Investing in Commodities – Something for Everyone

Betting on commodities has historically been a good move, and plenty of individuals have considered investing in commodities since the economy tanked. Serious investors will find that having multiple commodities in their portfolios will seriously cut down on that looming portfolio risk because it balances out the rollercoaster ride we’re familiar with seeing in stocks and bonds. Something like gold and oil could bring a nice level of stability to any investor’s repertoire, but how should you go about investing in commodities?

The easiest way to get involved in commodities investments is to look into commodity markets. These markets make it easier for the everyday Joe to invest without requiring the extensive knowledge that this sector once required of investors. Many beginning investors opt for something called futures contract which is essentially an agreement the investor makes to buy or sell specific quantities of the commodity in the future. The types of commodities available in futures contracts are gold, natural gas, crude oil, corn, and cattle. It may be easier to invest in these types of commodities if the investor is an active user of or participant in the specific commodity. Many individuals who participate in this sector are speculators.

The future market is prone to volatile swings, however, and stocks may be a better investment. Carefully research companies to make sure they would be good investments, and determine where you would like to focus your portfolio. Oil companies, for example, have stocks in tanker companies, drillers, oil refineries, etc. These stocks are easier to trade and buy and fit right in with an already established brokerage account. Public information on these companies is readily available but the stock price has the potential to be influenced by market conditions and other company-related factors.

An exchange-traded fund is another option. ETFs trade exactly like stocks and allow the investors participation in commodity cost fluctuations. Similarly, exchange-traded notes mimic commodity price fluctuation. These are unsecured debts that do not require brokerage accounts. There are also no fees to deal with or management hurdles. Mutual and index funds are other commodity options that deal with industries like agriculture, mining, and energy, although management fees could be high and funds often come with fees. Alternative energies is one sector that is up-and-coming, so investing in solar, wind, and other types of alternative power may be a smart move at this point. Beginning and experienced investors have a variety of investments in commodities to consider.

About Richard Wilson