When looking to the commodities market, one can make some serious gains provided they do their homework. Of course, some people do not understand or follow these markets and have no idea how to make money investing in commodities. Here, we discuss ten of the top commodities, as well as the several different ways that you can invest in them.
Different Types Of Investible Commodities
This is one of the most popular and well-liked commodities. With gold, an investor feels that they are getting safety and security in a volatile market. In the last decade, the cost of gold has exploded exponentially. However, in the recent past couple of years, the price has come down to previous levels. While it has settled down, many investors are still piling on in anticipation of the next bull market. Many investors see gold as an inflation hedge so if you believe inflation is on the horizon, or a currency devaluation is pending, then gold might be something you want to look into as far as a commodity investment.
This is another popular commodity that has seen a huge drop after a parabolic rise. When investing in silver, one will put their money in a useful item that many people need. In fact, some investors are anticipating that the price of silver will, once again, explode in the future. They feel that the emerging economies will need plenty of silver to create electronics and automobiles. Again, while it is not as popular as gold, this commodity still offers an investor security in a scary market. It should be noted that silver is currently at a multi-year low as far as pricing goes. Silver had reached a price point above $40.00 per ounce but has settled back in at the $15.00 level. As some skilled investors say, they don’t want to try and “catch a falling knife” and will stay away from this precious metal until the price stabilizes. However, this much we know – the world’s need for silver will continue into the future as industry needs this commodity to build products.
Did you know when corn is bought and sold as an investment that it has different grades of quality? I sure didn’t. Corn is an interesting commodity to invest in. As you may know, corn syrup has found its way into a vast array of food products. Corn is also used to feed livestock, sweeten food, and provide meals for our pets. The price of corn can definitely fluctuate due to weather and other variables so you will want to approach this investment with lots of research and a stomach for volatility.
Pork Bellies (Lean Hogs)
Hogs are traded via futures contracts on the Chicago Mercantile Exchange. The price swings in pork vary widely and this is not something the casual investor usually pursues. However, it is one of the most popular investments for those who look to hedge some of their portfolio.
The United States produces more than half of the world’s crop of soybeans. This commodity is used to produce vegetable oil, as well as soybean meal which is fed to livestock. This commodity is traded through the Chicago Board of Trade or CBOT.
Also traded on the CBOT, wheat is a crop that is harvested by many countries. In fact, it is one of the few agricultural commodities that the United States doesn’t dominate the farm output on. Wheat is obviously a very important commodity as flour is a key component of many staple foods.
Many traders and investors alike love buying oil stocks such as Mobil and Chevron. However, when looking to get close to the action, one can buy oil futures. This is a great investment vehicle for an investor who can understand and follow market trends and international politics. Like gold and silver, oil has seen a solid rise in the past decade. With that being said, the commodity has settled into a tight range as a few factors hold the price down; with world economics still reeling, it seems that oil will sit tight for now.
With people using massive amounts of energy around the world, coal has emerged as a formidable investment. When investing in coal, one is making the bet that world economies will get out of this rut and start to grow again. This is an excellent bet since countries like China and India use plenty of coal to run their factories and provide energy to its citizens. While new technologies are being developed in the hopes of replacing coal as an energy source, the fact is demand for coal continues to be very high. For these reasons, we would anticipate coal being an active investment for many years to come.
When construction is booming, the price of copper will see a nice and steady rise. Right now, the price is low as many investors are waiting on the housing recovery. When this happens, a copper investor should be rewarded handsomely. While not as exciting as gold or silver, this is an excellent investment for a person who follows and understands trends as they unfold.
This is the second most popular commodity one can trade. While not as flashy as other investments, one can make a serious return on investment with this commodity. Coffee is the perfect commodity to invest in for the investor who does not mind doing copious amounts of research. The worldwide demand for commodity appears to be increasing so this is a trend you will want to watch.
Different Ways To Invest In Commodities
If you find a commodity that you want to invest in, the next step would be to determine which investment vehicle you will use. We discuss the different investment choices below:
Owning The Stock Of Individual Companies
For instance, if you decided that you want to be in the oil investment arena, you could own the stocks of sellers of gasoline like Chevron (CVX) and Exxon Mobil (XOM), or you could buy the stocks of oil refiners like Tesoro (TSO). The advantages of owning the stocks of commodity companies is that they likely pay dividends, are usually very liquid, and are easily bought and sold through any brokerage account.
Buying An Exchange Traded Fund or ETF
This is a great way to invest in the commodity of your choice, however do so with less risk than options or futures trading. For example, if you chose to invest in oil, you could buy the Unites States Oil Fund ETF, which trades under the stock symbol USO. Buying purchasing this ETF it would give you exposure to roughly one single barrel of oil. While oil does have an ETF available, it should be noted that not all commodities have their own ETF option. However, if you are looking to place some commodities in your portfolio this might be a good option.
Buying A Commodity Based Mutual Fund
Another investment option for commodities would be a sector specific mutual fund. The advantages to these, as with any mutual fund, is that they are professionally managed by someone else. Unlike an ETF which is weighted to an index or basket of stocks, a mutual fund is professionally managed by someone who’s sole goal is to make money. The downside to this professional management is that you will have an annual fee associated with the fund. There are literally hundreds of potential commodity mutual funds to pick from so here is a good starting point for more information from a respected source.
Buying Future Contracts On Specific Commodities
This would be the “Big Boy” approach at least in most people’s eyes. If you think you know which direction the price of oil, pork, sugar or any other commodity is headed, you can buy futures contracts at a given price. This type of investing is not for the faint of heart and not for those without substantial experience. Yes, you can make a lot of money with this investing style however, you can also lose you money just as quick.
As you can see, there are several different types of commodities that you can invest in. Further, there are several different ways to make those investments. For most people, investing in commodities won’t be something they are interested in. For the masses it won’t be diversified enough or well enough understood. However, if you are interested in commodity investing, we hope this information will whet you appetite to perform further research.
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