You can invest in commodities just as you do stocks and bonds. Like those other investments, commodities have their own markets. Investors access about 50 major commodity markets worldwide. Futures contracts are the traditional way of investing in commodities. You are purchasing an item like lemons or iron at a certain price. The market determines whether the price goes up or down on that item. It is the same concept as stocks, but without the same degree of volatility.
Like stocks and bonds, commodities can also be part of a fund. You buy a share of a fund, and its performance depends on how the commodities within the fund perform. To further get an idea of how commodities work, let’s look at three commodities that receive a lot of publicity and actively traded on the market.
Gold is the most popular of the precious metal commodities. Supply and demand drive the price of gold, as well as the demand created by speculation. The performance of gold bullion is often compared to stocks as an investment vehicle. Gold is regarded as a way of storing value (meaning no growth) while stocks have a return on value when you take into account the hope of a real price increase in the stock plus its dividends. Stocks and bonds are better investments in a stable political climate with little turmoil.
As with any commodity, the key with gold is knowing when to invest so you can take advantage of its appreciation. Of course, the counterpoint to that is selling before the price tumbles and reallocating your investment resources.
Investors can also directly invest in oil as a commodity. There are several ways to approach this. The easiest way for the average person to invest in oil is through stocks of oil drilling and service companies. Another method of owning oil is by purchasing oil futures or oil futures options. These are highly volatile and involve a great degree of risk. Additionally, investing in futures may require an investor to do a lot of research as well as invest large amounts of capital.
The volatility in investing in oil can be seen right here in the United States over the last half dozen years. When fracking became an economical method for extracting oil from shale, areas of the country boomed with renewed economic vigor as the oil industry expanded to areas never used for oil production before. Towns sprang up around these areas with a call for workers to travel to places like Texas or North Dakota. The amount of oil surged, as did profits. A few short years later, these areas became ghost towns and wells closed as the price of oil dropped and made those operations cost prohibitive. They could very well open again when the price of oil goes up.
Money is a commodity, and actively traded as any grain or mineral. The foreign exchange market (Forex) trades in currencies. The way the currency market works is that if you think that the price of the dollar will drop in the future, you buy one or more currencies that you think will rise. There is a key difference to keep in mind between stocks and currencies. Stocks move independently of each other while currencies move relative to each other. This means that when one currency is rising, another must be falling.
The average rate of return on commodities is about 7%. Depending on the commodity, you can have natural disasters and man-made problems greatly affect your investment. However, if you look at the broad picture, commodity investment can certainly be a valuable component of any portfolio.
Investment and wealth creation is much harder than most people think or even understand. The founder of world’s largest hedge fund and 25th richest man in USA, Ray Dalio says to Bloomberg that “it is harder to win in stock market than competing in Olympics”. Ray Dalio also holds 7.5% Gold and 7.5% in other Commodities in his “All Weather Portfolio”. As with all investments, do your research or consult an investment professional before committing your money. If you like this article then you will also like my special report – “SPECIAL REPORT REVEALS HOW TO RECOVER YOUR RECENT STOCK MARKET LOSSES QUICKLY & SAFELY WITHOUT LIQUIDATING OR REPLACING YOUR INVESTMENT ADVISOR”. You can get this FREE special report here. We have been helping more 3000 physicians, 1000 dentists, 3000 successful business owners and 600 independent pharmacy owners create most optimal asset allocation, reduce taxes and create sizable wealth for last 20 years. We don’t have magic wand but we know thing or two that works. If this something you want for yourself then please call (877) 972-3262 or contact us now.