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How to Invest In Silver

Warren Buffett, the Oracle of Omaha, has invested close to $1 billion in silver, as it coheres with his value investing principles. Namely, it has a wide range of industrial applications from lasers to photography to medicine.

Silver has historically been a reliable store of value too. In 2005 one ounce of silver would have filled an economy car’s gas tank. That same ounce of silver would do the same today, 15 years later.

There are many ways that you can add silver to your portfolio. In this article, we will walk you through what you need to know to invest in silver in a cost-efficient way and to avoid common pitfalls.

The price of silver is somewhat volatile, which makes it a favorite of day traders seeking to profit from short-term price movements. But our focus here is on mid-term to long-term investing.

The Tax Implications of Investing in Silver

Before buying silver, consider the tax implications. Various types of silver investments may be taxed differently.

  • For example, in the US, silver bullion and silver-backed ETFs are taxed as “collectibles,” with a maximum rate of 28%. Coins and bars that you order through the mail would fall under this category as would services that sell silver and provide storage, like Bullionvault.com and GoldMoney.com.
  • By contrast, the highest rate for long-term capital gains tax is 20% with most Americans falling in the 15% bracket. Mining and exploration stocks would fall in this category. So would physical bullion purchased through the Sprott Physical Silver Trust (PLSV), which, being a non-US (foreign) CEF (closed-end fund), falls under the long-term capital gains tax, as explained here.

We recommend speaking with a certified tax professional to confirm how you’ll be taxed on the silver investment of your choice.

Investment Options

There are several ways that you can add silver to your portfolio, and not all of them involve owning the physical commodity outright.

Closed-End Funds

The largest silver bullion-backed CEF is the Sprott Physical Silver Trust (PSLV), based in Canada. Indeed, of the top 100 CEFs by market capitalization, Sprott is the only option for silver or gold. (PSLV currently has a market cap of over $1.1 billion.)

You can purchase PLSV shares via any brokerage account.

When you buy shares of PSLV, you own the corresponding amount of silver bullion. Shares of PSLV are currently trading at little over $7. This is a smart investment that everyone can afford.

  • It’s worth noting that Sprott also offers the Sprott Gold and Silver Trust that trades under the ticker symbol CEF. (Market cap: over $3.3 billion)
  • In addition, they offer the Sprott Physical Gold Trust (PHYS). (Market cap: over 2.8 billion)

CEFs are asset portfolios that start by raising capital (similar to IPOs). Afterward, investors can purchase shares in the CEF on the stock exchange. It is similar to a mutual fund in that it is actively managed, but the number of shares available is determined at the start.

Remember: when you purchase a silver CEF, you’re buying a portion of a silver bar. Unlike ETFs, you do own the underlying silver

Exchange-Traded Funds

You can also purchase exchange-traded funds (ETFs) whose shares are traded like stocks. ETFs are baskets of assets. Choose an ETF that is fully allocated to silver bullion if you wish the price movements to parallel those of silver.

These bullion-backed ETFs are usually structured as “grantor trusts” which means you don’t own the underlying silver. The Aberdeen Standard Physical Silver Shares ETF (SIVR) and iShares Silver Trust (SLV) are examples.

There are also ETFs that hold a variety of silver assets such as silver bullion, mining stocks, or stocks of related interests, like financiers of mining operations. Realize that many factors can cause mining stocks to not track bullion prices, such as additional shut-downs from COVID-19, natural disasters, and geopolitical events.

Here are some top-performing ETFs to consider:

Silver Mining and Exploration Stocks

You can expose yourself to the silver market by purchasing shares in silver mining or exploration companies. With this option, you are not purchasing silver directly.

Here are some top-performing silver miners to explore:

There is some correlation between the value of silver and the value of stock issued by mining companies, but there are also other major factors. A mining company may be subject to additional COVID-19 lockdowns, political instability, and geopolitical factors.

Despite not always tracking the silver spot price, this option might be appealing to you if you want to further increase the diversification of your stock portfolio and keep your investment tethered to the long-term capital gains tax.

Physical Silver Delivered to Your Home

One of the most familiar ways of investing in silver is to purchase physical bars, rounds, and coins for delivery to your home or to a storage service.

To purchase silver you can select from a range of reputable retailers, like Apmex.com or ProvidentMetals.com, or even some government mints.

If you buy coins or bars for home delivery you’ll pay the spot price, plus a premium.

What Is Spot Price?

Spot price refers to the current value of one troy ounce of silver. (You can find the current spot price at the top of the Apmex.com website. Many other investing and trading sites also display silver spot prices.)

Currently, at the time of this writing, the spot price of silver is $19.50. So why is a one-ounce American Eagle going for roughly $28.70? The difference is the markup or “premium.”

Since the spread of the coronavirus, silver premiums have skyrocketed to as high as 39%- 80%. Remember, when it comes time to sell your silver coin, it’s only going to be worth the spot price.

This makes physical coins and bars for home delivery the most expensive option for silver investing. Nevertheless, some may want the peace of mind that comes from having silver “in hand.”

So let’s learn more about how to buy this type of silver.

Types of Silver Bullion

Here are the three types of silver bullion:

  • Bars/ingots: These usually are a minimum 99.5% pure. You can choose a variety of weights from one-ounce bars on up.
  • Coins: minted by governments, these are typically referred to by their design, such as American Eagles, Canadian Maple Leafs, Austrian Philharmonics, Australian Koalas, and so on.
  • Rounds: similar to coins but produced by private, not government, mints. These are usually cheaper than government-minted coins.

Money-Saving Tips:

  • Keep an eye out for discounts based on volume or method of payment.
  • Dealers like Apmex also offerjunk silver– used/circulated currency like old dimes that are up to 90% silver.
  • Consider opting for generic coins and bars (such as those produced by Apmex and other private mints) over government-minted coins.
  • When buying bars, buy the largest one(s) you can afford. You’ll save on the premium. For example, typically the premium is lower per-ounce if you buy a 10-ounce silver bar vs. a 1, 2, or 5-ounce bar.

Physical Silver Stored in a Vault

Conveniently there are services like BullionVault.com and GoldMoney.com that enable you to purchase physical bullion at very low cost over the internet and choose a storage location.

The storage location will be run by a precious metals logistics company like Brinks or Via Mat. And you’ll have a choice of major cities like New York, Zurich, Singapore, or Toronto.

Everything related to storage is handled for you and these services are audited by third parties.

  • GoldMoney now charges a minimum $10 per month storage fee, making it a suitable choice for larger investors.
  • BullionVault.com charges no minimum fee, making it a sound choice for investors of any size.
  • Both offer options for you to have your metal delivered to your home, but be sure to familiarize yourself with their options.
  • GoldMoney.com offers a related Visa card. Click a button to sell some of your silver and you can transfer it to your card for immediate spending.

Before choosing one of these services be sure to find out if, based on your location, there are bank wire fees involved in the purchase of metals.

Summary

This guide should prepare you well to make sound decisions regarding silver investing. As the saying goes “An ounce of prevention is worth a pound of cure.” When it comes to silver investing, the key is to avoid overpaying for silver. You’ll also want to be clear about the tax implications of your investment.

Keep in mind your goals. Many investors in precious metals are seeking a form of insurance: a method to preserve their purchasing power against a potential decline in the dollar. This is different from investing for maximum gains..