Wondering what commodities are and whether you should start investing in them? The fact is, many of the most successful investors have stakes in this asset class. Let’s dive into why commodities could be an investment option worth considering.
What are commodities?
Commodities are fungible, natural resources that are essential for industry and commerce. Another important fact about them is that they are interchangeable with other commodities of the same type. Commodities include metals like copper and aluminum, energy products like crude oil and natural gas, agricultural products like corn and wheat, and precious metals like gold and silver.
Investing in commodities can be an effective way to diversify your portfolio and hedge against inflation. The best commodities to invest in are those that correlate with the sectors of the economy in which you are invested (i.e., if you’re invested heavily in tech stocks, you may want to invest in palladium, which is a commodity heavily used in the production of tech products). If your portfolio consists largely of stocks or bonds, a general commodity index fund may be best suited for you.
Why consider investing in them?
Why invest in commodities? For starters, commodities are an essential part of our lives—we use them to produce everything, from the food we eat, to the energy that powers our homes and businesses. And because they’re essential, their prices tend to be less volatile than other asset classes, making them a good way to diversify your portfolio. Portfolios with investments that typically have higher risks, such as stocks and cryptocurrencies, may also perform better when combined with low-risk investments like commodities. Investors often pair assets together based on their individual risk-return profile. For example, some investors might choose to invest in certain types of real estate holdings or gold while maintaining cash positions for emergencies or financial crises. However, others might select shares of Apple or ExxonMobil as well as gold bullion bars. The goal is to create a diverse portfolio that consists of different types of assets so you can hedge against volatility and make more money over time.
The best way to invest in commodities
When most people think of investing in commodities, they think of buying natural gas or oil. But there are other commodities that can be equally profitable. Here are a few of the best commodities to invest in:
1. Agricultural products: Agricultural commodities include things like wheat, corn, coffee, and sugar. These are all essential goods that will always be in demand. And since we can’t produce more land to grow these crops, the prices will continue to rise as demand increases.
2. Precious metals: Precious metals are one of the most popular investments in commodities, and for good reason! Palladium has been increasing in value over recent years and is being seen as an alternative to gold because of its rarity. That being said, gold is still undoubtedly the most common asset within this class.
When it comes to investing in commodities, there are a few different strategies you can employ. You can choose to invest in commodities directly, or you can invest in companies that produce commodities. You can also invest in commodity-based ETFs or mutual funds. If you’re in the UK and have an Individual Savings Account (ISA), you might want to consider investing in exchange traded commodities (ETCs). ETCs can be bought and sold like a stock, and most can be held in your ISA. Each strategy has its own set of pros and cons, so it’s important to do your research and figure out which one is right for you. In the end, the best commodities to invest in will depend on your individual preferences and needs.
This material has been distributed for informational and educational purposes only and the opinions expressed represent the views of the author and not necessarily those of Wahed Invest LLC or any of its affiliates, directors or personnel (“Wahed”). Any assessment of the market environment as of the date of publication is subject to change without notice, and is not intended as investment, legal, accounting, or tax advice. Wahed assumes no obligation to provide notifications of changes in any factors that could affect the information provided. This information should not be relied upon by the reader as research or investment advice regarding any issuer or security in particular. Any strategies discussed are strictly for illustrative and educational purposes and should not be construed as a recommendation to purchase or sell, or an offer to sell or a solicitation of an offer to buy any security.
Furthermore, the information presented may not take into consideration commissions, tax implications, or other transactional costs, which may significantly affect the economic consequences of a given strategy or investment decision. This information is not intended as a recommendation to invest in any particular asset class or strategy or as a promise of future performance. There is no guarantee that any investment strategy will work under all market conditions or is suitable for all investors. Each investor should evaluate their ability to invest long term, especially during periods of downturn in the market. Investors should not substitute these materials for professional services and should seek advice from an independent advisor before acting on any information presented.
Any links to third-party websites are provided strictly as a courtesy. We make no representation as to the completeness or accuracy of information provided at these websites nor do we endorse the content and information contained on those sites. When you access one of these websites, you are leaving our website and assume total responsibility and risk for your use of the third-party websites.