Updated on 02/07/17
Ready to buy some silver bullion? Congratulations! You’re about to make a solid investment.
This article covers many topics: silver's advantages over gold, how much silver to buy, how to buy physical silver and where to buy it, how to buy silver ETFs and pool accounts, and the buy-and-store silver programs.
Let’s jump in…
Two Things to Know About Silver
Before you invest, you need to be aware of two attributes of silver…
1) Silver has high industrial use. It’s so high, in fact, that…
Why is this important? Because the state of the global economy can impact demand. Its price can be susceptible to economic booms—and economic busts.
2) Silver is a tiny market.
The total annual supply for silver is around 970 million ounces. At $14 per ounce, the “market cap” of the industry is $13.5 billion. That sounds like a lot of money, but it’s not…
Each of these popular companies is valued higher than the entire annual supply of silver! Even Starbucks’ market cap is almost seven times bigger than the silver market.
This makes the silver price volatile. That’s because it doesn’t take much money entering or exiting this market for the price to be impacted.
Pros: Demand for silver can be higher in a strong economy. Its high volatility will make investors a lot of money in a bull market—even more than gold.
Cons: Demand for silver can be lower in a weak economy. And its volatility will cause the price to be more subdued than gold in bear markets.
Suitability: Silver is best suited for investors willing to live with its high volatility.
Silver’s Pros Compared to Gold
Silver has three advantages over gold that make it attractive…
1) Silver is cheaper!
What if I said you could buy a hard asset at 1/75 the price of gold bullion and it will protect you against inflation every bit as good as gold?
2) More practical for everyday small purchases.
It’s not just cheaper to buy, but it may be more practical when you need to sell. There may be times you don’t want to sell a full ounce of gold to meet a small financial need. Every gold investor should have some silver around for this very reason. It’s also ideal for gifting.
3) Silver will likely outperform gold in a rising inflationary environment.
Silver is just as much an inflation hedge as gold. However, it will better perform than gold in the face of rising inflation due to its higher volatility. Think of silver as gold on steroids.
Pros: Silver is more affordable than gold and also more practical to meet smaller financial needs if they arise. It will also likely outperform gold in the next bull market.
Cons: Silver requires greater storage space. You can store roughly $172,000 of gold in a small safe deposit box, but that same space will only allow you to store $2,300 of silver. Also, silver will eventually tarnish (pure gold does not). Coins and bars kept in a dry place with no exposure to the elements will delay that process.
Suitability: Silver is ideal for investors with small budgets and everyone who anticipates small financial needs in the future. Consider where you’ll store silver bullion and the cost to do so when making your decision.
How Much Silver to Buy
Most brokers recommend that precious metals comprise 5¬–10% of an investment portfolio. Here are the guidelines each investor must consider…
Include gold. In other words, don’t buy only silver or only gold. A diversified portfolio will include both since they each have their advantages and drawbacks.
Avoid extremes. Don’t put all your money in silver, which greatly increases your investment risk. Similarly, don’t buy just one or two coins, as that won’t provide protection for your portfolio.
Consider future inflation rates. The issue is not the current inflation rate, but what it’s likely to be over the next two to five years. The greater the risk of inflation, the more you should lean toward a 10% allocation of assets into gold and silver.
How to Buy Physical Silver
There are lots of options! Each has its advantages and drawbacks, so let’s go over the choices for buying physical silver…
Silver Bullion. This refers to coins produced by a government mint that also have legal tender value. They have 99.99% purity and are sometimes referred to as sovereign coins. The most popular are US Eagles, Canadian Maple Leafs, Australian Kangaroos, and Austrian Philharmonics.
Best for: All portfolios, especially beginning investors. This category has low risk and is easy to resell. This category should comprise the largest portion of an individual’s silver holdings.
Silver Numismatics. This refers to rare coins or collector coins. Their value is based more on rarity or historical significance than silver content. These should only be purchased if you are a knowledgeable coin collector (or are willing to become one). “Proof” coins fall in the collector coin category.
There is a sub-category usually called “semi-numismatic” coins. These are 99.99% pure coins, but tend to be commemorative in nature, such as the Canadian Wildlife series or Australian Lunar series. They command higher premiums, which you may not recoup when you sell. Some investors buy these because they may appreciate more in value, but that is more of a speculation than an investment.
Best for: Coin collectors. Some of these coins will outperform regular bullion in an inflationary environment, but it is imperative you’re familiar with numismatics before buying since it is easy to overpay.
Silver Rounds. These are bullion coins produced by private mints that have no legal tender value. A silver “Buffalo” coin is a round (whereas a gold Buffalo is a sovereign coin produced by the US Mint). Premiums are lower, and while they’re a great way to diversify, resale value will likely be lower.
Best for: Diversifying a portfolio after accumulating sufficient sovereign coins. Cheap way to add ounces.
Junk Silver. These are pre-1964 silver coins that were circulated as currency. They’re basically old quarters, dimes, Franklin half dollars, and Morgan dollars. Their purity is generally 90%, though some can be as low as 35%. Premiums vary, but are generally lower than bullion coins, which means resale value is lower, too.
Best for: Barter in economic crisis scenarios. Some gas stations accepted junk silver during the 2008/2009 financial crisis.
Silver Bars. Sizes vary, from one ounce to 400-ounce. Only buy hallmark bars, which means the bar was made by a reputable refinery such as Johnson Matthey, Argor-Heraeus, PAMP Suisse, or Valcambi.
Best for: Investors that want lower premiums. Bars are an ideal way to store large amounts of silver.
Pros: Physical silver is a hard asset that is portable, private, and will last forever. And it is easy to sell—virtually any dealer in the world will buy a government-issued silver coin or bar. Consider the advantage that no matter where you live or travel in the world, you will be able to sell physical silver for cash!
Cons: Silver requires greater storage space. You can store roughly $172,000 of gold in a small safe deposit box, but that same space will only allow you to store $2,300 of silver.
You must also locate a dealer (or other party) to buy your bullion (most reputable dealers will buy back their product, though not all). Silver bars over 100-ounce could require an assay to sell (large bars have been the target of some counterfeiters).
Suitability: Silver coins and bars are a hard asset you can hold in your hand and are ideal for most portfolios as they are not speculative and will be easy to resell.
Numismatics should be avoided unless one plans on becoming an informed coin collector. Rounds generally have lower premiums than sovereign coins, but may be more difficult to sell. Junk silver requires significantly more storage space than other silver products.
Where to Buy Silver Bullion
Like any industry, silver has its share of crooks. The easiest and most effective way to avoid any problems is to buy from a reputable dealer.
You can buy silver bullion either online or at your local shop. (You can also find silver bullion on eBay and at dealer shows, but I wouldn’t recommend those options until you have a couple purchases under your belt.)
Here’s a comparison of buying online vs. at a local shop:
|Online Dealer||Local Shop|
|Can order online, but must trust dealer to deliver your product||No waiting; can take immediate possession. Face-to-face transaction.|
|Total cost is likely cheaper even with shipping (they have lower overhead)||No shipping/insurance costs, though total cost may still be higher|
|Expanded hours, but product won’t ship until payment clears||May have limited product choices and low liquidity for large buybacks|
Whichever way you go, here’s a quick checklist of what to look for…
A trusted and established dealer. Check their Better Business Bureau rating. Favor those that have decades of experience. Check how many repeat customers they have; buyers wouldn’t return if their experience was negative.
An educational dealer. Avoid the dealer that is pushy or heavily promotes rare coins—those markups are higher.
The size of the business. Small dealers may have limited product selection or be unable to fill a large order. Small dealers may also be unable to buy back a large sale. Be sure to ask about delivery times; if they don’t ship within a day or two of your payment clearing, that’s a red flag.
A buyback policy. Ask the dealer if they’ll repurchase what you buy. If they don’t have a policy in place, shop elsewhere. This is another reason it’s important to do business with a reputable dealer—you want them to be around when you need to sell. Dealers with buyback policies also give prior customers their best resale price.
Accepted forms of payment. You can reduce your cost by paying with a money order (or cash). Bank wires and credit cards come with extra fees. Some dealers may take a personal check without a surcharge, though they’ll wait until the check clears before shipping.
Last, compare three dealers. Be sure to compare total cost—commission, credit card or bank wire fees, and shipping and insurance. Consider buying from two different dealers so you have two vetted sources for future purchases. Consider who you feel most comfortable with, too.
How to Buy Paper Forms of Silver
Instead of buying physical metal, you could purchase a paper form of silver. There are advantages and drawbacks to this method, so let’s go over them…
A convenient way to buy silver is to buy a silver exchange traded fund. The largest and most liquid is SLV, the iShares Silver Trust. The fund holds one ounce of physical silver for each share. You can buy SLV as easy as any other stock. Its price will follow the price of silver (minus fees and expenses).
Other silver ETF options…
➢ SIVR, similar to SLV, but with lower volume.
➢ Closed-end funds, like PSLV. This means the number of shares is capped and the price of the fund will fluctuate not with the silver price, but more with sentiment.
➢ Leveraged funds, with double and triple leverage, both short and long.
➢ Silver stock fund, SIL (Global X Silver Miners ETF). It follows a select number of silver producers.
These funds are an easy way to buy silver. But there are a couple drawbacks…
1) ETF buyers aren’t buying real silver. You are buying shares in a trust. You don’t own the silver. Which means…
2) ETF owners can’t take delivery of physical metal. There are a few exceptions, but in all cases it’s expensive to do so and usually requires you own a lot of shares.
Owning a silver ETF thus removes some of the advantages of owning silver bullion.
Pros: Buying a silver ETF is easy and cheap.
Cons: Silver ETF holders don’t own physical metal and can never take delivery. The investor loses privacy and access to a hard asset. They also take on counterparty risk, or “default” risk. This could include things like mismanagement, fraud, or delivery failure. These risks increase during periods of financial crises.
Suitability: A silver ETF is a paper alternative to holding physical bullion. Therefore, it should not comprise the investor’s only silver position. ETFs are best suited for short-term trading or options.
A pool account is simply where many investors’ assets are “pooled” together to purchase an interest in a large silver bar. A dealer typically owns 400-ounce silver bars, and investors purchase the number of ounces they want of that bar, along with other investors.
If you go this route, make sure the dealer already owns fully allocated silver and is not buying after you send your money or just purchasing futures contracts. This is why this is a “paper” form of silver: you don’t have the physical metal in your hand, but rather a paper (or online) statement.
Pros: Premiums are typically low and storage is usually very inexpensive (and sometimes free).
Cons: In most cases, the silver is not allocated to you, which introduces counterparty risk. Delivery is usually very expensive and in some cases unavailable.
Suitability: A way to diversify your silver holdings. It is only for investors that have already accumulated some physical holdings.
Consider Buy-and-Store Programs
What if you want all the advantages of owning physical silver, but want to conduct all buying, selling, and storing online? There’s a way to do that!
All investors should have some physical silver close at hand. As your stash grows, however, consider using a buy-and-store program. These services allow you to purchase silver online and have it automatically stored in your own fully-allocated account outside your home.
These programs can be attractive, if they meet certain criteria…
You have full title to the bullion and can take delivery at any time (that’s what differentiates this from paper silver—you own what is being stored).
Storage is outside the banking system. You don’t want the restrictions or the risks that come with bank storage.
You can conduct all services online.
Premiums and storage fees are reasonable. Silver is more expensive to store than gold—look for fees around 1.5%.
If the program does not provide all these benefits, find another program.
Pros: Provides one-stop shopping to buy and store physical silver. Allows for delivery. Bullion is stored in your name and outside the banking system.
Cons: Watch storage fees. Silver is more expensive to store than gold because it takes up more space, but if annual storage costs are more than 2%, that’s too high.
Suitability: Ideal for investors who aren’t comfortable storing all their bullion in their house or in a safe deposit box. Also ideal for investors with large holdings.
Bonus Feature: Some buy-and-store programs offer international storage. This is another way to diversify your holdings and can put a layer between you and your home government.