The Compounding Power of Silver ETFs: Why SLV Deserves a Spot in Your Long-Term Portfolio

In an era marked by persistent inflationary pressures and economic uncertainty, investors are increasingly seeking assets that offer both diversification and the potential for long-term wealth growth. Among these, physical commodities-particularly silver-have reemerged as compelling alternatives. The iShares Silver Trust (SLV), an exchange-traded fund that tracks the price of physical silver, has demonstrated a unique ability to compound returns over time, even as it navigates the inherent volatility of the precious metals market. This article examines SLV's 10-year performance, its outperformance relative to the S&P 500, and the strategic case for allocating to silver ETFs as part of a diversified, inflation-protected portfolio.

A Decade of Volatility and Resilience

SLV's 10-year annualized return of 8.77% through 2025 may appear modest at first glance, but a deeper analysis reveals a more nuanced picture according to performance data. From 2015 to 2025, the fund delivered a 10-year average annual return of 17.85%, with total returns growing from $10,000 to approximately $51,723 by 2026. This growth was driven by periods of exceptional performance, such as the 47.30% return in 2020 and the 161.98% total return in 2025. These figures underscore the compounding potential of silver, particularly during inflationary cycles or periods of economic stress, when demand for tangible assets often surges.

However, SLV's journey has not been without turbulence. The fund experienced significant drawdowns, including a maximum drawdown of -72.16% over a 175-month period, and annual losses in 2018 (-9.19%) and 2021 (-12.45%). Such volatility is inherent to commodities, which are sensitive to macroeconomic shifts, geopolitical risks, and supply-demand imbalances. Yet, for investors with a long-term horizon, these fluctuations can be mitigated through disciplined, strategic allocation.

Outperformance and Inflation Protection

When compared to the S&P 500, SLV's performance highlights the value of diversification. The S&P 500's inflation-adjusted compound annual growth rate (CAGR) from 2015 to 2025 was 10.12%, slightly outpacing SLV's 8.77% annualized return. However, this comparison obscures critical nuances. For instance, SLV's 3-year CAGR of 47.01% and its 12-month total return of 160.99% far exceeded the S&P 500's returns during the same periods. These disparities reflect silver's role as a hedge against inflation and currency devaluation, particularly in environments where central banks are aggressively expanding monetary supply.

Moreover, while the S&P 500's returns are tied to corporate earnings and economic growth, SLV's performance is decoupled from these factors. Instead, it reflects the interplay of global silver demand (e.g., industrial uses, jewelry, and investment) and supply constraints, including mining bottlenecks and recycling limitations. This structural independence allows SLV to serve as a counterbalance to equities, reducing portfolio risk during downturns.

The Case for Strategic Allocation

The compounding power of SLV lies in its ability to generate outsized returns during favorable cycles while maintaining a floor of value during downturns. For example, an investor who reinvested dividends and held SLV through its peaks and troughs would have benefited from exponential growth in 2020 and 2025, offsetting earlier losses. This dynamic is particularly relevant in today's macroeconomic climate, where inflation remains stubbornly high, and central banks are constrained in their ability to stimulate growth without exacerbating price pressures.

Critically, SLV's performance underscores the importance of asset allocation. While commodities are inherently volatile, their inclusion in a diversified portfolio can enhance risk-adjusted returns. Historical data suggests that a 5–10% allocation to silver ETFs like SLV could provide both inflation protection and a source of asymmetric upside during periods of market stress.

Conclusion

The iShares Silver Trust (SLV) exemplifies the compounding potential of physical commodities when held over the long term. Despite its volatility, SLV has delivered robust returns, outperforming the S&P 500 during key periods and serving as a hedge against inflation. For investors seeking to future-proof their portfolios, strategic allocation to silver ETFs offers a compelling combination of diversification, resilience, and growth. As the global economy navigates an era of uncertainty, the lessons from SLV's decade-long journey are clear: embracing alternative assets can unlock new avenues for wealth creation.