Many people get mentally fixated with hoarding physical silver. There are certainly good reasons to hold physical silver, but it is not always the best way to invest in the asset. There are certain conditions when it is better to invest through a “paper” investment, particularly to benefit from low transaction costs and fast trading.
Some paper investments are relatively safe; others are quite risky. Some require knowledge of trading platforms and even extensive fundamental and technical analysis, while some have very low barriers to entry.
Paper investments can provide better returns than physical silver, but it is important to understand the risks. Assessing the risk/reward ratio of any investment is crucial in the decision making process. Paper investments certainly have their place, and one can chose from:
- ETFs- Exchange Traded Funds- This mode of silver investment involves low transaction costs and appeals most to traders looking to get in and out quickly. In essence traders buy a fraction of a trust and get exposed to the price of Silver. Investors do not hold or own any physical silver at all.
- Silver Futures- Futures involve an agreement between two parties that a trade will be made on a future date. Initial and maintenance margins are required and the investment is settled in cash daily. If the price goes against the investor then they may have to replenish their margin to retain their position. With heavily leveraged positions these Futures investments can be both highly profitable and highly risky.
- Silver Trusts- Silver Trusts involve buying silver on account. It can be either allocated or unallocated silver, meaning you either own specific silver or you do not. Investors must be careful as some Trusts use your silver investment for their own investment purposes, which can mean they do not have precious metal available in the event that many Trust customers call it in.
- Silver Mining Stocks- Investing in mining stocks involves buying shares in companies whose main activity is mining. By choosing such companies you can gain exposure to the price of precious metal along with the interest of the dynamics of a company. Many people already have a stock trading account and so it can be relatively simple to begin this kind of investment.
The Benefits of Paper Investments
The main benefit of a silver paper investment is that it tends to be lower priced than buying coins, bars or rounds. There are no handling charges, packaging and insurance costs, and the investments are easier to buy and sell. The liquidity of paper investment is certainly an advantage.
Fear of Financial Collapse
The mental drawback of not physically holding your silver investment is tied into the fear of “what if the SHTF?”. We have seen financial collapse many times in the last hundred years and it isn’t pretty. The beauty of actually holding physical silver is that the investment will retain value through financial crises.
If you can get over this fear than Silver paper investments are a definite possibility for inclusion in your investment portfolio, and offer a nice alternative to physical metals if you are attempting to make a shorter-term play.