Why commodities make a good alternative investment

Julie Brownlee, Fsp Invest, 02 Jul. 2015

Tags: commodities, alternative investments, what are commodities, why invest in commodities, trading commodities,

You may not view commodities as an alternative investment, but they are.

Broadly speaking, any asset falling outside the realm of stocks, bonds and cash is an alternative investment.

Commodities are one of the most popular alternative investments.

So what are commodities? And what are the benefits of investing in them?

Read on to find out…

What are commodities?

Commodities are raw materials, including the likes of…

  • Sugar;
  • Chocolate;
  • Precious metals (gold, silver and platinum);
  • Oil;
  • Natural gas; and
  • Wheat.

When you invest in commodities, you’re making a direct investment in raw materials, Tara Clarke in Money Morning US explains.

Some investors and traders buy and sell the physical commodities. This includes gold miners and oil producers.

But most investors and traders use futures, options, ETFs and other trading instruments to gain access to the commodities market. This takes out the issue of physical delivery.

Why invest in commodities?

Commodities are real assets. You can’t say the same for shares and bonds.

This means commodities typically see their prices rise alongside inflation. This makes them a great inflationary hedge for your portfolio.

Like other alternative investments, investing in commodities diversifies your portfolio.

If you want to invest or trade commodities, bear in mind the prices of commodities can be very volatile. This is especially the case when you’re trading geared derivatives products.

As well as magnifying your potential gains, gearing magnifies your potential losses. This makes managing your risk crucial.

Trading commodities isn’t for the conservative investor. But if you can deal with volatility, holding a small portion of commodities in your portfolio may be a great alternative investment for you.

So there you have it. Why commodities make a good alternative investment.

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