Commodities investing can be quite volatile at times, offering the potential for large gains, but also presenting the possibility of large losses as well. However, this type of volatility sometimes place the odds in your favor when working with an extensive investment portfolio. Even a modest amount of commodities can balanced out the risks connected with stocks, bonds and more.
There are a couple of things to watch out for when trading commodities. For starters, investors are normally advised to use around 5% of their portfolio for gold and other commodities. Some portfolio managers do recommend that this percentage be as high as 10%. Ultimately, the decision is in your hands. Some investors find that they simply have a strong preference for one asset class above the rest, and this could very well be you.
Wise investors are going to own both physical commodities, as well as resource producers shares. A lot of mutual funds as well as exchange-traded funds offer this type of direct exposure. For the majority of investors this is a better solution than attempting to trade commodities alone.
Some fund providers supplying a basket of varied commodities in one product. Additionally, a pair of ETFs can provide comparable broad exposure. ETFs do provide a way to invest with gold directly. In doing so you don’t need to worry about all of the problems that can occur with individual mining stocks. There are also a few ETFs that keep bullion in a vault. The ETF shares are representative of a fraction of one ounce of gold.
More diverse stock funds are perfect for investment exposure to both precious metals and metal producers. These types of funds spread out your investments, meaning that one problem is not going to deliver a crushing blow to your finances. A number of fund companies deliver these specialized offerings at this time. There are also binary options to consider. These types of options provide the opportunity to cash in on short-term price increases and decreases. Long-term digital contracts are also made available by most brokers.
Do watch out for scams. These can be quite prevalent when dealing with commodities. For many, commodities offer a strong appeal because most are familiar with them and know that they can be quite valuable. Never invest with firms that are not registered. All respectable brokerages are going to be registered with the National Futures Association. You should be able to view a complete list of all grievances, any sanctions, and any arbitrations. The more you know, the better you’ll be able to protect yourself from scammers.
Last but not least, steer clear of anyone who tells you exactly how much money you can earn from investing in commodities. Risk is a part of all forms of investment and it is important to remember this. Commodities are physical goods, which means that a number of external factors can impact their value. This is not always a bad thing, but is something that you must remain aware of. A diverse portfolio can help you to avoid taking on too much financial risk, while providing you with numerous investment options on a consistent basis.