What Are Commodity Stocks?

The key to a successful investment portfolio is diversification. This means you are not heavily weighted in one sector or stock. Commodities are great, although risky, investments to add to any portfolio to add potential growth.

Identification

Commodities are substances you can physically touch, such as grains, oil or metals that are interchangeable with another. A commodity stock is simply shares of a holding company, usually.

Potential

Risk is the reason commodity trading began. Prices of commodities fluctuate and the future price is unknown. For instance, if you invested in gold, even silver, you could have made a significant return. However, the opposite can also be true.

Types

Commodities can be traded as shares of a stock. They can also be bought using a futures contract. This contract represents the physical selling and buying of a commodity on a specific date.

Fun Fact

Exchange-traded funds (ETFs) are like a mutual fund, but trade like stocks. ETFs can be utilized to invest in commodities. They are flexible and you can sell them quickly. ETF holdings are versatile. Some give you exposure to gold minors, retailers or large mineral corporations, or a little of both. You can add diversification and commodities at the same time. Plus, you do not have to hold on to the physical commodity.

Warning

Please consult your financial adviser or planner regarding investing in commodities. Investors have individual risk tolerance and investment objectives. There is potential for loss.

References

• "Economics: Principles, Applications & Tools"; O'Sullivan, A., et al.

Resources

• The Street: Gold & Commodities ETF