Many experienced investors use commodities as collateral when inventories are low. Although commodities involve risks, investing in commodities actually results in a tangible asset. When talking about commodities, precious metals, currencies, crops, oil, gold and gas are included. Generally, when the value of the shares falls, commodity prices increase. Here you can know the reasons why you should consider investing in commodities to diversify your portfolio.

Professional investors use commodities as a buffer against inflation. When prices rise, commodity prices also rise. However, the value of the shares generally falls when inflation increases. Therefore, experienced investors exchange their money for raw materials to compensate for any loss that may result in a decrease in the value of the shares. Here we offer some information on how to invest in commodities.

Commodity Purchase

Buying commodities is not as simple as buying gold and depositing it in a safe in the bank. In most cases, investors buy a commodity futures contract. The way they operate is buying a contract to sell a specific amount of shares at a future date.

When the value of a raw material increases, the value of the contract also increases. The objective is to buy the contracts of a specific raw material, such as gold or oil, for a low price and sell the contract when the price increases at a future date. However, the contract price can fall as easily as it can go up. Many brokerage agencies require a special account to negotiate futures contracts.

Although you can buy commodities directly, you are responsible for managing your investment. For example, if you invest in oil, you will be subject to the shipping and storage cost of each barrel of oil. In addition, you may have to pay transaction fees, which can cost two percent or more for each investment.

You can also buy shares of companies dedicated to the field of commodities. For example, if you want to invest in energy, you can buy shares of oil and natural gas exploration and supply companies. If you want to invest in gold, you can buy shares of companies dedicated to mining this precious metal.

Although commodities can be very profitable, they also pose many risks. The prices of raw materials are highly volatile, since they are sensitive to factors beyond economic conditions. Climate and natural disasters affect raw materials much more than the value of the actions themselves.