How to Invest in Silver With Mutual Funds, ETFs, and ETNs

What to Know Before Buying Into This Precious Medal

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You may choose to invest in silver as a hedge against inflation or a way to diversify your portfolio. There are many ways to invest in silver. The best way may be to gain exposure to the price of silver through mutual funds, exchange-traded funds (ETFs), or exchange-traded notes (ETNs).

Are you new to silver investing? If so, there are some pitfalls to watch out for. Before you invest, learn the strategies of buying precious metals.

Why Invest in Silver?

Silver has a long history in investing. Investors love silver because its reputation as a precious metal to invest in is second only to gold. However, silver is much cheaper than gold. The gold-silver ratio averages around 47 to 1.

Silver as an investment offers plusses that are similar to gold. There are industrial uses for silver. This metal is an excellent conductor of electricity. Silver has uses in mobile phones, computers, solar panels, and RFID chips.

The Silver Institute forecasts an 11% increase in demand for silver in 2021. This demand is driven mostly by industry. Physical ownership of silver will also fuel the increase. Jewelry is expected to rebound but will not reach pre-2020 levels.

The price of silver is driven by supply and demand. Investor speculation is also a factor. Typically, precious metals such as gold and silver are in higher demand when there is widespread uncertainty about currencies. This is especially true for the U.S. dollar. Low-interest rates tend to drive up the demand for precious metals, including silver. Prices rise as a result.

Silver is often used as a hedge against currency fluctuation or as a store for cash during times of economic uncertainty.

How to Invest in Silver

There are many ways to invest in silver. You can buy physical metals in the form of bullion coins or bars. You can buy shares of mining company stocks. Or, you can invest in silver mutual funds, ETFs, and ETNs.

The silver market is much smaller than the gold market. This makes for higher volatility in price. Because of this, investing in silver can be risky for most investors. You may decide to invest in small portions. For instance, you may choose to put 5% of your portfolio in commodities, one of which is silver. This could help diversify your holdings.

Silver Investing With Mutual Funds, ETFs, and ETNs

Most mutual funds do not hold silver as a physical asset. You can get indirect exposure to silver in mutual funds by holding equity precious metals funds. Two examples of these funds are Aberdeen Standard Physical Silver Shares ETF (SIVR) or Invesco DB Precious Metals Fund (DBP). ETFs like these often have more exposure to stocks of gold mining companies than to silver and silver mining companies.

If you want the most direct exposure to silver, you will need to use a silver ETF. One example of a silver ETF is iShares Silver Trust (SLV). Investors can also use an exchange-traded note (ETN). One of these is X-Links Silver Shares Covered Call ETN (SLVO).

ETNs are debt instruments, like bonds, that do not invest in any asset. Although linked to the performance of a market benchmark, ETNs are not equities or index funds.

When Is the Best Time to Invest in Silver?

Historically, silver has usually posted stronger gains in the second half of the year than in the first half. This makes the first half of the year the better time to buy.

Where Can I Buy Silver?

If you want to purchase physical silver bullion, you have a number of options. The U.S. Mint sells officially minted silver coins, and you can buy other coins from a variety of dealers, both in-person and online. However, ETFs and ETNs offer an alternative way to invest in silver, and you can simply purchase them through your broker.

The Bottom Line

Generally, the best way to invest in silver is through ETFs or ETNs, not mutual funds. The reason for this is that most investors want exposure to the price of silver, rather than stocks of companies associated with silver mining and manufacturing. ETFs and ETNs often track the price of silver. However, most precious metals mutual funds do not.

As always, you should use caution when investing in securities, especially those that you do not completely understand. Don't try to time the market. Due to the speculative nature of silver and other precious metals funds in the market, it's best to avoid short-term market timing strategies. You can use precious metals funds as long-term diversification tools. Allocate small percentages, such as 5-10% of the portfolio, to such securities.