Precious metals, such as gold and silver, are often touted as a hedge against inflation. Silver has the added advantage of having a number of industrial uses beyond its value as a sought-after material for jewelry. You can invest in physical silver by purchasing coins or ingots, or you can gain exposure to the metal through mining stocks, precious metals mutual funds or exchange traded funds, but all types of silver investments involve risk.
Silver is a commodity that trades on both national and international exchanges. Market prices for silver and other precious metals can fluctuate widely over short periods, and fluctuations might occur for no apparent reason. The market risk is magnified exponentially if you trade on margin -- that is, you borrow money to buy a silver contract. If you sell a contract short, your risk is virtually unlimited.
If you invest in physical silver, such as coins or bars, you'll have to find a safe place to store it. Your silver broker or dealer might offer to store your bullion for you, but that extra service will cost you a regular storage fee. If you elect to store your silver at your home or place of business, you assume the risk of theft.
Because of its glitter appeal, you might be tempted to act impulsively with silver. The Federal Trade Commission advises investors to resist that temptation. Silver bullion and coins are widely available at market prices, according to the FTC, so it's unlikely that one dealer can offer a substantially better deal than another dealer. Don't rush into a silver investment. Investing with a reputable dealer can help reduce your risk of fraud.
Investments in silver mining companies or precious metals mutual funds have their own dangers. Beyond the risks inherent with the metal itself are the challenges associated with mining, refining and bringing the silver to market. A number of silver mines are in remote regions that are sometimes affected by adverse natural and political events. This can affect the producer's profitability, which in turn affects the company's stock price.
Mike Parker is a full-time writer, publisher and independent businessman. His background includes a career as an investments broker with such NYSE member firms as Edward Jones & Company, AG Edwards & Sons and Dean Witter. He helped launch DiscoverCard as one of the company's first merchant sales reps.