Resources uncovered: The ins and outs of commodities

When it comes to investing, you've probably heard the word ‘commodities' before. But do you know what commodities are? And where do commodities fit in in your investment portfolio? Read on to find out what you need to know about commodities…

What are commodities?

Commodities are ‘real’ assets. To put it another way, they are ‘real stuff’.

The most common commodity you’ll be familiar with is oil. It’s a commodity that literally makes the world go round. Changes to the price or the supply of commodities like oil has massive consequences.

But oil isn’t the only important commodity, John Stepek in Money Week explains…

There are agricultural commodities. These are also known as ‘soft’ commodities. These include foodstuffs, such as grain. And include materials, such as cotton.

There are industrial commodities, or base metals. These include metals such as copper.

And there are energy commodities or resources, including natural gas as well as oil we mentioned above.

Other commodities are precious metals. These include metals such as gold, silver, platinum and rhodium.

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Commodities in your investment portfolio

In the past, investors didn’t view commodities as much of an investment prospect. But that has changed over recent years.

As countries, like China, continue to develop, they demand huge amounts of commodities to build their houses, roads, offices, etc.

With this demand comes investor interest. This has given rise to the financial instruments that track the prices of commodities. These instruments are exchange traded funds (ETFs). And many of these track the prices of commodities.

But investor beware, the world of commodities can be a fickle one. It’s not easy to predict price movements. Investments in these kind of products can be risky.

So there you have it, the ins and outs of commodities.

Tags: commodities, what are commodities, commodity, investing in commodities, commodity etfs, soft commodities, agricultural commodities, industrial commodities, precious metals, investment