Looking to start investing in commodities so that you can diversify your portfolio? Well, it can be a bit of a complicated process. Maybe you don’t know where to begin, or how it even works. Thankfully, there are plenty of resources available now that can help you in this journey.
Overall, I find that finances are something that intimidates a lot of people. I know that for a long time I thought I would never understand them. I mean, think about it. A lot of schools do not really teach us about managing our financial health, investing, or even our retirements. That leaves it to us to educate ourselves.
How Does Investing in Commodities Work?
If you are going to invest in them, it’s a good idea to first learn what they are. You can read more about it. Of course, I am more than happy to give you some further details as well.
What are Commodities?
At their core, they are raw and/or material goods that can be traded in their base form. Usually, they are used to create other goods. This includes things such as agriculture, minerals, precious metals, energy, and fossil fuels.
There are a few facets to these categories, of course. Energy often coincides with fossil fuels. However, in recent years, other forms have also arisen. This includes wind power, solar power, hydropower, and even nuclear power. Still, they are rarer than trading things like coal, crude oil, or petroleum.
For agriculture, this can include both plants and livestock. The trade of cattle, pigs, and chickens is a large part of the commodity market. However, edible goods are another big form of them. This usually includes things like grains and rice, but can be cacao, sugar, or even non-edibles like cotton, palm oil, and rubber.
The final category I mentioned was precious metals. Of course, other forms of metals are considered commodities as well. That might include aluminum, zinc, copper, or iron. For the purpose of this article though, I’ll mostly discuss the precious varieties. These are primarily silver, platinum, and gold.
The Trading
Of course, there are many ways that you can start to invest in these commodities. For gold, silver, or platinum, you might consider Lear Capital for investment and asset management services. Companies like this are there to help you navigate the field considering the challenges it can pose for consumers.
Now, as far as how it works, many exchanges for these goods are done via something called futures trading. In this, you purchase the asset up front and pay the current market price. The company or individual that you are buying from will give you the physical good purchased at a later date, usually established in the contract.
Naturally, with something like this, there are some risks. You could end up buying for a price higher than the item is worth when you actually receive it. In rare cases, you might not receive it at all. Make sure that whoever you are trading with is trustworthy.
Of course, on the flip side, this can also have a few perks as well. If the price skyrockets on the market, you’ll have a fairly hefty profit if you bought low. Just keep those things in mind if you opt for a futures contract.
Next, you might decide to go with physical purchases. Usually this will be in bullion, which are metal bars. Most of them are silver or gold as far as precious metals go. Some are made of platinum, but it is a very expensive metal. That is why most of it does not go to this purpose.
Finally, you could go with commodity stocks. This is a more traditional way of investing that will still help you to add more diversity to your folder. For this method, you simply purchase stock in companies that are involved with the production or trade of the commodity. For example, you could get stocks from an oil rigging company.
Is it a Good Time to Invest?
If you’ve read this far, you might be convinced to try investing in commodities. You might be nervous still, though. Is now really a good time? Well, all signs point to yes – at least with precious metals.
There is a lot of chaos and volatility in the world right now. Most of these assets operate on a global scale due to the way international trading works. Getting involved with energy or agriculture might be a bit risky right now.
However, gold, silver, and platinum have retained their value historically. They have always been appealing to humans for a variety of reasons. Choosing them for your portfolio is certainly a solid decision, especially if you are looking for a hedge against inflation.
