There are two methods to procure silver from your own home. Both methods have their own advantages and disadvantages, and each will require some very important planning. While many believe that all silver is the same, this isn't the case. In fact, some silver is a great investment, some other silver is a very poor investment. The distinction, though, isn't always clear, and there are always exceptions to every rule. We'll start first with silver bullion, and then market traded silver to understand the pros and cons of each.
Physical silver bullion has an attraction that is unmatched by most other metals. It is shiny, brilliant, and best of all, you can hold it in your own hand. These properties are what have made it such a popular metal in industry, jewelry, and now as an investment. Physical bullion's biggest advantage is that it is in your possession at any time. While that may seem like a hard to spot advantage right now, we'll discuss later other purchasing options where silver you own isn't actually in your possession at all.
Another benefit to silver bullion is that it is fun to own. Silver bars look great stocked away in a safe, and many collectors and investors alike enjoy the brilliance of one ounce silver coins. To many, having fun with their investments isn't a feeling they've experienced before. Where stocks and bonds are digits on a computer screen, your physical silver bullion holdings might be relics of centuries ago!
Taxation and Silver
But we also have to consider Uncle Sam. To the government, any silver bullion is considered to be a collectable, whether purchased for the purpose of collectors' value or for the simple metal content. As you may or may not be aware, earnings on collectors' items are taxed differently than earnings on an investment item.
A collectors' item, regardless of when it is bought or sold, is always taxed at your income tax rate. This rate ranges anywhere from 10% up into 30%, depending on your income and other variables. The capital gains tax rate, however, has never extended past 20%, and rests now at a low 15% of gains. So, if you were to buy bullion as a member of the 35% tax bracket, expect to pay more than twice as much on your gains as someone who purchased silver via other methods.
ETFs and Trusts
Exchange-traded funds and holding trusts are the only two ways that individuals can purchase silver without paying the income tax rate on gains. Exchange-traded funds are very similar to mutual funds, except that they trade on the open stock exchange, just like stocks. Thus, for a small commission and annual fee, you can buy part of a silver trust that stores silver on your behalf. Trusts, as they are defined in the physical metals markets, are formed by companies to sell silver to their clients. Since the IRS considers trusts to be inherently different from plain bullion, then they also earn the same low tax rate of only 15% on long-term capital gains.
Steps for Purchase
Purchasing ETF shares or buying into a Trust does take a little more work than buying silver through a coin dealer or bullion vendor. Exchange-traded fund shares, as mentioned above, are purchased on the open stock market. Thus, to buy into silver ETFs, expect to pay $5-20 per trade (buy or sell) plus an annual fee of roughly .5-1%. This requires an investor to open a brokerage account, as well.
Buying directly into a trust can be done through a number of different companies, and is considered to be the best deal for the passive investor. Via a credit or debit card, or even a routine or one-off bank transfer, you can buy allocated silver to be stored in a trust on your behalf. One of the largest companies in this segment is the Perth Mint, a company that buys silver, stores it in a trust, and sells it onto its clients for a tiny fee.
Buying physical silver is the easiest method, and can be done online through bullion brokers or even on Ebay. Alternatively, many local coin shops would happily welcome your business. Take into consideration the overhead of the coin shop, as well as the shipping costs. It is not unheard of for investors to pay as much as 5% over spot for their metals. Thus, if silver were $30 per ounce, an investor would pay the coin shop or broker $31.50 per ounce; however, as the silver remains in the hands of the investor, there is no annual fee as is assessed on both ETFs and independent Trusts.