Posted by Frugal on April 29th, 2006
Finally SLV, the first silver ETF is here on April 28, 2006. No more needs of paying premium over CEF which at one point was trading more than 10% premium over its underlying asset. Despite its convenience and attractiveness as an easy way in investing in silver, it is after all a paper asset. Not only that, like gold ETFs (IAU and GLD), they will be taxed at the very high federal tax bracket of 28%, falling into the category of collectibles. I wonder where this collectible tax came from. It must have come from an inflationary era when people held goods and collectibles instead of cash. Our beloved government never forgets to extract taxes out of its own making of inflation, taxing collectibles at even higher rate. As an investor myself, I think it’s so unfair to tax beyond inflation. I have no problems with taxing real gain. But when government inflates by printing more paper money, and then comes in and tells you that you have an absolute paper gain while you barely beats inflation, the government is simply stealing from you for her own sin of inflation. The capital gain tax makes the job of being an investor doubly difficult. Not only you need to beat inflation, but you need to beat inflation on an after-tax basis.
Okay, enough about tax & inflation. What are the other ways that you can invest in silver? Here is my list:
- SLV, as just mentioned. An annual percentage cost of 0.5% will cover all the storage costs and inconveniences. However, as a matter of fact, I’m not too thrilled about another paper vehicle for the hard asset.
- Silver perth mint certificate in Australia. Minimum investment is close to $10000 US. Last time I checked, uncle Sam has got its tentacles into the books of most dealers, requiring tax reporting upon sale.
- American Silver Eagle coins or silver bars. This is an easy way for small investor to get into physical silver market. Storage cost is nil, at your own space. But you pay for minting, dealer premium, and bigger bid/ask spread over the spot price of silver.
- CEF, Canadian Central Fund: A gold/silver holding company with small management cost. It holds roughly 50% of gold and 50% of silver bullions. It was trading at a 9.2% premium over it’s precious metal holdings on April 27 2006, the day before SLV is launched.
- Silver stocks: PAAS, SSRI, and many other ones. For disclosure purpose, I personally hold both stocks that I mentioned.
- Silver futures or call options: Commodity market is less regulated, and subjected to manipulation by various agency, especially close to delivery/expiration dates of futures/options. This may not be a bad way, but I don’t have sufficient knowledge in this area. Investment in volatile commodity market can reduce an overall volatility of the portfolio through its uncorrelation to majority of other investment choices. More detailed information can be found in the theory of Efficient Frontier.
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