Just like gold and other precious metals, silver can also be used for investment. For many centuries, this metal has been regarded as a store of value, as well as a symbol of wealth in many areas. This metal is also used in the manufacturing of numerous products, including jewelry.
Every year, there are millions of American Silver Eagle and Canadian Maple Leaf silver coins that are purchased by investors. These particular coins can also be used as legal tender and for paying off debts in some instances.
As with many other commodities, the price of silver is based upon supply and demand, as well as by speculation. And, as compared with gold, the price of silver can oftentimes be somewhat more volatile. Therefore, prior to purchasing this metal as an investment, it is important to understand how it is priced, as well as where it may fit into an overall investment strategy.
1. Understand How Silver is Priced
Before purchasing any type of investment, it is important to have a good understanding of how it is priced. Due in large part to its lower market liquidity, silver’s price tends to more up and down much more than that of gold on a daily basis – even though it generally tracks the price of gold due to the store of value demand.
Some of the primary factors that can influence the price of silver can include:
- Large investors – The silver market is much smaller in value than that for gold. Therefore, when large institutional traders purchase or sell their holdings, it can have an effect on the overall price of silver itself.
- Short selling – Oftentimes, if larger traders are speculating on the price of silver, this too can have an overall effect on its price.
- Demand (both consumer and industrial) – Just as with most other products and services, the price of silver will also be largely dependent upon its demand by both consumers and industry.
2. Open an Investment Account
When purchasing silver, investors can do so by buying it outright, or through a retirement account. When purchasing it outright, investors can reap the benefits of growth on the metal. However, what many investors may not realize is that if they purchase silver within an IRA (Individual Retirement Account), they can also obtain all of the tax advantages – such as tax deferred or tax free growth – that IRA investing can offer, too.
3. Decide on a Good Quality Precious Metals Dealer
When purchasing silver bullion in a precious metals IRA account, the account will need to be opened through a company that specializes in these types of accounts. Typically, most banks and traditional brokerage firms do not deal in precious metals IRAs. Therefore, it will be necessary to locate a company that does so.
Over the past several years, due in large part to the growing popularity of precious metals investing, many metals dealers have begun to offer IRA accounts. Most companies may be found online – and they will generally offer the paperwork that is necessary to open the accounts directly via their websites.
Prior to moving forward with opening a precious metals IRA account, a proper amount of due diligence should be done on several companies in order to determine their backgrounds and reputation in the industry.
Companies such as Regal Assets will typically show up as being the top contenders, with high ratings from the Better Business Bureau (BBB) and TrustLink, and a zero history of customer complaints. It is this type of company that you will want to stick with when investing in precious metals for retirement.
4. Fund the IRA Account
Once the IRA account has been opened, there are three ways to fund it. These include:
- Cash Deposit – IRA account holders are allowed to make cash deposits each year – up to an annual maximum amount. In 2014, this amount is $5,500. (For investors who are age 50 and over, an additional “catch up” contribution of $1,000 is allowed to be made).
- IRA Transfer – If an investor already has one or more IRA accounts established, then he or she may transfer funds from those accounts into their precious metals IRA account. This is a great way to boost the amount of funds that are inside of the new IRA for investment in silver, gold, or other precious metals.
- Rollover – Funds may also be “rolled over” from retirement accounts such as an employer sponsored 401(k) plan. Here, too, is another way to greatly increase the amount of precious metals IRA funds. This is because there is no dollar amount limit on the amount of funds that may be rolled into an IRA account.
5. Make the Metals Purchase
After the precious metals account has been funded, buying silver bullion and other precious metals can begin. For newer metals investors, this may require additional education on which particular metals will work best, depending on long and short term investment goals.
In many cases, the precious metals dealers will have customer service representatives that can assist with choosing which metals will – and will not – be best in certain situations. In addition, if metals will be purchased inside of an IRA account, there are also IRS (Internal Revenue Service) guidelines that state the type of metals that can and cannot be placed within a precious metals Individual Retirement Account.
The Bottom Line
Buying silver bullion, along with other types of precious metals, can be a smart move for investors. Doing so can help to offset the up and down movements that have recently been seen in stock market equities, as well as the economy as a whole.
By investing a percentage of one’s retirement portfolio in precious metals, an investor will typically see an increased opportunity for growth, along with a nice hedge against inflation and a way to protect other retirement assets. Overall, this can offer investors a tremendous peace of mind with their portfolio as they move towards retirement.