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Why Would You Need to Invest in Commodities?
Commodities. Source: Capitalxtend
Investments

Why Would You Need to Invest in Commodities? 

Investment is a practice that rewards informed decisions in the financial markets. Every person or entity looking to make their money work for them should seek investment opportunities in commodities. One of the oldest forms of trading before stocks and bonds, commodities trading has been in existence and exemplified significant wealth preservation and capital gains. Comparatively, commodities have over the last decade underperformed their rival securities such as stocks. This is evident from the accelerated growth that stocks in the tech sector have experienced over the last decade marking their peak during the COVID-19 pandemic. Would these stocks be exposed to market bubbles? Yes, they are vulnerable to bubbles that could translate to heavy losses. As such, securities such as stocks require investors to seek options that offer sound and less risky leverage. It is through financial assets such as commodities that the aforementioned can be achieved.

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What do Commodities offer?

Commodities offer liquidity options and are a great addition to one’s investment. With commodities, you can easily buy and sell, hence use your resources to your advantage. The buying and selling of commodities make them tradeable. Unlike assets like real estate, commodities provide flexibility and convenience in the markets. You can bank on your commodities more than your real estate assets when in urgent and dire cash flow needs, which is akin to liquidity.

When danger sets in, it is human nature that everyone runs to places they consider safe for refuge. Similarly, when the financial markets or economies are in turmoil, commodities offer a safe haven option. If you are keen on the markets, you might have noticed that in times of economic uncertainty commodities like Gold tend to immensely appreciate. By so doing, investors are able to shield their investments from;

Geopolitics

  • Political issues will hardly hit a commodity as it has a global set price that acts as a benchmark.

 Inflation

  • When markets show increased inflation rates, commodities act a stable store of value that can hardly diminish in its worth.

Price Risk hedge

  • Investing commodities can help an investor secure good prices for their commodities by entering informed futures agreements. For instance, if Gold sells at $1300, an investor who seeks to preserve value for future price cushioning will have informed futures agreements made. This locks in the commodity’s price irrespective of whether the price rises or drops.

Hedge against currency devaluation

  • Currencies can be devalued and lead to great losses to their holders or owners. Commodities present a good store of value that protects such unfortunate losses. Countries have had their currencies devalued in the past and seen extreme value depreciation sinking their citizens into more financial and economic disadvantage. A person invested in commodities during such as phenomenon, mostly emerges stronger having preserved their fortune’s worth.

Profitable returns

  • Commodities offer volatility in the markets that allow investors make gains with the movements therein.

Diversification

  • Diversification is an essential part of investing. It is advisable not to put your eggs in a single basket as this exposes your investments to more risk. Therefore, commodities offer a diversification option in one’s investment portfolio especially because they have a low correlation with equities and bonds.

Here are Top Five Commodities that you should invest in;

1. Gold

2. Silver

3. Crude Oil

4. Natural Gas

5. Wheat

If you are looking for a more stable and low-risk investment option on commodities you could as well consider commodity ETF’s that are ideally a basket of commodities under one umbrella.  Look into why you should invest in each of the mentioned commodities in our next articles.

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