News Invest in Commodities: Safe Money Gain or Risky Bet?
Friday, 16.06.17 , written by Juliane Wellisch Especially when turbulence threatens the capital markets or high returns with other financial investments are difficult, investors turn to commodities and invest there. Currently, commodities are increasingly coming back into focus. Investing in commodities such as metals, oil or precious woods involves as many opportunities as risks. >
Gold and silver are classic commodities for investment
Most people think of gold, silver and possibly oil when it comes to investing their money in commodities. However, additional raw materials are needed in the industry, which means that it can also be worth investing in platinum, palladium or copper . There are also renewable raw materials, for example wood , which are possible even in the case of sustainable cultivation without overexploitation of nature. In addition, investors can invest in agricultural commodities such as coffee and cocoa , whose constant demand makes large fluctuations in value less likely. Investors who invest part of their assets in commodities should, however, deal with the specific features .
Before investors invest in commodities: observe current developments
A few years ago, it was above all China’s hunger for raw materials, which drove commodity prices soaring, that in the financial crisis it was investors’ need for security. In the recent past, however, many commodities have rather experienced a significant price decline . Oil was cheap for a long time and metals lost as much as 50 percent. Now many commodity prices are rising again. This has different causes. For example, new technical advances can increase the demand for a specific raw material such as lithium in industry. Also possible is a price increase by an artificial throttling of the availability . Especially in the case of oil, this strategy is known to the OPEC states, who thereby help to shape the price.
Overall, experts are currently seeing positive performance for many commodities . Even small investors smell their chance.
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Are there regularities in the price development of raw materials?
Investors investing in commodities for the first time are hoping for reliable statements on how the various prices of precious metals and co. Will develop in the future. But that’s not easy. The price of gold is subject to certain laws . Thus, the commodity as a “safe haven” for investors is particularly interesting when there is unrest in the financial markets. As a result, the price of gold rises in times of crisis, while it tends to decline in prosperous capital markets. However, even for experts it is hardly possible to reliably predict when it will come back to a crisis or a phase of recovery, or how long it will last.
Investing in commodities: these are the opportunities
Commodities are suitable for making your own assets inflation-proof . Because in contrast to currencies, commodities are not tied to the loss of purchasing power of money. In addition, with a well-established raw materials portfolio, a double-digit percentage gain can be achieved – provided that the purchase and sale of the respective commodity takes place at the right time. If you invest directly in commodities, for example, an investor gains a bullion for the domestic safe, but no real returns are possible . However, investing in the commodity-producing companies’ stocks – so-called commodity investments – gives investors the opportunity to benefit from positive developments in the commodity markets and to additionally take income such as dividends .
Risks of investing in commodities
Depending on the type of commodity, the risks to investors vary. In the worst case, plants in wood can be completely destroyed by pest infestation, fires or bad weather . The price development of coffee, cocoa and other agricultural commodities is also dependent on good and bad harvest years . The value of industrial raw materials can suddenly shoot up with new economic data – or fall into the ground. Even supposedly safe predictions, such as the increasing demand for lithium from the proliferation of electric cars, could go nowhere due to new scientific findings and the use of another raw material in the manufacture of the necessary batteries.
There is never any security in the forecasts. Therefore, experts also advise to invest only a portion of the available assets in commodities . This allows greater losses of value to sit out and wait for better times.
Service: The investment comparison calculator shows you which options you have when investing with which opportunity-risk ratio.
Invest in commodities with ETCs
With the so-called ETCs, it is also possible to invest in commodities. The ETCs (Exchange-Traded Commodities) are a special form of securities. Similar to ETFs that track the performance of a stock index, an ETC simulates the performance of commodities . This considerably facilitates the investment for private investors. However, it is important for savers to know that a bankruptcy of the issuer, ie the issuer, may threaten the total loss of the investment.
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- Juliane Wellisch
- editorial staff
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