Should You Buy Silver as an Investment?

Masterworks
December 8, 2021

There’s a lot more to investing than just stocks—like precious metals, one of the oldest tangible assets in human history. But all that glitters is not gold.

In fact, it’s high time to shift silver out of second place in your investment portfolio.

Is silver investment worth it? And how do you invest in silver? Here’s what investors should know.

What is Silver Investment?

Silver investment is a specialized subset of precious metal investing, along with gold, platinum, and palladium.

However, silver is unique from other precious metals because it straddles two functional definitions: its historic role as a precious metal and its role in recent centuries as an industrial metal. When photography was first invented, silver was a critical component of developing film, but that role has since been eclipsed by digital photography. But silver became increasingly important as an industrial metal—everything from ball bearings to electrical components rely on silver. Silver is also widely used in microcircuits, superconductors, and even batteries.

This places silver in stark contrast to gold, where the greatest demand comes from gold as a value store and luxury item. Silver comes in and out of demand, but unlike gold, it’s primarily an industrial component, even though it’s classified as a precious metal.

Understanding Silver as an Investment

This makes silver a bit trickier to invest in than gold.

Like other precious metals, silver is highly sought after because of its scarcity. Unlike gold, silver is now primarily in demand for electrical components, since it has the highest conductivity of any metal.

In this respect, it makes more sense to think of silver as an industrial component rather than a precious metal. Its value comes primarily from its functional applications. That said, as in the case of photography, it’s hard to tell what turns those functional applications will take over time.

This is why silver prices tend to be more volatile than gold. As demand ebbs and flows (and functional applications over time affect relative demand) the price of silver changes to reflect those shifts, changing silver’s relative value for an investor.

Why Invest in Silver?

So, why invest in silver rather than other precious metals? Silver has a few key advantages compared to other precious metals that make it worthwhile.

It Stores Value and Hedges Against Inflation…

Like other precious metals, silver overall acts as a good store of value and a hedge against inflation.

Let’s say you bought one ounce of silver in 1970. At the time, silver sold for $1.88 per ounce. Not much, especially compared to gold, but still, you have two options: hold onto the silver or cash it out.

If you sold the silver for cash, your $1.88 would get you precious little by the year 2000, never mind the year 2021. But if you held onto that ounce of silver, it would be worth $22.68 today. Not a shabby price bump, and certainly a better investment than liquidating it for cash.

…But it’s More Cost-Effective Than Gold

While silver isn’t as popular as gold (in part because of the historic associations of silver as second-best and in part because silver is now primarily an industrial metal), silver does have one critical advantage over gold: it’s a much more cost-effective investment.

Remember when we said an ounce of silver is worth $22.68 these days? And that’s after silver went up 70% this year, by the way. Compare that to an ounce of gold, which is worth a whopping $1,791.50.

Your silver may not grow as much as gold, but for investors with limited resources, it’s a much more cost-effective precious metal.

How to Invest in Silver

Thinking of investing in silver? The good news is that you have options, depending on your preferences and funds.

The classic way to invest in silver is to invest in bullion, silver of high purity often kept in the form of bars, ingots, or coins. While bars allow you to get the most value in a single investment, they also present a bit of a challenge if you want to convert it to cash, especially if your entire silver investment lies in one bar. After all, you can’t shave an ounce off the end of a silver bar and sell it. For most investors, silver coins are a more practical (and affordable) option.

The easiest way to buy bullion is to purchase it through reputable dealers. Look for a dealer that’s a certified member of industry groups like Industry Council for Tangible Assets or Professional Numismatists Guild.

If you don’t want to own physical silver but want a relatively low-risk, cost-effective way to get started in silver investing, your best bet is an ETF that invests directly in silver. You get the reward of silver ownership if prices go up, you don’t have to worry about theft, and you can sell your ETF shares on the stock market like an individual stock.

For more advanced investors, silver futures are a way to wager on the future prices of silver. You don’t get the hassle of owning silver, but you do get the high amount of leverage that comes with futures contracts. However, this is considered a riskier investment and should only be pursued by investors who know what they’re doing.

Alternative Investment to Strengthen Your Portfolio

Who says your portfolio is limited to stocks? Silver investment is just one of the many ways that you can diversify your portfolio and take advantage of capital gains in unique markets.

Here at Masterworks, we’re big believers in the power of alternative investing—particularly blue-chip art investing. That’s why we make it possible for members to purchase shares in authenticated multi-million-dollar art from high-growth artist markets with the highest potential risk-adjusted returns. That way, you can get started in the market without the hassle of selling. All you have to do is purchase shares and collect your dividends when we make a sale. Ready to get started? Fill out your membership application today to learn more.


Masterworks
Masterworks is a fintech company democratizing the art market. Our investors are able to fractionally invest in $1mn+ works of art by some of the world's most famous and sought-after artists.