Silver has been a valuable precious metal for generations even though its role as a currency has long been replaced first by gold and then by fiat. Still today, silver remains a popular way of investing, so I researched to find out whether you can make money investing in silver!
Buying silver is according to most definitions of the word – not investing. While you can make money trading silver, most active traders tend to lose money over time. The only way to make money buying silver is to sell it at a higher price to someone else.
In this post, I’ll cover why silver is not an investment, whether more money can be made by trading precious metals like silver or stocks, and what the best to buy silver as an investment is.
Is investing in silver a good thing?
Buying silver is not in itself good or bad – as long as we are aware of what we are actually buying. Owning silver is not an investment and should not be considered as such. Instead, it is a shiny and nice-looking metal that may serve as a store of value or as an insurance policy against financial collapse.
Once we understand this critical difference, the question of whether investing in silver is good or bad becomes moot. With that said these are the good properties that silver possesses:
- No Depreciation: While the price of silver may change, the underlying metal does not depreciate in utility over time. The metal has the same properties a hundred or a thousand years from now which makes it a good long-term store of value.
- Finite Resource: Silver – like all other precious metals and commodities – is a finite resource on our planet. This means that in theory if demand stays constant or increases and the supply of silver decreases prices should rise over time.
- Industrial Use: One of the reasons why the price of silver has a bottom is that it is used in the industrial production of goods. This industrial use forms the base of the value of silver today.
FYI: The best way I've found to invest in ETFs is through M1 Finance. It's free and you even get an instant line of credit! Have a look here (link to M1 Finance).
Is silver a better investment than stocks?
When comparing two investment vehicles the first thing that we can naturally do is to look at the actual investment returns over the past decades:
|Portfolio||Initial Balance||Final Balance||CAGR|
These figures above show the development of a hypothetical portfolio of $10,000 invested in silver or stocks respectively. I chose iShares SLV ETF as a measure of the price of silver and Vanguard’s VTI to include the entire U.S. stock market.
As you can see from the table above the results are not even close! Stocks outperformed silver over the period from 2007-2022 by more than 6% per year. If we graph these data points with a line chart we get the following picture.
While silver peaked somewhere in 2011 and 2012 after the financial crises in 2008, stocks have just steadily been gaining ground from then on and have overtaken silver in overall portfolio returns.
NOTE: The easiest way to add diversification to your portfolio is to invest in real estate through Fundrise. You can become private real estate investor without the burden of property management! Check it out here (link to Fundrise).
Why silver is not an investment
Before we go any further, let me clarify why silver cannot be considered an investment, but rather a speculative asset. One common way to distinguish investments from speculations is to ask yourself how this asset is going to return profits.
In The Intelligent Investor, Benjamin Graham wrote famously:
“An investment operation is one which, upon thorough analysis, promises safety of principal and a satisfactory return. Operations not meeting these requirements are speculative.”
And while this book and its theses have sometimes not aged too well, this definition is still spot on. Now, let’s apply this definition to silver as an investment asset. How do we know if silver promises a satisfactory return?
To keep it simple: we don’t! The only way we can make any return on a silver purchase is by selling the asset. This means that we are dependent on the price for our returns. Now compare this to owning a stock. Can we only make a profit when we sell? Are we relying on prices to rise to get a satisfactory return?
The answer to both of these questions is no! Companies produce earnings and these earnings are usually distributed as dividends to the shareholders. This means that we can earn a more or less satisfactory return without ever having to sell the asset.
Thus, silver is a speculative and non-productive asset that cannot be in good conscience considered an investment.
FYI: Another great way to get exposure to the real estate sector is by investing in real estate debt. Groundfloor offers fantastic short-term, high-yield bonds that can add diversification to your portfolio!
What is the best silver to buy as an investment?
But not all investments in silver are necessarily speculative. While owning silver outright is probably a bad idea there are some legitimate ways to diversify your holdings and gain exposure to the silver industry.
Just below I’ve compiled a short list of ways you can invest in silver without violating Graham’s famous definition of investing:
- Silver Miners: Instead of buying the metal directly, why not invest in a silver mining company? Their profits should rise and fall with the price of silver and all along the way these mining companies also pay dividends. There are even ETFs available for silver miners.
- Silver-related Industries: You can even be more removed from silver itself while still benefiting from its value. Owning shares in companies that e.g. are involved in the transport or refinement of silver can offer greater exposure at lower risk!
I hope this article gave you some ideas of how to think about silver as an investment. If anything has remained unclear, please just leave a note in the comments and I’ll get back to you as soon as possible!
Over the past years, I have discovered several tools and products that have helped me tremendously on my path to financial freedom:
P.S.: The links below are affiliate links, which means I receive a small commission at no extra cost to you when you sign up for one of the services. Thank you for your support!
1)Personal Capital is simply the best tool out there to track your net worth and plan for financial freedom. Just their retirement planner alone has become an invaluable tool to keep myself on track financially. Try it out, it's free!
2) Take a look at M1 Finance, my favorite broker. I love how easy it is to invest and maintain my portfolio with them. I can set up automatic transfers, rebalance my portfolio with one click and even borrow up to 35% of my assets at super low interest rates!
3) Fundrise is by far the best way I've found to invest in Real Estate. You can diversify your portfolio by investing in their eREITs or even allocate capital to individual properties (without the hassle of managing tenants!).
4) Groundfloor is another great way to get exposure to the real estate sector by investing in short-term, high-yield real estate debt. Current returns are >10% and you can get started with just $10.
5) If you are interested in startup investing, check out Mainvest. I've started allocating a small amount of assets to invest in and support small businesses. Return targets are between 10-25% and you can start with just $100!
To see all of my most up-to-date recommendations, check out the Recommended Tools section.