The Basics of iShares Silver Trust

By Dan Caplinger | September 19, 2012

The Motley Fool has helped ordinary people become better investors for nearly two decades. This month, we're reaching out to millions of investors to help guide them in their quest toward financial knowledge and independence.

Along those lines, I'm planning to take a look at many of the most popular exchange-traded funds in the market today. ETFs have skyrocketed in popularity, but it's important to understand exactly what you're getting when you buy an ETF. Today, I'd like to focus on the iShares Silver Trust (NYSE - SLV), a bullion ETF that has capitalized on the decade-long explosion in precious metals.

Why buy iShares Silver?

As we noted last week in our look at SPDR Gold (NYSE - GLD), commodity ETFs were a natural offshoot from original ETFs that focused on stocks. Yet although gold has historically served a monetary role for people trying to preserve wealth, silver has a much wider appeal. Not only is it used in coinage and jewelry, but you'll also find it in a number of industrial processes ranging from photography to mirrors and electrical conduction. Moreover, silver's abundance makes it far more cost-effective to use for industrial purposes than other precious metals, while also making it appealing to investors looking to make more modest precious-metals investments.

Like SPDR Gold, iShares Silver follows a simple concept. When it first came out, each share was backed by an ounce of silver. The impact of expenses has now reduced that ounce by about 3%. Still, the company owns more than 9,800 tons of silver, or roughly 316 million ounces.

Before the ETF came out, investing in silver was even more difficult than investing in gold. Although coin dealers sell silver bullion, its relative bulk compared to similar dollar amounts of gold makes silver more costly to ship and more cumbersome to store. Silver miners Hecla Mining (NYSE - HL) and Pan American Silver (Nasdaq - PAAS) are just a couple of the companies that produce silver, but when they run into production difficulties or face other obstacles, their share prices can move in much different directions than silver bullion. Even Silver Wheaton (NYSE - SLW), which is a silver streaming company, doesn't always match up with silver's moves perfectly.

To invest in iShares Silver, you'll pay annual expenses of about $50 for every $10,000 you invest, making it fairly pricey. You also won't get any income from the trust, and in fact, the longer you own shares, the more those fees will eat into your silver holdings.

Learn more

iShares Silver Trust is the largest silver ETF and will likely continue to remain so. To learn more about iShares Silver, follow this link to the ETF's main information page.