Jasmine Birtles
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How to invest in silver
Sam Meadows
27th Aug 2021
When it comes to investing in precious metals, silver has always lived in the shadow of its glitzier, more eye-catching cousin: gold.
The latter is seen by many as the ultimate safe-haven asset, holding its value when stock markets struggle. However, for savvy investors who know what they are doing, silver can be an equally interesting proposition.
Like gold, it has intrinsic value and so can be an effective hedge against inflation. Unlike gold, it has a myriad of real-life uses in the industrial process. This can be anything from batteries to automated cars. Meaning, its price can in part be driven by the market.
It also has the benefit of being much cheaper. At the time of writing in August 2023, the gold price was roughly $61,700 (£48,600) per kilo, while silver cost just $760.
Both are examples of alternative investments – namely an asset that does not fit into a traditional category of cash, bonds or stocks, for example. It can be a good way to diversify a portfolio.
- The benefits of silver investing
- What are the risks of investing?
- How to invest in silver
- Where to store your bars
- Investing in silver Jewellery
- Investing in silver ETFs
- Investing in funds that contain silver
- Investing in silver mining stocks
The benefits of silver investing
Firstly, the price has soared in recent years. Since March 2020, the price of silver has nearly doubled.
There are also factors which could point to future success:
- The rising economies in the developing world have led to a booming middle class in countries like China. This will lead to rising consumption and potentially more demand for silver used in industrial production.
- Its usage for making automated cars and solar power could also stand it in good stead in the future.
- From an investing perspective it can offer protection from turbulent markets. Its status as a tangible asset means it offers an element of protection from inflation, serving a similar purpose to an investor’s portfolio as gold.
- It is also, as mentioned previously, cheaper than gold. However, this is useful in more ways than one. It means it can be easier to sell silver in small amounts if you need to draw on your investment. The lower price means offloading a single bar will take up a lower proportion of your investment than doing likewise with gold.
What are the risks of investing?
Investing in any asset is not without its risks, and silver is no different.
- Despite serving a similar purpose for investors to gold, it is more sensitive to industrial downturns and recessions because of its role in manufacturing in various sectors.
- It is similarly vulnerable to technological changes. For example, the shift from analogue to digital photography over the past two decades has seen it suffer as it is a major proponent of photographic film.
- For similar reasons, its price can be volatile and unpredictable as it is affected by wider factors in the markets. As it is a relatively niche investment its price can also be manipulated. In February 2021 traders on social media site Reddit sent the price to an eight-year high.
- Unlike stocks, buying silver directly does not offer a dividend or any interest, meaning the only way to profit is to sell when the price is higher than when you purchased it. There are ways around this while still having exposure to the metal.
- There are also practical considerations. If you purchase physical silver then it needs to be stored somewhere. This comes at a cost and also creates the risk of theft.
- It is also a fairly illiquid asset. As there is a smaller market than for other possibilities, finding a seller is not always easy – so those who need to be able to cash in immediately might be better served by looking elsewhere.
How to invest in silver
Buy bars directly
The most obvious way of investing in silver would be to buy bars directly. This is usually known as silver bullion.
It is one of the most straightforward and direct ways to gain exposure as it is a simple case of purchasing the metal itself.
The pros of this approach are that it is relatively easy to do. It is also very easy to track the value of your investment. As you would own the tangible asset itself, knowing how much it is worth is as easy as checking the price of silver on any given day.
However, it comes with its downsides. A large amount of silver bullion does have a drain on one particular commodity, namely physical space. It will need to be stored.
There are firms which provide this service (at a cost) or you can store it yourself. The latter opens up other issues – you would need to have space at your home or elsewhere and there is also the matter of making sure your investment is secure from burglars.
Dealers in silver bullion will also usually charge a small premium when you make a purchase, and could also apply a slight discount when you sell. This means there is a tangible cost at either end of the transaction. This will eat into your returns.
But, if you have decided this is the way to go, how would you go about it?
Buying from the royal mint
You can buy silver bars or coins directly from the Royal Mint itself.
- Silver purchased from the Mint attracts VAT, unlike its gold.
- However, it does offer free home delivery on purchases of more than £250.
- It says this gives you the “flexibility” to store your bars at home or elsewhere.
- Due to their size, coins can be purchased at much lower values than bars.
- The other benefit of coins is that those purchased from the Royal Mint are exempt from capital gains tax.
Alternatively you can purchase from a dealer. Go to Hatton Garden in London and you will find gold and silver dealers that will buy and sell gold, silver and platinum over the counter. You may also wish to buy silver online, but it’s very important you do your own research to ensure you’re getting the real thing.
Where to store your bars
Silver dealers often offer a combined purchase and storage service.
- Bullion Vault says your bars will be stored in professional vaults in Singapore, London, New York, Toronto or Zurich and are fully insured. It also claims that its negotiating power means it has kept storage costs low.
- The Royal Mint also offers a storage service called The Vault, which it describes as “state of the art”. There are other private firms with similar offers.
- If you choose to purchase bars or coins to keep at home you need to make sure your property (or wherever you choose to keep your investment) is equipped with a suitable security system and you should also consider insurance.
- You also need to consider the conditions that your bars will be kept in. They need to be away from damp to avoid corrosion and it is recommended that gold and silver is kept separately. There is more information on the Royal Mint website.
Investing in silver jewellery
When it comes to investing, jewellery is unlikely to be the first thing you think of to boost your portfolio. And there are some good reasons for this.
- Firstly the security risk is even higher than for bullion, with burglars frequently targeting jewellery if it is not kept properly secured.
- Items of jewellery are also unlikely to be pure gold or silver and the purchase price will be increased by the costs involved with creating the product. This can limit your potential for returns. There is also no guarantee that you will be able to easily sell any jewellery at a profit in the future.
- On the upside, silver jewellery is at least an investment that you can wear. This means you can get some practical use out of your portfolio while you hold it. Silver jewellery is also typically easier to maintain than its gold counterpart.
- Nonetheless, most investors are unlikely to view jewellery as a solid store of value in the same way they would bullion.
- If you do wish to invest in silver jewellery, ensure that the pieces you buy are made from real silver and have a high precious-metal content.
- Local pawn shops can be a good place to start. You could even ask the owner to call you when a suitable item becomes available. However, when it comes to pawn shops or the internet, it can be difficult to ascertain the authenticity of any pieces – so be wary.
When it comes to selling, be wary of schemes offering you cash in return for posting your jewellery. These can be poor value and could even be a scam – your jewellery could be sent but the promised funds never arrive.
Investing in silver ETFs
Another way to gain exposure to silver is to invest in one of the many types of investment fund offering to track the market.
Exchange-traded funds (ETFs) are usually passive investments, which means they aren’t run by a fund manager. Therefore, they are a cheaper way to invest than other types of fund.
They will track a particular market or asset, such as silver. This means they replicate market movements and offer potential returns accordingly. They are traded on the stock market, meaning you can buy and sell them at any time of day. This is much as you would be able to do with shares in companies like BT or Shell.
This can be a good way to ‘invest’ in silver. It negates the cost and hassle of having to find somewhere to store bullion, whether via a third party or yourself.
They also offer better liquidity than owning bullion directly, meaning shares in an ETF can be sold or traded more easily and do not require finding a buyer willing to take your asset off your hands.
There are downsides, however. You do not actually ‘own’ any silver which will not suit investors looking for the romanticism of owning a precious metal. In fact it’s very important to find out how much actual silver the ETF tracks. Many ETFs ‘lend out’ the silver or gold in their funds and that is not the kind of product you want to invest in.
There will also be fees to pay to the company that operates the ETF. As this type of fund is not usually “actively” managed by a fund manager, these fees are usually relatively low.
What are the next steps?
So, if it sounds like ETFs are for you, the first step is to open an account with a stockbroker. This is a fairly straightforward process and can be done fairly cheaply. Some of the best known include Hargreaves Lansdown, AJ Bell and Interactive Investor. There are a number of newer firms like eToro that may also be worth considering.
- You will need to register your personal details and enter payment information to access the platforms. Most platforms these days offer trading on the internet or even via a mobile phone app.
- You will need to be aware that these brokers will charge fees for trades. It is worth spending time comparing them to ensure you are getting the best value for money.
- After you have an account, the next step is to choose which ETF is for you. We cannot tell you which to put your money in, but there is plenty of information elsewhere, on websites like Investopedia here.
- A final consideration, is that while ETFs offer good returns, the value of investments could fall as well as increase. You should be prepared to be invested for the long-term, probably five years or more. This will maximise your chances of making a profit.
Investing in funds that contain silver
The other type of fund you might consider is a mutual fund that holds some silver. Unlike ETFs these are traded once a day, so are a little less flexible (although not much), and are often run by a fund manager.
Having a fund run by a manager is called “active management”, as opposed to “passive”. It has its drawbacks as well as its perks.
Having a manager frequently reviewing the basket of stocks and making changes when necessary may maximise opportunities for profit. However, this comes at a price as the fees investors pay are usually higher for this type of fund.
In order to get exposure to silver you could find a fund that contains some silver. The manager will likely be holding a proportion of their portfolio in precious metals as a hedge against inflation – much as you are considering if you are on this page.
The pros and cons are largely similar to ETFs. A fund will offer liquidity, meaning you will be able to buy and sell fairly easily, and negates the need to pay for storage costs.
However, you will again not be owning actual silver directly, and there will be fees to pay.
You can purchase mutual funds via stockbrokers in the same way as you can with ETFs. It is worth researching the fees involved with this.
Investing in silver mining stocks
Another option to consider could be investing directly in companies that profit from the process of extracting silver from the ground. Mining companies or firms, known as streaming companies, provide finance to miners.
The benefit of this approach is that mining companies which are heavily invested in extracting silver will usually track the price of the metal itself. Additionally, when the silver price grows, the price of mining stock usually grows by a larger amount – so the returns are potentially bigger.
However, mining companies are susceptible to wider risks, thus your investment could be at a higher risk than investing directly. For example, a bad result or an accident at a mine could negatively impact the price of a specific company stock. This can happen even if the overall market is performing strongly.
If you’re taking this approach,,you would be wise to heavily diversify by also investing in a range of other companies or funds to spread their risk.
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