Did you know that you could invest in some of the most common everyday items we use in our daily life? Be it food items, gold, silver, oil or gas, we can trade in such items. This is all possible thanks to commodity investing.
What is commodity investing?
Raw materials that are consumed directly or used to make other products are known as commodities.
Commodity investing is the process in which different investors (individual people, banks, and corporations) buy and sell these commodities in order to earn high returns.
How to invest in gold and other commodities:
1) Physical ownership
The simplest way to invest in a commodity is to buy the physical good directly. For example, you can invest in gold by buying 10 gold coins. When the price increases, you can sell the commodity and convert your investment into cash.
This method of investing comes with its own set of challenges. For instance, you have to figure out where to store the commodity. You want to ensure that your gold is in a safe place. And when it comes to soft commodities such as corn, wheat or coffee beans, issues such as spoilage and insurance come into the picture.
2) Exchange traded funds (ETFs)
ETFs are funds that trade like stocks. You can purchase ETFs of commodities and trade them in the market in order to earn profits based on change in price movements. Investment in commodity ETFs is a good way to diversify your portfolio. The best part is that unlike physical commodities, it is very easy to buy and sell ETFs. You can also hold these investments in your regular investment accounts. However, make sure that you thoroughly review the commodity ETF before investing in order to get the best returns.
3) Stocks of companies
Another way to invest in gold or other commodities is to buy shares of companies that manufacture these commodities. For example, you can buy shares in a gold mining company to gain indirect exposure to gold. Similarly, there are many companies in the mining, energy and agriculture sector. Investing in these companies is a good way to gain exposure to these commodities.
4) Future contracts
You can buy or sell a commodity in the futures market. This means you can buy a fixed quantity of the item at a fixed later date. For instance, you can take a futures contract for coffee in order to protect yourself against rising prices of coffee. In case the price of coffee does rise after the specific period, the value of your investment would increase too. But if the price of coffee decreases, your future contract value decreases. Another way to invest is to enter into an agreement with a buyer to sell the commodity at a fixed price at a fixed later date. Futures contract is an easy way to invest in specific commodities without actually having to own the commodity directly.
Investment in commodity ETFs is a good way to diversify your portfolio. Understand how the different avenues work before investing. This is to ensure that your investment is protected and you can earn good returns.
Disclaimer: Investment in securities market are subject to market risks, read all the related documents carefully before investing.