Whether on the news, in daily meals, on transport, or at the gas pump, commodities are part of our lives and are present in everyone’s daily lives. Even those not from the financial market feel the effects of the rise and fall of oil, the most expensive bread in the supermarket, the fluctuations in the price of meat, and so on.
In this context, we will explain what commodities on are, their importance in the world market and how we can invest in these assets. So, if you are looking for diversification for your portfolio, or want to understand a little more about the subject, keep reading below and learn here What You Should Know about Uncorrelated Assets.
For Starters, What Are Commodities?
Translated from English, commodity means “commodity.” But economics uses the expression to designate raw materials and products of low added value. Despite their simple nature, these items are essential to the world’s economy, as they are part of our routine and are used by many industries. For example, the bread we eat daily comes from wheat, a commodity. The gasoline we use in the car is derived from petroleum, another commodity. And so, several examples prove the essentiality of these products.
In addition to being essential, three other characteristics define commodities: standardization, large-scale production, and the ability to stock items. Other well-known commodities are rice, beans, meat, gold, copper, natural resources (wood, water, etc.), and currencies (real, dollar, euro, and so on).
And How To Invest In Commodities?
In e360 power for instance, we understand what they are and the importance of commodities for the world economy, it’s time to learn about investment alternatives linked to these assets. Below, check out four tips on how to invest in commodities.
1 – Stocks Of Commodity Companies
If you are thinking of investing in stocks, or if you already invest and are looking for diversification for your portfolio, an alternative is companies that operate in commodity sectors.
2 – ETFs De Commodities
You can also invest in commodities by purchasing shares in ETFs (Exchange Traded Funds). Also called “index funds,” ETFs seek to track the performance of an indicator or financial asset in the market. In the case of commodity ETFs, these investments are linked to indices representing assets in this segment.
3 – Futures Contracts
Finally, futures contracts are the most complex way to invest in commodities among the ones we have seen in this content. These contracts are a derivative through which the price of an asset is negotiated for a future date. In the case of commodities, they are more used to hedge (protect) these assets, such as a producer who needs to guarantee the price of his crop, for example. But even those who do not have a direct link to commodities can also use these instruments. Futures contracts are traded on the BM&F (Commodities and Futures Exchange). In addition to commodities, interest rates, currencies, and other futures securities can be traded in this environment. In the link below, learn more about futures contracts and how they work.
Can Everyone Invest In Commodities?
Historically, commodities go through cycles in the economy. In a bullish cycle, investing in these assets can provide handsome returns. However, as they are assets subject to strong fluctuations in the market, commodities are more suitable for the moderate to bold investor profile. Therefore, before investing in commodities, you must ensure that this alternative makes sense for your profile and financial goals.