Why Should You Invest in Commodities?

train-668964_640Commodities markets have a huge economic impact on nations and people, not only in today’s modern times but also historically. Shortages on commodities have sparked wars throughout history and oversupply have a devastating impact on a region because it devalues the prices of core commodities.

Energy commodities are closely watched and monitored by corporations, countries and consumers too. Unusual disruptions in the flow of commodities caused by weather or natural disasters can cause regional food shortages and can have a huge effect on price volatility.

Today, we will tackle the role various commodities play in the global economy and why investors can turn these into opportunities.

There are four categories of commodities, namely:

  • Energy (crude oil, heating oil, natural gas and gasoline)
  • Metals (gold, silver, platinum, copper)
  • Livestock and Meat
  • Agricultural

Investment characteristics of commodity trading requires agreed-upon standards so that trades can be executed without visual inspection. Adding commodities into your investment portfolio can increase your returns while lowering your risk. One goal of smart asset allocation is to create a diversified portfolio. Another is to build a portfolio that fits your ability to accept risks and meet your needs for expected returns. In this way, if part of your portfolio will hit a rough patch, the other part can perform well. For this reason, it is important that you make sure you have different assets.

There are several other ways in which trading and investing in commodities can be very different from investing in traditional securities such as stocks and bonds. Technological advancements, global economic development and market demands for commodities influence price of staple items such as oil, aluminum,copper, corn and sugar.

Basic economic principles follow commodities market: lower supply equals higher prices and higher supply means lower prices. Major disruptions in supply can lead to investing plays, given that the particular commodity is generally stable and predictable.

Energy plays are also common in commodities. Reduced oil outputs and global economic developments can lead to upward surges in oil prices and investors weigh and assess limited oil supplies with the ever-increasing energy demands. However, even with optimistic outlooks, prices of oil should be tempered with consideration.

Commodities are playing a major and critical role in the global economy market and affecting most lives of people since there are tons of commodity and futures exchange around the world. Each exchange carries a few commodities or specializes in a single commodity. If you are looking to expand and diversify your portfolio, you can check out UK Universal Group, who has partnerships with several products you could be interested to invest in.

UK Universal Group is a direct supplier of crude oil and refined petroleum products and the business is mainly engaged in the sale of petroleum products, also with large-scale traders, refineries and other commodities like sugar, various ores and steel pipes.

As with any other type of investment, investing in commodities can quickly fall into gambling or speculations when a trader makes uninformed decisions. Do your research well and make sure that the commodities company you will invest in has a big percentage of profitability to their investors.

If you build a solid asset allocation plan, commodities can, and have proven to boost risk-adjusted returns.

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