Precious metals can be a great way to diversify your investment portfolio while also holding relatively low-risk physical assets. Although there are many ways to get started with precious metal investing, silver coins in particular offer numerous advantages. Unlike exchange-traded funds or future contracts, silver coins are real items that you personally own and are in possession of. While there are certainly advantages to these types of "paper silver" investments, they are not the focus of this guide. Instead, you will learn the fundamentals of investing in real silver coins so that you can move on to more detailed research or begin making your first purchases.

What Kind of Coin Investor Are You?

Before getting started on your journey, it's important to evaluate why you are choosing to purchase coins. Some investors are interested purely in silver coins as a store of value or an opportunity for low-risk, long-term gains. Others see silver coins as a hobby or collection opportunity that has the potential to pay for itself and then some. Not all silver coins are the same, so understanding your personal investment goals is a necessary first step so that you can choose the right coins to invest in.

Coming to Grips with the Many Types of Silver Coins

As mentioned above, there are a wide variety of silver coins that are available. For silver coins as an investment, the two most important types to be aware of are bullion coins and junk silver coins. Bullion silver coins are almost pure silver, making them roughly equivalent to investing in bullion bars. Junk silver are old, circulated coins (specifically, US coins from 1964 or earlier) constructed from 90% silver alloy.

It may be obvious why bullion coins are of interest to investors, but what's so special about junk coins? Despite the name, these coins can actually be a decent store of value. They are worth less than bullion, but they do not carry a meaningful price premium beyond the value of their metal, as they are not valued by collectors. Since they are a known quantity, junk silver can often be found sold in large lots, making it a potentially great bargain when silver prices are low.

What About Numismatics?

If you've heard the term "numismatics" before, you may be wondering what it is and how it relates to coin investing. Numismatic coins are simply coins that are valued by collectors. In general, these coins are of less interest to people who are buying silver coins primarily as an investment. While numismatic coins can potentially appreciate in value over time, you are paying a premium upfront for the rarity and desirability of the coin.

On the other hand, if your silver coin purchases are intended to serve a dual role as both an investment vehicle and hobby, then high-value numismatic coins may be a great choice. The key is to seek out coins with a high silver content whose collectability is likely to hold steady or increase over time. The premium paid for these coins is less of an issue if there is little or no potential for that premium to decrease over time.

Premiums vs. Spot Price

By now, you may be wondering what all of this talk about "premiums" really means. For coin purchases, the premium is simply the price you pay (or are paid) over the spot price of the silver. The spot price is the current market price of silver. The premium paid for coins will vary by dealer, but is usually based on the desirability of the particular coin being purchased. As a general rule, bullion coins will fetch the lowest premium since their value is primarily the silver they are made from. On the other hand, numismatic coins can fetch incredibly high premiums, as the rarity of the coin often far surpasses the market price of its metal.

As a silver investor, you primarily want to focus on low premium coins. By buying coins with a low premium, you are minimizing your exposure to market fluctuations. The value of your coins may increase or decrease as the market price of silver changes, but you will not be exposed to the changing whims of the collectible coins market. Of course, coins with a high premium can still sometimes be a good investment, and there is nothing wrong with purchasing them if your goal is to also build an interesting collection.

Contact silver coin shops in your area to learn more.