Silver Investing - Options For Your Self-Directed IRA

Those whose retirement funds are tied up in a 401k or 403b do not usually have a silver investing option. A small percentage of account holders may have a precious metals or gold mutual fund option. My wife's 403b plan had a gold mutual fund option until last fall when the trustee "enhanced" the plan and eliminated that option. Those with self-directed IRAs have a number of options.

Perhaps the best, safest, and easiest silver investing option for a self-directed IRA is an Electronic Traded Fund; an ETF. Silver ETFs are a relatively new silver investing vehicle. With an ETF, asset selection and management is much like a mutual fund, but it trades like a stock. That is, investors can buy and sell ETFs throughout the trading day, whereas mutual funds can be bought and sold only once each trading day. At this time there are only a handful of silver ETFs. But if you choose this method, you really only need one. Standard silver ETFs buy and hold silver. Therefore, the share value will track the change in the price of silver very closely. If you choose to invest through an ETF, I recommend you choose the one with the highest average volume of shares traded.

There is at least one super charged silver ETF. It attempts, on a daily basis, to a percentage change in share value that is 200% of the change in the price of silver. This ETF does not hold physical silver. Management utilizes options and other leveraged derivatives to achieve the 200% result. It's been a wild ride for leveraged silver investment vehicles--which brings us to stock options. Money management experts caution that leveraged ETFs can suffer slippage in sideways markets. That is, if the price of silver fluctuates within a range for several weeks and ends up at the same price, the share value of the leveraged ETF might actually be lower.

Stock options can be purchased on silver ETFs, just as they can on other common stocks. Because the price of silver is so volatile, options on silver equities carry a very high premium. I advise all but the very experienced to stay away from options with retirement money.

Then of course, there are silver mining companies. There are only about two dozen silver mines in the world. And these mines only produce about 25% to 30% of the annual silver production. Most silver is a by-product of another type of mine; most commonly zinc or copper. When buying silver stocks, or options on silver stocks, it is best to buy companies that have proven silver reserves, not exploration companies. Mining companies that have proven reserves benefit from a rising price of silver. And, such an investment provides leverage because production cost is fairly stable. For example, if the production cost of a particular mining company is $15 per troy ounce, and the price for which it can sell bulk silver is $25 per troy ounce, they make $10 per troy ounce produced. If the selling price increases to $35 per ounce, they make a $20 per ounce profit. A 40% increase in selling price results in a 100% increase in profit. Higher expected profits pushes share price higher.

I am not aware of any silver mutual funds. But if silver continues to outperform gold by such a wide margin, I wouldn't be surprised to see one soon.

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