Has the pandemic made you nervous about your long-term investments? Over the past year, the Dow Jones Index reached record highs fueled by low-interest rates and government stimulus money. But, how long will these “sugar highs” last?
Thanks to historically low mortgage rates, the real estate market blossomed into a seller’s market. While real estate and stocks can be strong investments, it’s not unreasonable to want to sink your money into something more stable—like silver.
Interested to learn how to invest in silver, like a pro? Let’s dive in.
Why to Invest in Silver
Most people tend to prefer a diversified investment portfolio, if nothing else, because they sleep better at night. When managed by a pro, a diverse portfolio will seek to keep your returns high and your risks low.
A diversified portfolio will often include stocks, commodities, fixed-income investments, and real estate. Included in commodity investments are precious metals, like silver.
What is a commodity? It’s anything in which the price of the material (usually a raw material or farm product) is set by the market. Examples of commodities include precious metals, coffee, oil, and natural gas, for example.
Although some economists downplay the need for precious metals in your portfolio, there are numerous benefits to silver investing.
1. Value Retention
First, people invest in silver because it is safe. While any investment carries risk, metals like silver tend to hold their value long term.
Though metal markets like silver fluctuate, they don’t swing through extreme highs and lows like stocks or other commodities like oil. For this reason, many investors turn to silver when an economic downturn is imminent.
Additionally, silver is a physical (real) asset, unlike paper assets like stocks or bonds, for example.
Throughout time and history, precious metals have served as a way to store and exchange wealth. This means silver can be thought of as a cash or currency “equivalent.” Because the value of currency can fluctuate, one could argue that it is a more stable way to store wealth than paper (fiat) money.
2. It’s Cheap
Investing in silver is great because it is cheaper than its precious metal counterpart, gold. Why is silver cheaper than gold?
It’s simple economics. While both metals remain in demand, there is less gold available. The less available, the higher the price. While investors consider gold a solid investment, for many, silver is a better way for investors to get into metals.
3. Hedging
Many people invest in silver to hedge against riskier investments. Since people see silver as a safe long-term investment, they will diversify their portfolio with it, so they don’t lose money.
A hedge is an investment position that you take in order to counteract potential losses that could result from your other investments. When you hedge, you typically buy investments that will either move independently or inversely to your other investments.
4. Market Volatility (Trading Potential)
The market volatility of silver seems to go against the reasons why people invest in silver. Investors turn to silver to protect themselves against stock market volatility. So why is silver volatility a good thing?
While silver holds its value well long term, it is less stable than gold. Silver has dual-use. It is a sought after precious metal like gold. Unlike gold, silver has industrial uses. These factors contribute to the price swings.
Silver volatility benefits investors because it allows them to make a good return in a shorter amount of time. You can buy it when the price is low. You can sell during an upswing or market high much easier than gold.
Types of Silver: Physical vs. Paper
For many investors, physical silver remains the ultimate investment. Physical silver is clean and allows you to track silver prices in real-time. Physical silver is a great investment for those who plan to hold onto their silver for a long time.
How to Invest in Physical Silver
Physical silver lends itself best to a long-term investment strategy, because it is harder to trade. If you buy large amounts, you’ll have to pay to ship it and store it. These costs will be minimal over the long haul but do not benefit quick trading.
If there comes a time when you want to cash it in, you’ll sell it to a dealer. Precious metal dealers make money by buying silver at a lower price than what they sell it for. This will take a chunk out of your profits if you trade too fast.
If you plan on holding on to your silver, there are three types of physical silver you’ll need to know.
1. Bullion Coins
These are coins you can purchase from dealers or directly from the U.S. Mint. You purchase bullion coins by weight, and the silver content is guaranteed by the U.S. Government.
Bullion coins are not circulated as currency, though you can buy what’s known as “junk silver.” These are pre-1965 half-dollars, quarters, and dimes made from 90% silver.
2. Bars and Ingots
An ingot of silver is a piece of silver of an unspecified weight. Silver bars are standardized by weight and size.
Silver bars must contain 23kg to 34kg of silver. They must be between 60mm and 100mm in height, a top surface length of 250mm to 350mm, and a top surface width of 110mm to 150mm.
Since silver bars fall under international regulation, they will have a serial number.
3. Numismatic Coins
These are rare, circulated coins that derive their value from their collectability rather than their silver content. While these coins do contain silver and are worth more because of that, they are not a good silver investment.
If you have some numismatic coins, you’re better off selling them to a rare coin dealer than a metals dealer.
How to Invest in Paper Silver
Silver investment doesn’t mean you have to purchase and store physical silver. If you want to put money into the silver market to ride a market downturn, there are many potential options.
Of course, the downside of this approach is that you won’t own a real (physical) asset. Instead, you’ll own a paper asset, which is a representation of something.
Here are two savvy options for investing in paper assets that track silver.
1. Silver Mining Companies
A way to invest in silver is to buy stock in a silver mining company. An investment in one of these means you leverage the company’s cost of production versus the selling price.
Any mining company like Endeavor Silver (NYSE: EXK) has a fixed cost to produce silver. When the sale price of silver goes up, the company makes more profit. As profit increases, so will stock prices.
Though the relationship isn’t always one to one. Halts in production and new government regulations can affect stock prices even if the silver value is high.
2. Silver ETFs
You can invest in silver and trade it like a stock through an ETF or an exchange-traded fund.
These companies, like Wharton Precious Metals Group (NYSE: WPM), sell shares based on the amount of silver bullion they own.
As the price rises, so does the price of shares. While many consider silver ETFs a safe investment, some investors steer clear. When you buy an ETF share, you don’t have legal access to the physical silver.
How to Invest in Silver for Long-Term Gains
The silver market continues to soar in the Covid-19 investment landscape, with the spot price of silver reaching highs not seen since 2013. If you’re not familiar with the term “spot price,” it’s simply a financial term that means the current market price.
The cause of this spike is investors with a fear of an oncoming stock market downturn shifting their money into precious metals.
If you want to know how to invest in silver, consider your options. Silver bullion and coins are often the best long-term investment. But, if you want to ride the market without the hassle of owning physical silver, then a silver mining company stock or ETF could be a smart play.
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*Disclaimer: Nothing in this article should be construed as financial advice. Before making any decisions, you should consult with a professional adviser, such as a financial planner or CPA. I have no financial relationship with any of the companies mentioned in this article.
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