In the course of history, many fortunes have been made or lost through commodities investment. Despite what you may have been told, commodity investment can be safe and profitable.
What Is Commodities Investment?
Commodities are the raw materials that society relies upon to function. Consumable commodities include corn, soybeans, and wheat. Unlike other types of companies, commodity producers follow practices and procedures that are nearly identical. Even if one commodity firm discovers an important new innovation, it doesn’t take long for competitors to follow suit.
For this reason, it can be difficult to determine why some commodity producers prosper while others do not. Investing in individual commodities has the same inherent risks as “stock picking.” This is why most financial experts encourage investment in index funds and ETFs
Commodity Stocks Vs. Commodities
The simplest way to invest in commodities is to purchase raw commodities for reselling at a later date. Gold bullion is one commodity that is relatively popular for retail investors. Still, buying and storing commodities is impractical for most ordinary people. At the next level of abstraction, you can purchase commodities futures contracts or other exchange-traded financial products. Because this type of investment can be complex, you should conduct plenty of due diligence before risking any significant sum this way.
Commodity prices are strongly affected by factors that are almost impossible to predict. These include weather events, consumer demand, and political developments. That’s why commodity investing can be tough for newcomers to the market. Investing directly in commodity futures is best left to experienced investors.
Index Funds and ETFs
Investing in commodity stocks is a different story. This involves investing in companies that produce or process commodities. Commodity-based ETFs allow you to take advantage of the commodities market without exposing yourself to undue risk. These funds typically invest in a wide range of businesses related to commodities. For example, an oil and gas ETF might own stocks from corporations engaging in oil exploration, oil refining, or natural gas distribution.
Is Bitcoin A Commodity?
These days, quite a few people are calling cryptocurrency a commodity. At the very least, Bitcoin seems commodity-like in a number of ways. Like a commodity, Bitcoin’s value seems relatively impervious to the day-to-day decisions of global policymakers.
Though several countries have officially banned Bitcoin, this hasn’t affected Bitcoin’s meteoric rise. It is not clear that even the U.S. government could successfully ban Bitcoin. Like a commodity, Bitcoin seems to be an asset that will appeal to investors indefinitely. Though Bitcoin prices may fall or rise, Bitcoins should always maintain a modicum of value.
According to the experts at Capital.Com, “Commodities have become a popular means of inflation hedging and portfolio diversification.” During a time when inflation worries are rising, commodity investing may prove the key to protecting your finances for the long term.
If you have been considering getting into commodities trading, you shouldn’t be afraid to take the leap. With proper preparation and research, just about any prudent investor can do well in commodities.