While many investors set their sights on gold and platinum, those are not the only precious metals that can turn a healthy profit. Silver has always been popular among investors for its industrial demand, even with its market volatility.
Silver and gold go hand in hand when investors begin to doubt the value of U.S. currency. You can buy this precious metal as bullion, coins, rounds, and other forms if you want to keep your money secure.
But did you know you have even more options? In this article, I’ll show you how to invest in silver so you can decide whether it’s a good option for your portfolio.
What does investing in silver really mean?
While silver does fit into the category of commodities, precious metals sit outside that box. That means investing in silver isn’t quite the same as investing in agricultural, mineral, or other types of commodities.
When you invest in silver, you usually buy silver bullion, whether you intend to trade or to own the silver. People who buy silver don’t consume it the way they do when they purchase other commodities.
Silver bounces back and forth between its dual classifications as an industrial metal and a precious metal. Its supply and demand affect its status. Silver, which has been a trading metal since 6000 B.C., has plenty of industrial value, from jewelry to batteries.
You may have heard that silver is safer than investing in fiat currency (fiat currency is currency with values established by government regulation, such as the U.S. dollar). However, like fiat currency, silver’s intrinsic value depends on demand.
If other investors don’t want to buy silver, then it no longer has value. In that case, investing in silver is no better than investing in fiat currency—even though many people treat silver and other precious metals as a fallback in case government-issued currency loses its value.
Silver is rarer than other industrial metals, which helps it maintain its value. It also tends to run in the opposite direction of the stock market, making it an attractive investment. If you invest in stocks, investing in silver may mean both diversification and a safety net if stock prices plummet. That factor alone can make it a worthwhile investment for many investors.
Why should you invest in silver?
Although many people gravitate toward the more expensive precious metals when they invest, silver can be a surprisingly profitable investment.
Compared to gold, silver has more volatility. While it may not reach a higher intrinsic value than gold, it can outperform gold when it comes to increasing in value. According to Senior Precious Metals Analyst Jeff Clark, when silver reached an all-time high, it rose 3,105% compared to gold’s 2,328% gains between 1970 and 1980.
Silver’s volatility can make it an excellent investment, since it has the potential for higher gains, especially in a bullish market. Since more investors seek gold, silver’s smaller market makes it ideal for safer investments without losing its liquidity.
In large part, silver has remained a popular investment choice for many years because of its industrial uses. Manufacturers have found uses for silver in a range of products, from electronics to solar panels to earrings. Even your cell phone has small amounts of silver in it.
Its versatility means that silver is always in demand. By investing in a precious and industrial metal with so many applications, it won’t run out of value.
How do you buy silver?
You can buy silver using a variety of investment methods. The one you choose depends on your preference and how you intend to use or sell the silver in the future.
Silver usually shows increased gains during times of uncertainty surrounding fiat currency. Many investors see trading silver as a risk, so they keep their investments smaller than they would for other precious metals or commodities.
Still, when it comes to investing in silver, you have many options, including:
- Bullion Futures.
- Mutual funds.
- ETFs and ETNs.
Each type of investment comes with its own specific risks and benefits. Some investors choose to use a method that they’re already familiar with. Other investors believe that buying bullion offers more safety in case the value of fiat currency falls. And some simply want to diversify their portfolios.
How to buy silver stock
You can buy silver stock directly from your online broker, just like you would any other stock. For example, you can easily use Robinhood to buy any number of silver stocks. There’s plenty of silver ETFs and mining stocks to choose from.
And if you’ve read our Robinhood review, you’ll know that stock trades are zero commission and it’s easy to place an order. In fact, you can punch in the ticker symbol of any of these silver stocks and within a few taps, own a silver stock for yourself for as little as $1/
Silver stock gives you a way to invest without buying and selling actual silver. Unlike purchasing bullion, buying silver stock is not dealing with the commodity itself.
When you purchase silver stock, you invest in a company with direct involvement in the silver industry. You can invest in a mining company that produces and distributes silver, or you can invest in a jeweler that uses it to produce silver earrings, bracelets, and other jewelry.
Those aren’t your only options, though. Because silver has so many uses, you have a variety of ways to invest with stocks – and plenty of industries to choose from.
While stocks align with silver’s market value, they also go beyond the value of the metal itself. Because of this, silver’s volatility can either help or hurt your investment.
Because buying stocks means you’re investing in a business and not the commodity itself, the company’s success affects your investment, perhaps even more than silver’s market value at any given time. That means that if the company has a shortage or faces economic struggles, your stock value may fall, even if silver’s market value has remained stable.
One of the advantages of buying silver stocks is that you avoid some of the silver market’s volatility. You might also see more benefits if you invest in pure silver mines. In recent years, many mines have branched out into more generalized metals. Therefore, investing in silver through these companies gives you a smaller share, since silver makes up a lower portion of their businesses.
When you invest in a pure silver mine, you’ll have more stake in the company and commodity. Regardless of how much you have in your portfolio, silver still shows diversification into commodities and metals.
How to buy silver bullion
Despite the many ways to invest in silver, buying silver bullion remains one of the most popular today. It’s the easiest, most direct way to invest in silver.
You can buy silver bullion in three primary forms:
You can buy silver bullion locally or online (just search “buy silver bullion near me”) – though you’ll need to be cautious of where you order to make sure they’re legit. Places like JM Bullion, APMEX, and SD Bullion have been around for a while and should be reputable.
Silver coins are among the most popular types of bullion you can buy. Because they’re small, they’re easy to buy in bulk and keep in your home if you don’t want to pay to keep them in a storage facility. Coins are 99.9% pure silver. Governments across the world produce coins with different designs, making many of them valuable to coin collectors and not just for their silver content.
Some of the most popular coins include the American Silver Eagle, Canadian Silver Maple Leaf, Chinese Silver Panda, and British Silver Britannia.
Coins, bars, and rounds follow both the spot prices and market prices of silver. The spot price applies to the value of silver per troy ounce. When you decide to sell your silver bullion, you typically look at the spot prices, as they’ll show how much your silver is worth if you choose to sell it on the spot. Spot prices fluctuate based on economic and governmental factors—and even the prices of other metals in comparison.
You can usually sell to the same places you buy from online (including those listed above), but once again, be cautious of where you’re sending your bullion.
Bullion remains one of the easiest ways to invest in both precious and industrial metals. You can buy as much as you want and then sell it when prices go up. Unlike stocks, futures, and other types of investments, buying silver bullion requires you to consider the physical aspect of your product. Because of this, you carry the sole responsibility for your investment.
Put more simply – that means you need to figure out how and where to store your bullion, as well as how you want to insure it. Some investors choose to keep their bullion in their homes, while others use a storage facility for safekeeping.
How to buy silver futures
Futures contracts allow investors to lock into a price for silver before the market changes. Usually, independent investors don’t deal with futures contracts, as they often apply to larger amounts of silver products.
E*TRADE, for example, allows you to buy and sell futures contracts for $1.50 per contract. In short, you’ll search for futures contracts, specifically silver futures, and buy the contract that fits your liking and risk tolerance. Remember that with futures, you don’t actually hold the asset – you hold the right to buy or sell it.
Here’s a snapshot of the silver futures available on E*TRADE – notice that there are certain trading hours and specific months of the year you can trade them in:
Futures contracts work well for investors – both individuals and companies – that know they’ll need a certain amount of silver later but don’t want to purchase yet. In these cases, the company and seller will agree to a specific price when they create the contract. However, when you buy silver futures, you take a different risk than you would with other silver investments. Futures contracts have clear winners and losers.
Silver futures contracts can benefit investors since silver has more volatility than other assets. No one knows whether the market price will rise or fall dramatically six months to a year from now, so futures contracts offer a safeguard in the case that prices rise and you have locked into a lower rate. On the downside, you may end up paying far more per share than you’d want.
Let me give you an example:
Suppose that you, as a manufacturer, purchase a futures contract agreeing to buy 5,000 ounces of silver for $10 per troy ounce one year from the date of the agreement. If the silver price in one year rises, you’ll win. In that case, you would get the better deal. If the silver price falls, however, the silver mine will win, because they would be selling you the silver for more than its current market price.
Now, as an investor, your silver futures would be purchased directly through your brokerage, but this is just to give you an idea of how it works.
Trading silver futures gives you a few options you won’t see in other investments, like standardized purchases. Full, E-mini, and Micro futures contracts all offer standard amounts of silver for your investment: A full futures contract gives you 5,000 troy ounces. E-mini and Micro futures contracts ask you to purchase 2,500 and 1,000 troy ounces of silver, respectively.
According to Charles Schwab, these contracts can help new investors get exposure to larger markets like the S&P 500, NASDAQ-100, Dow Jones, and Russell 2000. You also have access to a more secure marketplace to buy and sell. Since you don’t need to hold physical silver when you make this trade, you can set your price for as far as 60 months in the future. Silver futures also provide longer hours for trading, unlike stocks, which require more attentiveness to market prices.
How to buy silver options
Like futures contracts, the timing for buying silver options correlates to how the market price of silver rises and falls. The difference becomes how far in the future you want to predict.
While futures contracts allow you to lock into a price up to five years ahead of time, options don’t lock in a price, so you usually only predict the price up to a week before it lands.
In the U.S., you can trade silver options through the Chicago Mercantile Exchange (CME). Options are an extremely risky form of trading (notice how I chose not to say “investing” since this is so speculative), and whether you take this route should depend upon how much you can afford to lose.
When you trade options, you use an exchange broker’s platform to predict whether the price of silver will rise or fall. You can buy silver with call options or put options:
- Call options allow you to buy silver at your strike price for a specified amount of time before the call expires. If you think the market price will rise, you can buy a call option so you can purchase silver at a lower price, even if it should increase. If the price does rise, you’ll win. You’ll profit from the difference between your strike price and the market price. However, if the market price falls, you’ll lose your premium.
- Put options allow you to sell your silver at the strike price until it expires. Your wins or losses run opposite those of call options. In this case, if the market price rises above your strike price, you’ll lose your premium. A lower market price means that you’ll profit.
When you trade options, you’ll need a margin brokerage account to guard against loss. With this type of account, if you do take a loss, you’ll still have a margin of funds to cover your loss so that it doesn’t hurt your bottom line.
You can choose from long-term or short-term options, depending upon your preference. Some people prefer the one- to five-minute time limits of short-term options as opposed to the nine months of long-term options.
As an example, you can buy silver options through E*TRADE. Options trades have no commission and their options contract price is just $0.50 for equity and index options per contract – which is pretty cheap.
How to buy silver ETFs
A silver exchange-traded fund (ETF) works well for investors who want to expand into silver and other metals. You trade them on a stock exchange, although they come with more advantages than stocks alone.
With a silver ETF, you can invest in a basket of assets. These assets can include stocks, bonds, physical commodities, and more.
Although you have multiple assets with an ETF, you don’t have to buy and sell them all at once. You can sell them by units, allowing you to diversify your portfolio instantly and with minimal effort.
American investors have access to 11 silver ETFs. These can provide tax-efficient investments that increase your overall gains, thanks to their low turnover.
When you purchase a silver ETF, you have an advantage when it comes to exchanging, and not only with ease and diversification. ETFs have more flexibility than most other types of investments since you can trade at any point in the day.
ETFs also have more liquidity than many other investments, although they are designed to be more long-term than mutual funds or options. ETFs can also work to your advantage if you want to dip your toes in the water with a smaller investment.
If you do decide to invest in ETFs, you should know about leveraged ETFs. Typically, you’ll want to avoid or be wary of them.
Leveraged ETFs work to double or triple your daily returns. These multiples can help you by making you more money. However, if the market price goes down, you also lose two to three times as much as you would have lost with a regular ETF.
If you’re just starting out buying silver ETFs, avoid leveraged and inverse ETFs until you know more about the market. They present more significant risks, and losing on them can destroy your returns. They also don’t work well for long-term investing.
How to buy silver mutual funds and ETNs
While ETFs work much like mutual funds and exchange-traded notes (ETNs), you’ll see some pretty big differences between them.
Unlike an ETF, an ETN doesn’t purchase ownership of an asset. Instead, it’s an unsecured debt security backed by an issuer such as a bank. Its value corresponds to the index, but you don’t own the silver itself.
Like ETNs, mutual funds don’t hold physical silver, either. Instead, multiple investors pool their money into one fund. A commodity pool operator (CPO) handles those funds and makes investment choices on the investors’ behalf.
Mutual funds, unlike ETFs, usually require a minimum investment. While you can invest in an ETF with as little as $100, mutual funds often require a few thousand dollars initially.
Mutual funds don’t trade on a stock exchange like ETFs, and they only trade once a day. That differs from stocks and ETFs, where you see the price fluctuate multiple times in a single trading day. In this way, mutual funds potentially offer lower risk.
While ETFs cater to the long game, mutual funds tend to offer a safer short-term option. Because you have the advantage of a CPO, you don’t have to watch the market so closely.
So is silver a good investment?
Silver CAN be a good investment IF you understand the market. Before you jump in, consider whether you want to be continually monitoring the market and spot prices, waiting for them to spike or plummet. You should also think about how to invest in silver before deciding if it’s a good investment for you.
Many investors choose to buy silver bullion as a simple, secure way to invest. Physical silver investments have continued to grow over the past ten years, despite the fluctuation and downturns in investments with futures and other silver assets. Silver bullion can provide a hedge against inflation, too. Plus, if the stock market drops, silver offers an alternative investment that can protect you.
Supply has also declined, though, which can increase market prices as new investors want to buy. And because silver moves up and down so frequently, it’s easier to buy and sell. Even if the market value does decrease, it’s likely to rise back up, so you can usually minimize losses or even make a profit.
Silver has enough industrial uses that it will always have demand among manufacturers. The Royal Society of Chemistry describes the metal’s various applications, from making mirrors to solar panels to dental alloys.
If you’re just diving into the silver market, you have plenty of options for investing. The one that works best for you’ll depend upon how you want to diversify and why you plan to invest.
Don’t forget to use resources like Robinhood to help you get the best deals for your silver.
With a volatile market, consider your long- and short-term options. Mutual funds and ETFs can give you more stability in the market, while stocks and options work well for faster trades. Investing in bullion can give you even more security. So when it comes to investing in silver, only you can decide the right method for you.