These past few years have seen their share of ups and downs and then some. When macroeconomic conditions are this unstable, it can make it difficult for investors to build their wealth. At least, it can if their investments are all based on trading stocks and bonds.
Commodities investments often serve as a sort of safe-haven investment during turbulent times. But how can you get started in them?
To find out, let’s take a look at what these investments are, their advantages, and the types of investments that you can make.
What Are Commodities Investments?
Commodities are exactly what they sound like: physical goods that have some kind of intrinsic value.
In many ways, the values of bonds, stocks, and other financial products are subject to the whims of the market. But commodities have inherent value, either because they’re scarce, have practical applications, or both.
That’s why commodities are seen as a way to help insure a portfolio against loss. Your shares in any given company are liable to appreciate or depreciate based on their performance and investors’ faith in the business. But physical goods tend to hold worth because they have measurable value.
That’s not to say that commodities are a risk-free investment, mind you. Their value is likewise subject to rise or fall based on how much the market thinks their worth. But they’re considered safer since the demand for them will always exist.
Types of Commodities
So, what commodities can you invest in?
Well, that’s a broad subject. If you can think of a base product or raw material that has any value, it’s probably traded as an investment right now. But there are some common ones that are easier to get into than the more esoteric ones.
Here are some of the most popular commodities investments.
Precious metals like gold, silver, platinum, and palladium are among the most popular commodities investments.
Gold, in particular, is featured in a lot of portfolios because it works as a hedge against inflation. It’s rare, prized for its beauty, and its unique chemical properties make it valuable to many heavy commercial industries. Gold is used not only in jewelry but dentistry, electronics and computers, and even space exploration, so demand for this metal will only grow over time.
Along with gold, silver is the most popular precious metal to trade. It’s cheaper, making it more accessible than its rarer counterpart. And it has more commercial and industrial applications than gold, making silver a reliable commodity to invest in.
Platinum and palladium are two less-commonly traded metals. Platinum is by far the most scarce of the bunch, but it is generally a more volatile investment. Palladium is cheaper and has become popular of late for its applications in the automotive industry.
Less-scarce metals than gold, silver, and platinum can still be viable commodities investments.
Copper, in particular, is considered the bellwether of the non-precious metal market. It’s a key material in electrical components, and the push towards green energy solutions promises to boost its value in the years to come.
Energy commodities include fossil fuels like crude oil, coal, and natural gas. And of late, rare earth minerals needed to manufacture solar panels and rechargeable batteries have entered the conversation as well.
Commodity values are driven by supply and demand, which on the face of it, would make energy investments sound like a sure thing. But bear in mind that all of these commodities are heavily politicized. Unpredictable international affairs can cause the values of one or several of these commodities to fluctuate at any given time.
The term “soft commodities” refers to perishable agricultural products. Grain, produce, and luxury items like coffee and cocoa all have intrinsic value. Human society runs on them.
They are, however, not the safest investments. As agricultural products, they are beholden to environmental conditions which, due to climate change, are less predictable now than ever.
Ways to Invest
There are multiple ways to get involved in commodities trading.
The most direct is to buy the physical commodity itself. Though suffice to say, this is more practical for some investments than others.
Buying physical precious metals has long been a popular way for investors to secure themselves against market instability. Governments and private mints alike sell gold, silver, and even platinum bullion. You can buy silver coins here right this instant, for just one example.
Once you have your bullion in hand, it becomes a matter of storing this precious commodity in a secure place. Most investors use a bank safety deposit box, an added expense that you’ll need to factor into the total cost of your investment.
Naturally, this strategy is only feasible for certain commodity types. Take energy commodities. Unless you have an unlimited amount of capital, you probably can’t buy up and store enough fossil fuels or rare earth minerals for it to be worth your while.
This is why most investors make use of exchange-traded funds (ETFs). These are a type of security pegged to an asset, physical commodities in this case, that can be bought and sold the way a regular stock would.
Energy, precious metals, and soft commodities like foodstuffs all have corresponding ETFs that you can trade in. They’re the most convenient way to buy and sell commodities, if indirectly. Buying stock in companies that produce commodities is likewise an indirect but convenient way to invest in the market.
Bolstering Your Investment Portfolio
When used wisely, commodities investments can be a means to strengthen your portfolio and reliably build wealth, even in turbulent times. But remember that every investment carries inherent risk. Do your due diligence by tempering any advice you hear from analysts and conducting your own research before you commit to an investment.
And remember, of course, that commodities are just one way for you to protect your wealth. For all that you need to know to build a brighter future for your family, be sure to keep up with our latest business and financial news and guides.