There are three reasons that people buy Silver, and precious metals in general. They invest in silver to speculate on it’s future market value, to diversify their portfolio against other volatile commodities like stocks or real estate, or to hedge against inflation. If you don’t fall into one of these categories, you may need to do more research to make sure you’re making the right investment.
Silver is a great addition to any portfolio large or small because it’s readily liquid, affordable, and able to be bought in large or small quantities. Right now Silver trades at about $16.45 per troy ounce. Most people can afford to buy 1 oz of Silver with every paycheck. This is a little different with Apple Stock (AAPL) trading at over $400/share.
Silver is both a precious metal and an industrial metal. It’s used in all kinds of applications because of its excellent properties and will always be useful to industry. It has the highest conductivity, the highest thermal conductivitym and anti-bacterial properties
If you’ve decided that it’s time to add Silver to your portfolio, there are a number of ways to do accomplish this. You can either buy physical silver, or you can buy Exchange Traded Funds and Certificates.
Buying Physical Silver
You can buy Silver in a wide variety of sizes and amounts. Most people invest in 1 oz silver coins because they’re easy to split apart and get the denomination you want. Coins commonly used for investing include the American Eagle, Canadian Silver Maple, and the Austrian Philharmonic.
The price for each of these coins is dependent on their purity, even though each one of them is 1 troy ounce. The highest purity silver coin is the Canadian Silver Maple at 99.99%. On average, coins will command about a 15% premium over the “Spot Price“. This premium accounts for manufacturing, storing, and transporting the coins.
If you’re looking to buy for a large investment portfolio, you’ll quickly realize coins can be sometimes inefficient in this respect. Second to coins, the 100 oz Silver Bullion bar is another popular form factor. Because you’re buying more silver in one form factor, the premium above spot price is much lower, around 5%.
These coins and bars are not collectibles, but rather investment items. The silver bullion bars and coins are just convenient form factors for investors. If you’re looking for collectibles, you’ll likely find more value in commercially available coins.
As a best practice you should avoid buying small denominations (1/20 oz or 1/2 oz) coins if possible. Many people think that if they ever need to use their stash of silver in exchange for a good or service it will be more convenient to have small denominations on hand. However, because you’re paying a premium for each coin to be made, it’s best to invest in the smallest number of form factors possible. For 110 ounces, it’s preferable to have (1) 100 oz silver bar and 10 Silver coins.
Buying Exchange Traded Funds Or Silver Certificates AKA Paper Silver
Exchange traded funds or ETF’s are simply shares of Silver that you don’t physically have. Instead, you “claim” a number of shares which roughly equate to 1 ounce of of Silver per share. Then, based on the market price of silver those shares may rise or fall.
This method of purchasing Silver is great because it allows you to avoid all of the logistical problems of acquiring, storing, and selling physical Silver, but still speculate on it’s future price. It also prevents you from having to deal with the spot price and spot curve.
Another major advantage is with shares of Silver, you’ll have near instant liquidity of your money. However, since you’re investing in precious metals, it’s likely not a short term investment. Additionally, with “paper silver” you’re relying on a third party to house, store, and deliver you the funds upon sale. This notion often does not sit well with people buying silver in case there is a financial disaster, and they want to trade their stash of precious metals for goods and services.