Whether you choose to hold silver as a paper investment in exchange-traded funds or mining stocks, or you actually hold bars and coins of silver instead, you can have a silver-based IRA. However, just because you can doesn't mean you should. While investing in silver can have benefits, it also has some real drawbacks.
Many investors like precious metals like silver or gold because they're viewed as a safe haven. The value of the dollar can fluctuate along with the economy, but an ounce of silver will always be an ounce of silver. This can make silver a good hedge against inflation while also making it go up even more in times of uncertainty when investors decide to increase their precious metal holdings.
Price Relative to Gold
Compared to gold, your money can buy much more silver. Furthermore, there are times when silver is a better buy than gold. Between the creation of the Federal Reserve bank in 1913 and the date of publication, gold has been, on average, 27.28 times the price of silver. In other words, if silver is $20 per ounce, gold would historically cost around $545.60 per ounce. At times when silver is relatively less expensive than the ratio -- for instance, if gold is $1,300 and silver is $30 -- it can be an indication that it's a good time to buy silver.
Holding nothing but silver in your IRA could be very risky; most investment advisors recommend that you diversify your IRA. On the other hand, compared to gold, silver is, in and of itself, diversified. It's used in not just jewelry, but a number of industries. While this makes silver less of a pure investment play and safe harbor, since industrial demand can fluctuate with the economy, it also allows you both to hedge against hard times and potentially benefit from good times.
If you choose to hold paper silver in your IRA, the holding costs will be minimal. You can hold paper silver by buying stock in mining companies or by holding exchange-traded funds that represent shares of a large stockpile of silver bullion. However, if you choose to hold actual physical silver, you will incur some costs. You generally have to pay a fee for your self-directed account, and you'll also have to pay to have your silver stored in a depository. You may also encounter transaction fees to get silver out of your account as well as shipping and delivery fees.
Steve Lander has been a writer since 1996, with experience in the fields of financial services, real estate and technology. His work has appeared in trade publications such as the "Minnesota Real Estate Journal" and "Minnesota Multi-Housing Association Advocate." Lander holds a Bachelor of Arts in political science from Columbia University.