! With silver ETF options, they can expire worthless. In this case, the investor simply loses his investment and does not accept silver.
Gold bar is physical silver in the form of coins, bars or bars. There are several ways to buy gold bars. Some local coin, farmer, or jewelry stores sell silver bars. You can also shop from online sellers of gold bars, although there are (sometimes expensive) shipping costs involved.
Silver bars are usually marked with symbols such as “sterling” (92.5% silver) or “0.9999”. These markings help to authenticate the silver. The .9999 means that the gold consists of 99.99% silver.
You can check out a company like Apmex to buy silver bars.
Deciding to invest in silver can be a great way to diversify your investments. However, since silver is only a subset of an asset class (precious metals), you should limit your silver investment to a small percentage of your total portfolio.
There are many ways to invest in silver and the one that you choose is yours. There really isn’t a right or wrong choice. It depends on the investment method that you are most comfortable with. If your choice is a mutual fund or ETF, here are some of the best brokers offering low cost trading.