An In-depth Look at Investing in Commodities

An In-depth Look at Investing in Commodities

Many investors normally focus on stocks and mutual funds. As they start to gain more experience, they start to do more research on more complex asset classes. One of the more sophisticated yet popular asset classes are commodities. Commodities can provide a substantial boost to your portfolio. Here is an in depth look at commodities and why investing in them can provide you with many long term benefits.

Defining Commodities:

Commodities are goods that are steady in their quality and value. The goods are interchangeable. Investors view commodities as a group of goods that are in demand throughout the World. Investors are intrigued by the natural materials found in different products that people purchase. There are two types of commodities. Soft commodities are things that are grown, such as wheat and soy beans. Hard commodities include natural gas, copper, and gold.

Because commodities are physical goods, you can invest in them using multiple strategies. If you would like to invest in the commodity directly, you’ll have to figure out where to store it. You’ll need to locate a buyer while also dealing with logistics. There are some coin dealers that allow you to purchase commodities that you can store in a safe place. Investing in Futures contracts allows you to stay informed on any changes to commodity prices. Some Exchange Traded Funds can give you access to different commodities. You can also purchase shares of stock in different companies that make commodities.

Origins:

The origins of commodity goods can be traced back to Japan and The Netherlands during the 17th Century. During the 19th Century, commodities began to emerge in The United States. People put their resources together to avoid intense competition. Eventually, the trading market became more diverse as different goods were introduced.

Volatility:

Commodities can be volatile depending on the supply and demand of the goods. When there is expected growth, the price normally drops. When there is an ongoing drought, prices will rise. While many commodities are volatile, there are some stable commodities that are used as assets for banks.

How Should You Invest:

Each investing strategy has its own strengths and weaknesses. Investing directly allows you to gain ownership of the goods. You’ll have to take some time to analyze your intended use of the commodity and how long you plan to keep it. Futures prevent you from dealing with any potential ownership issues.

Investing in commodity producers allows you to reap the potential benefits of investing in a business rather than a good. There is great potential for you to enjoy years of strong returns. Investing in ETFs allows you to purchase and sell shares, which should result in more exposure.

 

Davenport Laroche’s headquarters are strategically located in Hong Kong which allows investors to benefit from the busiest trading market in the world, China.

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