Investing In Paper Silver

Yes, you can invest in all of the precious metals via various ETFs. I have invested in silver in this way via the SIVR silver-backed trust. There is also SGOL, a gold-backed ETF, and PPLT, a platinum backed ETF. Other ETFs are out there that invest in silver and gold plus platinum and palladium in various combinations. To know which ETF suits you, you will have to download their prospectus documents and read them very carefully. Some will let you cash out your account in the metal that backs the ETF and some will not. Even if they do, they often have substantial minimum amounts that must be taken at one time. This is how the BIG boys can get PMs out of ETFs but most small investors can't.

You can also invest in the stock shares of various mining companies. These tend to be split into 3 categories: major PM producers; junior PM miners; and PM exploration companies. Many of these are extremely risky and not for those who are not very well informed about the companies involved. The major mining companies would be the safest and least likely to go broke but they are mature companies that are unlikely to increase hugely in share price. The junior miners could be a good bet for a very small slice of your investment money. They could provide a nice little kick to your earnings, although there is no guarantee of that. Lots of PM "experts" have been recommending the junior miners for a couple of years now but that has not been a productive investment in most cases. Their day will definitely come but no one really knows when that will be.

There is a lot of discussion about "paper" silver and gold on the Internet. In most cases these discussions involve PM futures contracts. These are not for the faint of heart or those without DEEP pockets. Think hundreds of thousands of dollars invested... or more. There are lots of speculators in this part of the paper PM market and it is definitely a dog-eat-dog racket where many things can and do go wrong for investors.

That said, there is a place in most portfolios for some PM backed ETFs. They are very liquid, so are easily sold via a few mouse clicks. I use Scottrade for this and can buy and sell many stocks, mutual funds, ETFs, bonds, etc. for $7 per buy or sell or $14 for a "round trip" buy and sell. I have not used E-trade but see no reason why they would not be OK for this. TD Waterhouse is also decent, although they do charge a couple of dollars per transaction more than does Scottrade.

Most PM buyers want to receive the actual metal rather than invest in an ETF or a mutual fund. It is possible to do both, as either can fit specific needs that you may have.

One final thought is that PMs are classed by the IRS as "collectibles". Because of this, the gains made from selling them is taxed at a rate of 28%. To avoid this, you may be able to use a Roth IRA for such investments since Roth IRA gains are not taxable if certain conditions are met. The two main conditions are that you have held the Roth IRA for more than 5 years and you are over age 59.5 when you take out the earnings. The contributions can be taken out at any time and are not taxed then because the tax on that money was already paid when it was earned.

The only draw back I see to that is that there are way more paper ounces of silver than there is physical ounces. In the highly unlikely but possible event that a majority of paper holders want to take delivery, what happens then?

The advantages to owning precious metals in stock are that you buy them at spot and sell them at spot. Compared to paying more than spot to buy bars and waiting for the bars to sell for more than spot when you cash in.

The disadvantages to owning precious metals in stock are that you have to pay trade fees to buy and sell stocks but can be done instantly when you want to cash in during trading hours Monday to Friday.

That would depend on the form of the paper silver involved. If you buy into silver futures contracts, yes, you can "stand for delivery" and receive actual physical silver instead of money when you liquidate your holdings. In most cases, this takes a LOT of money... $100k and up, sometimes WAY up. If you own an ETF, the language in the ETF prospectus will say whether or not you can receive actual metal in payment for your holdings and, if so, under what conditions. Some of these ETF prospectus docs are extremely difficult to read and understand. I'm thinking that this is done intentionally to satisfy the letter of the law without actually letting investors know the whole truth of what they are buying into. Call me a cynic if you want but that's how it looks from here.

As to the whole "if you don't hold it, you don't own it" argument, this thread is about PAPER silver investing and not about whether that is or is not a good idea. There are times when a paper investment is all that you can make. IRA or self-directed 401K plan money, for example, easily can be invested in ETFs of many kinds, including those that hold PMs. Setting up a metals IRA is possible these days but a number of hoops have to be jumped through to set them up and in the end you still do not get physical metal out of it until you take a taxable (non-Roth) distribution.

Thank you for all of your opinions. I currently am buying physical silver but was thinking that since silver seems to be bouncing between 27 and 28 I might be able to buy and sell at highs and lows. to do this is would have to invest a few thousand because id have to make more than the fees I put into it and also the percentage that id owe to the government. I am curious how much it would take for it to be profitable and at what price difference id have to buy and sell at to make it worth it.

Thanks for the post on the Canadian rules for retirement investing. Others have mentioned that Australia also has something along these lines as well. It is interesting to see what is available for this in other countries.

I like ETFs in general but not ETNs. An ETN is not a piece of something as is an ETF or a share of stock. It is just a note that promises something. As we all know, promises can be and sometimes are broken. I would like to invest in Jim Rogers' International commodity fund but it is structured as an ETN so I will not buy into it. I like the fact that ETFs can be bought and sold at any time during the trading day and not just once a day at 4 PM US eastern time, as is the case with mutual funds.

and where your silver stands. The whole point in buying metals is for insurance and protection from uncertain times. The thing to remember is, the paper market has far more contracts issued than there is physical metal to back them up, it's a house of cards right now.