A good many financial advisers and investors will tell you that a balanced portfolio consists of a collection of non-correlated assets from different geographical regions. Within this collection, most would advise holding between 10 and 20% in precious metals such as silver. This could take the form of an investment in mining companies, unit trusts, ETF's or by purchasing and storing physical silver. But which is the best method?
Well this depends on various factors such as the size of your investment, your risk profile and the length of time you intend to hold the asset. We will consider some of these options in greater detial below:
1 - Purchasing physical silver
The internet makes it easy to buy silver online through an online broker and have it delivered to your door. This may sound like a great option but you should bear in mind that you pay a premium for the silver since its had to be manufactured into a bar or coin. Then you also need to consider where to store it, do you have a safe location, should you insure it? Finally there may come a time when you wish to sell it, how will you do this? Through Ebay? With a broker? And how long will it take to sell the silver? All these points should be considered before you make an investment.
2 - Unit trusts
You can buy silver focused unit trusts or managed funds through most online stockbrokers. It offers an easy way to gain an exposure to the silver market however your money is unlikely to be invested purely in physical silver. More likely the money will be invested in mining companies that exposes your investment to added risks - and potentially greater rewards. On the positive side unit trusts are exchange traded funds so they are liquid investments. On the negative side they normally require a 5% fee upfront for retail investors to access the funds and have ongoing management charges of around 1.5% per year.
3 - Purchasing mining shares
A silver mining company will benefit by generating bumper profits when the silver price rises - often the share price of silver mining companies will out pace the rate of increase in the price of silver. However you should bear in mind that when you invest in a stock or share you are also increasing your exposure to external factors which could be detrimental to the share price. Geographical risks, political risks, the competency of the management and the solvency of the company are all important considerations.
4 - Exchange traded funds (ETF's)
A silver ETF is an excellent way to purely gain an exposure to the price of silver. There are funds that are traded on an exchange making them extremely liquid and can be easily bought through your broker much in the same way, and for the same cost as any stock or share. Annual management charges are very low too - often just 0.5 %, making them an extremely cost effective way to follow the spot price of silver.
There are clearly many ways to make an investment in the silver market and each has it own set of pros and cons. For smaller purchases you may wish to simply buy physical silver and store it in your home. However for larger purchases this becomes less practical and options such as ETF's or managed funds become more attractive.
