Learn How to Invest in Commodities
In today’s economic climate – people need to get scrappy. Many folks currently find themselves entering a financial era where everyone is looking to get ahead and be smart and savvy with their money. If this sounds like you, you’ve come to the right place! Are you looking for tips and tricks to live a financially smart lifestyle? If you have previously researched side hustles, perhaps you have also considered investing. Investing, particularly investing in commodities, can be an excellent way to diversify your investments. By definition, a commodity is a basic, physical good that can be used or exchanged with goods of the same type. Examples of commodities may include raw materials like gold or even agricultural products and animals. You can also think about commodities as the raw materials used to create the products that consumers buy. Typically, commodities are exchanged in large quantities. The most actively traded commodities in the world are WTI crude oil, soybeans, and corn. If investing in commodities sounds like something you may be interested in, keep reading to find out some fast and friendly tips to help your investments grow!
I’m A Beginner. Can I Still Invest In Commodities?
You don’t need to be the Wolf of Wall Street to invest in commodities! In fact, there is nothing wrong with having no experience at all. Through your reading and research, you will be able to find out the important things to know about your investments. The most important step as a beginner is to educate yourself. Take time to learn about the commodity market. It is important to read about how commodities function and to learn about different market trends.
Consider taking a basic class at a community college to learn more about investing. In addition, your local library is a great resource! Titles such as “A Trader’s First Book on Commodities,” “Hot Commodities,” or “Commodities for Dummies” are great places to start!
What Is The Right Way To Invest In Commodities?
Before determining your approach to investing in commodities, you will want to take a step back and determine what your goals are with investing. Assess your risk tolerance. With investing comes risk. Simply stated, how much money are you willing to lose? Think about your time capacity. How much time do you have to monitor your investments and spend researching trends?
Additionally, a good place to start is with a Commodity Exchange-Traded Fund (ETF). An ETF is a type of investment fund that tracks the performance of a commodity. ETFs are traded on the stock exchange – just like regular stocks! ETFs provide ease and convenience for investors to gain exposure to commodities and trade without necessarily physically owning the goods.
When you invest with ETFs, make sure you keep the following elements in mind:
● Ticker Symbols: By definition, ticker symbols are small logos or symbols used to identify a product. Typically, they are made up of one to five letters. Ticker symbols exist with most stocks and commodities. A stock example of a ticker symbol for “Apple Inc.” is “AAPL.”
● ETF Categories: Keep in mind ETFs can be broken down into different categories. Some examples of types of commodity ETFs include:
○ Precious metals (gold, silver)
○ Energy (oil, natural gas)
○ Agriculture (corn, soybeans)
● Fees: There are fees associated with commodity ETFs. These fees cover the operating expenses associated with that specific commodity fund. It is important to pay attention to these fees, as they can have an impact on your overall net profit.
● Tax Implications: With any financial endeavor, it is important to make sure you fully understand the tax implications of your actions. The money that you make and lose when trading your ETFs may be categorized differently in your tax return.
What Commodity Is Perfect For Investment?
As previously discussed, there is not just one type of commodity to invest in! These different types and categories of commodities exist, and there are both advantages and disadvantages to investing in each type.
The most popular type of commodity to invest in is precious metals, such as gold and silver. The advantage to this type of investment is they stand the test of time! Both gold and silver retain (or even gain) value, regardless of how much time has passed. Factors such as inflation or tough economic times do not have the power to make these commodities lose their value. On the other hand, the disadvantage of this specific commodity, or things to carefully consider, is that while they do not typically lose their value, their price still can be heavily influenced.
For example, a factor such as current interest rate trends has the power to influence the price of this specific commodity. Also, you should consider whether you’re in a good place financially before you begin investing your money. It could be better used to pay down any high-interest debt first, such as credit cards, a title loan, or personal loans. A penny saved is a penny earned, and paying off high-interest debt may be more profitable than interest from an investment.
Before embarking on this journey, it is important to acknowledge that there are risks associated with any investment. However, if you take the time to educate yourself and do your research, you may find that this is a process that can pave the way to financial empowerment.