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We wrote not long ago about some of the best ways to invest $50k. In that piece, we alluded to commodity trading, specifically via ETFs. Basically, investors always have the option of buying into ETFs, which are funds that can track indexes related to various asset classes, including commodities. It’s a fairly common option, and also a relatively straightforward one for people who might not have a tremendous amount of trading experience.
The commodity market also goes well beyond ETFs though. There are in fact numerous ways to trade assets like these. In some cases, investors can actually purchase quantities of a given commodity to sell at later dates. In others, they might choose to buy and sell stock in companies relating to the commodities (such as a gold mining company relating to gold, etc.). And in still other cases, investors might trade futures or contracts for difference as a means of capitalizing on commodity price swings.
Altogether, commodities make for a busier asset class than they’re sometimes given credit for. They intrigue many investors because of the various means of trading them just discussed, as well as because compared to some other markets they can come across as refreshingly simple. This doesn’t mean commodities are always strategic investments (or that they necessarily make for the best way to invest $50k). But they’re certainly worth looking into.
For those who might be considering commodity investment, then, we decided to list some of the most popular options in the class.
Crude oil’s reputation has suffered a little bit of late. This is because of an unprecedented oil crash that occurred in March of this year, as a result of societal lockdowns and decreasing demand. 2020 notwithstanding though, oil is generally recognized as the single most traded commodity in the world. Investment in oil may look different over the course of the next year or so, as the industry attempts to rebound from the aforementioned crash. But this should still be among the most prominent commodities.
If you’re not used to the commodities market, the idea of trading soybeans might seem strange. In actuality though, there are quite a few agricultural commodities that are commonly traded: corn, cocoa, coffee, and so on. Soybeans lead this category though, because of their broad utility in cooking oils, and in feeding human and livestock populations alike. The soybean trade is very active as a result, and you’ll often see these assets listed among the most significant commodities.
Numerous precious metals are traded as commodities, but gold is at the top of the category. It’s also one of the most well-understood commodities by those without deep knowledge of the asset class. Generally speaking, the gold trade is thought of as a place to seek gradual price growth and long-term stability. Investors value gold because it tends to slowly rise in value, and it can sometimes retain its strength when other assets — like fiat currencies or stock indexes — fall. These are not concrete laws by any means, but they’re potential benefits commonly associated with gold, and at least in recent months and years the price of gold has performed largely as expected.
Like soybeans, copper might not seem particularly interesting or valuable at first. However, it has long been a sought-after commodity, in large part because of its industrial uses and applications in technology. Copper has virtually innumerable uses in these are (in part because it conducts electricity very efficiently), and is thus in constant demand around the world. This results in a robust market and makes copper one of the most noteworthy tradable commodities year in and year out.
There are plenty more traditional commodities we could discuss, but at this point, it’s fair to consider cryptocurrency as part of this class. Frankly, there is still uncertainty about cryptos’ status, in terms of whether they’re commodities, securities, or currencies. But often enough they’re not being treated as commodities. People are investing in cryptos because they’re new, interesting, and in some cases have significant growth potential. That said, this is also a market that’s still discovering itself to some extent, meaning it’s one that requires particularly careful consideration.
The commodities market is fairly expansive, all things considered. There are many more assets that are regularly traded all over the world. For those considering this route for investment though, the selection above makes for a good group to start within coming to understand this market.