Physical silver refers to silver bullion or coins. There are a number of considerations to make before buying to make sure you get the best deal and that you buy from a reputable seller.
Paper silver refers to either shares in silver exchange-traded funds (ETFs) that move with the price of silver, or futures contracts where there is an amount of physical silver underlying the contract.
Both investments let you profit from silver's price moves. To decide which one is best for you, you need to answer some questions about your investment goals.
To help, here's a closer look at each way to profit from silver.
Buying Physical Silver
There are a lot of benefits to buying physical silver instead of paper silver, but the biggest one is that it offers a hedge against calamity in the broader markets. It won't be fazed by a weakening dollar or a plunge in the Dow Jones Industrial Average.
The hedging qualities of physical silver make it an attractive investment regardless of price movements.
"I have physical silver," Money Morning Defense & Tech Specialist Michael A. Robinson said earlier this year. "I might have bought some at the top, but I don't care what the price goes to; I will not sell that physical silver. It's there for a reason – just like I have insurance on my car, I have insurance in case of a disaster."
Owning physical silver also lets you side-step credit risk, which is an inherent problem to holding contracts. We'll get more into that later.
Another advantage to buying physical silver is low storage costs.
"[Silver and gold] are not very costly to store," Graham Davis, a professor of mineral economics at the Colorado School of Mines told Money Morning, "That's why they've been historically of interest to investors."
This is referred to as "value density," according to Money Morning Resource Specialist Peter Krauth. An ounce of silver, which you could hold in your hand, is worth roughly six pounds of copper, and about 21 pounds of zinc, by average 2014 prices.
Storing a large amount of silver will come with overhead costs, whether you choose to let bank vaults act as custodian, or you buy your own secure safe to keep at home.
As noted by JMBullion, a precious metals dealer, safes can cost anywhere from $100 to several thousand dollars.
Banks can also store your silver, but there are concerns about accessibility and security. The federal government has seized silver bank stocks before, and if this were to happen again, you could be deprived of your hard-earned investment.
Buyers also need to be aware that vendors will charge a premium on top of the spot price when selling physical silver. Silver retailers have to pay overhead to store and secure physical products, and premiums are a means of pricing these costs in. The total premium is determined by the quality and the silver content of a product.
You can, however, generally offset some costs of premiums by buying in bulk, as opposed to buying say, a single Silver Eagle coin.
Members-Only Benefit: Money Morning Members can get a free Silver Eagle when they open a precious metals account with Asset Strategies International. Go here to learn more about this special opportunity.
If these costs turn you off from buying physical silver, then maybe paper silver is a better fit for your goals.
Paper Silver (for the Conservative Investor)
Paper silver can be categorized in a couple of ways.