Things To Know Before Investing in Silver Mutual Funds, ETFs and ETNs

Silver ETFS ETNS Invest

Silver can be a risky but lucrative investment. It is both a commodity and a precious metal. Like other precious metals such as gold, the price of silver is mainly driven by market demand and its value comes from its status as an investment vehicle. But unlike other commodities, like lumber, corn or crude oil, its value is not limited to its consumption or industrial applications. It also does not have production/consumption cycles like most commodities.

10 Benefits of Investing in Silver

Though investing in silver can be risky for most investors, there are several benefits of investing in the white metal.

  1. It is cheaper compared to other precious metals like gold and investors can buy more silver for less money.
  2. Silver can be used as a store of cash/value and as a hedge against currency fluctuation during times of political and economic uncertainty.
  3. The industrial applications of silver are growing as a result of a resurgence in photovoltaics and automotive electrification.
  4. The demand for the white metal is also growing while supply is declining. The Silver Institute’s World Silver Survey revealed an increase in industrial demand for silver in 2019. Investor demand also posted a record increase in 2015.
  5. Silver inventories are falling. Silver mine production has fallen for the fourth straight year in 2019 and it is expected to fall by another 5% to 797 million ounces in 2020. This would reduce global supply by 4% to 978 million ounces, its lowest level since 2009.
  6. The white metal is not affected by inflation. It is considered to be the only metal that positively associates with inflation.
  7. Silver is known for its consistent and steady purchasing power.
  8. The compound growth rate of the white metal has outperformed other investments as such fixed deposits and gold. It has yielded a return of 10.2% in the past 30 years. Silver also outperformed gold in bull markets such as during the periods from 1970 to 1989 and from 2008 to 2011.
  9. Silver is also generally considered as a more liquid investment compared to non-market options such as government bonds.
  10. Silver is also more volatile than gold which makes it a potentially lucrative investment for the active investors because its tendency towards price swings can result in sharp upward price movements.

How to Invest in Silver Mutual Funds, ETFs and ETNs

There are several ways to invest in silver, but three of the most popular ways are through mutual funds, exchange-traded funds (ETFs) and exchange-traded notes (ETNs).

With mutual funds, investors only get indirect exposure to silver by holding equity in precious metals funds such as Invesco DB Precious Metals Funds or Aberdeen Standard Physical Silver Shares ETF. These funds invest in the stocks of silver mining companies and other firms that deal with the production, distribution and use of silver. This type of investment is less volatile than pure silver but is subject to potential business-related liabilities.

Silver ETNs are unsecured debt securities that track an underlying index of securities and trade like stocks. It is also similar to bonds but does not pay interest payments. An ETN is usually issued by financial institutions and returns are based on a market index. One example of silver ETN is the VelocityShares 3x Long Silver ETN (USLV).

ETFs are funds traded on a stock exchange. Silver ETFs invests mainly in hard silver assets and track the market price of silver. Each share represents a particular quantity of silver measured in ounces. This is considered one of the best ways to invest in silver because of high liquidity without the challenges associated with owning the physical asset. One example of a silver ETF is iShares Silver Trust (SLV).

Generally, it is better to invest in silver ETFs or ETNs than mutual funds. ETFs and ETNs provide investors with exposure to the price of silver while mutual funds only to the stocks of silver mining and manufacturing companies. Also, ETFs and ETNs track the price of silver and most silver mutual funds do not.

​​​Bottom line

Silver is an ideal addition to any investment portfolio in moderation or measured quantities. As a stabilizing asset, it can provide better returns compared to stocks and mutual funds and can do so while retaining higher liquidity than other safe investments. Precious metals funds are best used as long-term diversification tools but investors should allocate only around 5-10% of their portfolio to such securities. Investors must also avoid short-term market timing strategies because of the speculative nature of silver.