3 Alternatives to the iShares Silver Trust

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Many investors who are interested in buying silver choose to buy the iShares Silver Trust (NYSEARCA:SLV) as a convenient alternative to owning physical silver bullion. There is little doubt that there is a certain appeal to the iShares Silver Trust. It is highly liquid, trading several million shares daily. It also trades like a stock, unlike physical bullion coins and bars, and so if you wish to buy or sell SLV shares it is as simple as buying or selling a stock. This is opposed to traveling to a coin store or going to an online coin dealer and then finding a safe place to store one’s valuable silver.

While I think there is no substitute for owning physical silver bars and coins, there is an advantage in owning something that is highly liquid. Nevertheless I think that there are better choices than the SLV.

The first is the Sprott Physical Silver Trust (NYSEARCA:PSLV). The PSLV is a better alternative in two respects.  First, it is cheaper. It has a lower expense ratio (0.45 percent versus 0.5 percent). Furthermore, it is taxed like a stock, so that if you hold PSLV shares for longer than a year, then any gains one accumulates are taxed at the capital gains rate, which is 15 percent or 20 percent depending on your income. SLV, on the other hand, is taxed like a collectible, which means that gains are taxed at 28 percent.

Second, PSLV’s silver is held with the Royal Canadian Mint. However, it is unclear where SLV’s silver is stored. The prospectus lists JP Morgan (NYSE:JPM) as the custodian. But it also gives JP Morgan the right to give some or all of this silver to sub-custodians to hold. There is no specification as to which institutions can be deemed sub-custodians. This ultimately means that SLV has greater counter-party risk, and in an era in which counter-party risk has become a more important part of making investment decisions, I find this to be disconcerting.

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