Gold isn't the only game in town, even though you'd never know it by watching late night TV.

Here's what to know and what to consider if you'd like to invest in silver.

What Does Investing In Silver Mean?

Investing in silver means putting your money into the production, trading or outright ownership of silver metal. For most investors this means buying quantities of bullion in coin or bar form and holding onto it.

While silver is technically a commodity like any other, precious metals are somewhat different as an asset class. Unlike crude oil, corn or lumber, the value of silver isn't limited to its consumption uses. In fact, while silver does have non-trivial industrial applications, most of its value comes from its status as an investment vehicle.

Like gold, the price of silver is chiefly driven by market demand. Since silver is used relatively rarely compared to other industrial metals it does not have production/consumption cycles of most commodities. Instead its value is chiefly driven by either long term investors or those seeking to ride out a down market. Often this means that silver (again, like gold) tends to perform counter-cyclically to the stock market.

Silver Is Not Better Money

It is, however, at this point that we should note the enormous volume of bad reporting on the subject of precious metals investment.

Many articles written on this subject urge investors to put their money into silver and gold because these assets are "real money" and inherently safer than fiat currencies. This is wrong.

Silver has limited inherent value. While, unlike a fiat currency, its supply is limited, like a fiat currency it is real money only to the extent that other parties will to accept it in trade. Investors who believe in the "real money" theory of silver should try paying their bills in specie and see exactly how far that will get them. Others should consider the asset's high (sometimes enormous) volatility index compared to that of the dollar.

Fiat currency has structural value because of its ties to a national economy and its role in tax collection. Silver does not. Its value is driven almost entirely by supply and demand with some influence from industrial applications. That does not make it a poor choice of investment, but it does mean that its value depends entirely on what someone else is willing to give you for it, Just like currencies, stocks and pretty much every other form of investment on the market.

It is no less real than any of those, but no more so either. The fact that you can hold it in your hand doesn't change that.

Why Invest In Silver?

Compared with gold, silver is generally cheaper. An investor can buy more silver for less money, making it potentially popular choice for lower capitalization investors.

Silver is also more volatile than gold. For active investors this can make silver a potentially lucrative investment, as its tendency toward price swings can lead to sharp upward movements. Much of this volatility comes from the fact that silver is a smaller market than gold, and that gold tends to draw more investors seeking more stability in uncertain markets.

Compared with stocks and paper investments, however, silver is still generally seen as a safe haven for investment during market instability. Despite its volatility, investors will often move their money into precious metals at the beginning of a downturn.

Finally, silver is seen as a more liquid safe investment than other non-market options like government bonds. While the high volatility of silver can make selling more difficult, as you may have to wait for the price you want, it is still easier to end your position than in a Treasury bond, and often for a better (if still relatively low) return.

How to Invest in Silver

There are a number of ways you can include silver among your assets:

Bullion

Perhaps the most popular way to invest in silver, you can simply purchase quantities of the metal outright.

This method has the advantage of simplicity. You own the asset outright and can sell it at any time for market price, typically minus a dealer commission. You are responsible for storage, insurance and logistics, but you also don't have to deal with any third parties. While you are exposed to the full volatility of the silver market you can also sell as soon as the market gets hot if you choose.

Silver Futures and Options

The most common way to invest in commodities, futures and options contracts allow you to invest in the movement of the silver market. Your profit here comes not from the market value of silver but from how that value changes. For more information, see our articles on commodities and futures.

Silver ETFs

As we have written before, ETFs are funds traded on a stock exchange. They are made of bundled third party assets and your value comes from how those underlying assets perform.

A silver ETF is built to track the market price of silver metal. It is often built around a specific quantity of silver or group of bullion assets. This is generally considered one of the best ways to own and trade silver with high liquidity and without the logistical challenges of owning the physical asset.

Silver Production Stocks and Funds

Finally, you can invest in the silver market. Through stocks and mutual funds you can invest in silver mining companies and firms which deal in the production, distribution and use of silver. These stocks generally track the market value of silver but have value beyond pure supply and demand. As a result they can be more reliable and less volatile than pure silver, but are also subject to potential business-related liabilities.

Should You Invest in Silver?

Silver can be a strong addition to any portfolio but only in measured quantities.

As a stabilizing asset silver, like gold, can give your portfolio a steady, diversified return compared to traditional stocks and mutual funds. In particular, they can do so while retaining much higher liquidity than many other forms of safe investments (as noted above).

However, you should be careful about how much of your portfolio you dedicate to silver or precious metals. Silver is highly volatile and, if it occupies too many assets, can swing your entire portfolio.

Like most diversified assets, silver has its role in a good portfolio, in moderation.

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