How many times have you been flipping through the TV channels and you see there’s someone advertising for you to buy Silver Coins. I’m sure we’ve all seen those adds at least once or twice. They usually will tell you a story about how Silver is the next best investment and getting certain coins or bars will be a great investment. Today we will take a look at the Silver market and compare it to the equities market and see which investment vehicle is best for your portfolio.
Silver is known as a commodity. A commodity is considered to be a interchangeable tangible good. Other examples of commodities are Oil, Lumber, Beef, and many more. When comparing commodities to equities (stocks or bonds) we are talking about tangible vs intangible. These markets act differently and have different growth rates over the years. Silver as an investment can be purchased two different ways. The first and most common ways is to buy physical silver. You can easily get these coins or bars at any coin shop or even order them online. The way this trade works is a bullion dealer (someone who deals in precious metals) will get these metals from either the Unites States Mint or a Silver refinery who makes special bars or bullion coins. The silvers actual value is called “spot rate”. This spot rate can fluctuate much like a stock does based on supply and demand however it is the actual value of silver. This spot rate is measured in Ounces. These coins and bars are then sold to dealers at a “premium” or surcharge. The bullion dealers will then sell the silver bullion to you tapping on another premium. Depending on what you get you may pay a few dollars over the spot rate or even more. The second way to purchase silver is through a silver trust or a silver mining company. An example of a silver trust is ticker SLV. This is a silver trust that holds over 500 million ounces of silver. You can buy SLV shares through your broker instead of holding physical silver bullion at home. The takeaway is that you pay a .50% sponsor fee holding this position.
Holding physical silver can have its ups and downs. Lets take a look at how silver can be a great investment. Many times investors seek precious metals such as silver when the equities markets are down. This is because silver is considered a safe investment in times of uncertainty. In these times the value of silver will typically go up in value. Silver holds its value and doesn’t fluctuate as much as other precious metals like Gold. The downside of buying silver is that it offers no dividend. That’s right you hold silver for the pure fact that it is safe and will go up slowly over several years. The other problem you will run into if you hold physical silver bullion is liquidation. It is hard to turn a profit upon liquidating your silver. The silver market is not as relatively available as the equities market is. That being said you will likely have to sell your silver back to a dealer. That’s not the only problem you will run into. When you sell you wont get full price. The dealer will offer you a price lower than silvers spot rate. This is why holding silver is a long term play and typically needs to be held for several years for an investor to turn a profit.
Now lets compare how silver has done compared to the S&P 500 over the past 30 years. Looking at the graph above we can see that the S&P 500 has grown significantly more than Silver. The value of silver has significant spikes however the dollar change is much smaller compared to the S&P 500. Over the course of 30 years the value of the S&P 500 went from $441.81 to $4,322.23. That is a 985% increase. Silver on the other hand went from $4.05 to $25.34. That is a 515% increase. You might say that still is a pretty good return. Lets not forget the most important part. That is that the S&P 500 is comprised of companies that offer a dividend. The dividend payout is what makes the S&P 500 the more attractive investment because we will be getting a return on our money invested each year. Holding Silver doesn’t offer a dividend you are only gain is when the value of silver increases.
As stated above silver can have its perks as an investment however going all in with silver might not be your best option if you seek to grow your portfolio. If you are set on silver and really enjoy the ability to hold silver bullion as an investment you might include a small portion of silver in your portfolio. Equities over the long term have offered a better return for its investors than silver has. Consider these differences when you are deciding how you want grow your investments.
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