Silver Wheaton Corp. (USA) (SLW), Pan American Silver Corp. (USA) (PAAS): Silver Investing for Beginners

Silver investing for beginners can be an overwhelming prospect when you consider the relative volatility involved in the silver market. Generally, there are three investment options to be considered, with only two that are potentially appropriate for novices: investing in the futures market, investing in the ETF market, or investing in silver companies. While many consider the purchase of physical silver a fourth option, unless you have significant capital to deploy, the commissions and premiums you will pay make this more doomsday preparation than pure investment strategy.

Let’s examine each of the three options, their relative strengths and weaknesses, and a recommendation as to how silver might fit into your portfolio.

Silver futures: Silver investing for beginners will not include an investment in silver futures in most cases. The amount of capital needed to take any position in silver futures is generally more than most investors have for this allocation. One futures contract controls 5,000 ounces of silver, while a mini-contract covers 1,000 ounces. With silver trading above $20 per ounce, even the mini-contract represents a position of more than $20,000. Furthermore, questions of leverage, expiration, and margin are complications best avoided by less experienced individuals.

Silver ETFs: While there are several ETFs that track the performance of the silver commodity, the iShares Silver Trust (ETF) (NYSEMKT:SLV) is the largest and most liquid. The advantage of investing in SLV is that you get the same performance that’s available from the futures market at much smaller denominations. The forces that drive the commodity markets are different from those that drive stocks, meaning that silver companies are often at the mercy of both sets of drivers. Investing for beginners is often best kept as simple as possible, and ETF investments tend to be very straightforward. For these reasons, an allocation to SLV is a great way to get started.

Silver stocks: Silver investing for beginners can include the stocks of silver companies. The Global X Silver Miners (NYSEARCA:SIL) gives you exposure to a basket of silver companies and is a great way to get diversification, but it makes it very hard to control for company-specific risks. SIL’s 10 largest positions account for about 74% of its holdings and include a diverse group of silver companies. So you get exposure to many companies, but it’s impossible to avoid any that are facing specific issues.