Saturday, July 2, 2011

Investing in Silver

There are several ways of investing in silver, each has its advantages and disadvantages but most fall in the categories of how much the silver is going to cost you, how well it retains its value and what can you get for the silver if and when you decide to sell.

The ways you can buy silver include:

Mutual Funds
A Mutual Fund is where one buys silver in an open ended fund that has what is called a basket of silver related equities prices on a daily basis. These are not actual silver of course but purely an investment into equities, usually with companies that mine silver. Of course there are very few companies that mine silver as a primary product and silver is usually mined as a by product so your investment is more likely affected by other mining activities and so is not really a pure silver investment at all.

Accumulation plans
With accumulation plans investors accumulate an investment into silver on an average basis very similar to dollar cost averaging. In this method the investor simply invests a specific amount on a regular basis. When the value of the product is high the investor purchases less and when the value of the product is low the investor purchases more. This, then, averages out. As an investment strategy this is a good way to invest in silver if you cannot afford to invest lump sums but just smaller amounts say monthly. This strategy can work with various types of investment and you can either buy physical silver this way or simply invest in one of the various silver products.

Futures and/or or Forward Contracts
Here, one is not actually investing in silver but more trading or betting on the silver price and what the price will be at some time in the future when a delivery is made. A futures contract is an agreement made through an exchange to take or make delivery of silver at a set date in the future. One rarely ever takes delivery of the silver but usually sells prior to that. It is not actual 'investing' in silver at all but trading that the silver price will move to your advantage.

Options
Options are the right without the obligation to buy or sell a security or financial instrument on a specific date sometime in the future. Again one is not actually investing in silver, but buying the right to invest in an instrument linked to silver

Buying silver through exchange traded funds
Many people think that one can buy silver using exchange traded funds. This is not true. An exchange-traded fund (popularly known as an ETF) is an investment fund traded on stock exchanges, very much like stocks. An ETF fund holds assets such as stocks or bonds and trades at approximately the same price as the net asset value of its underlying assets over the course of the trading day, in this case silver. The trading is based on the price of silver as it fluctuates throughout the day. One does not actually own any silver and cannot redeem any silver, only buy and cash in exchange traded funds.


Buying silver in unallocated storage accounts
Better than a Silver EFT in that one does own some silver although this is ‘pooled’ with others and is a sort of ‘shared’ ownership. The advantage with this is that it is fairly cheap to buy but the disadvantage is that one does not actually own any silver outright and if there is a shortage one can lose out considerably. Pooled silver can be prone to misuse in times of silver shortage and a pooled silver fund managers can be tempted to misuse the silver in the fund to fund other silver activities.

Buying silver in allocated storage accounts
Much better as you actually have ownership of the silver listed in your account and can redeem it if you so desire. The cost is greater than pooled ownership but there is usually no question that one is the owner and one can buy and sell the silver. Usually there are audits done and insurance to protect the owners of the silver. You have to pay storage fees for this and your silver simply sits there and accumulates in value as time marches on. GoldMoney is a good example of allocated storage accounts.

Buying official silver coins
Buying silver coins is a good way to own silver. These are usually heavily in demand and although the premium can be quite high the resale is usually high also. American Silver eagles are very popular and tend to hold their price well. Other nations also produce silver coins, such as Canada, Australia and the UK etc. the most popular are the one ounce silver coins, usually with a face value of one dollar. The silver value is, of course higher and, with the premium the price can be around twice the value of the silver in the coin. Most of these are advertised as Fine Silver and .999 percent silver except sterling silver which is composed of an alloy of silver containing 92.5% pure silver and 7.5% other metals, usually copper.

Buying silver bullion bars
If you are interested in buying silver for a serious silver investment you cannot do better than buy silver bullion bars. The premium is considerably less on silver bullion bars. They come in sizes ranging from half and one kilo bars up. One can even buy 15 or 16 kilo bars and have them stored. Shipping, insurance and security of storage are the main issues with buying and keeping silver bullion bars. Also they are not so easy to sell in times of crisis and it is probably a good idea, if one can afford it, to have a selection of bars and coins of various types to cover all eventualities.

This brings us to what is possibly the best way to buy silver as an investment.

Buying silver rounds
Silver rounds are usually the cheapest way to buy silver. As they are not especially stamped and have to be mint or uncirculated, not being an official coin the premium is low and they can be accumulated over time with ease. Like most silver coins or rounds they will have one ounce of silver in each coin. Whereas official silver coins have a face value, in the case of Silver eagles, one dollar, silver rounds have no face value and are simply valued at the rate for silver. So when you see the term ‘silver rounds’ you can assume it means silver coins. These come in a variety of sizes from under one ounce to over 100 ounces although these, of course, are quite rare. Examples of silver rounds include:

Australian Kookaburras and Koalas
Canadian Maple Leaf
Chinese Panda
UK Britannia
US Eagle

And so on. The criterion is the price. Here you are interested in reducing the premium you have to pay and this simply means shopping around and buying in bulk as much as you can.

Junk Coins
Junk silver coins are those early US silver coins minted pre 1964 or 65, that have no real value to collectors but do have value for the silver content they have. This can be quite substantial as, pre 1965, the amount of silver in silver coins was around 90%, after that the quantity of silver in each coin was reduced to around 40 percent or so. so it is a good idea, if you are accumulating silver this way, to seek out the pre 1965 coins if you can.
More information on Junk silver coins can be found at Junk Silver Coins

Naturally you want to keep your costs down while, at the same time, ensuring that you gets the best possible returns and when investing in silver how you invest will depend largely on your individual circumstances, but suffice to say, any investment in silver is better than no investment in silver and it is a good idea to diversify at least some of ones assets into silver and, preferably, actual physical silver.

No comments: