Tag Archive | "Commodity ETFs"

Commodity ETFs Put Food on the Table

Commodity ETFs

Select Commodity ETFs Balance Diversified Portfolios

Commodity ETFs offer diversity, which investors can choose by commodity, industry or past performances. Similar to mutual funds, exchange traded funds focus on a single commodity or group of companies within an industry. Investors can choose ETFs that concentrate on futures, agriculture, natural resources or their underlying indexes.

For example, the Goldman Sachs Commodity Index follows 24 different commodity baskets, investing 67% of its cash reserves in energy, but allocating minor percentages to agriculture, industrial metals, livestock and precious metals. Commodity ETFs trade on the market just like stocks, but diversification helps lower risks for investors by spreading them over a variety of stocks, metals, bonds or indexes.

Commodity ETFs Focus on Agricultural or Natural Resources

Each fund concentrates on particular metals, natural resources or agricultural products, and fund managers create their own indexing benchmarks. Investors need to research past performances, fund allocations, and related indexes before committing to buying shares of a particular ETF. Commodity ETFs that follow silver seem ideally positioned for growth because the price of silver has dropped from a high of $50 to the current price under $32.

Current trends in exchange traded funds favor oil, gold, agricultural investing and silver. Industrial demand for silver exceeds the world’s annual production from mining operations, so world reserves have been decreasing steadily. Silver reached the high market price in April of 2011, and the commodity could be positioned to regain its value and more, especially with the looming European banking problems. Exchange traded funds offer strength and diversification for short-term or middle term investment strategies.

Historical performance and high demand for the metal make it likely that prices will again rise after this brief market correction. Of course, all investment strategies carry risks, so investors should always research their investments carefully. Even though commodity ETFs help manage risk, investors could still lose money.

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Posted in Commodities, ETFComments Off on Commodity ETFs Put Food on the Table

Why Invest In A Commodity ETF?

Benefits of Investing In A Commodity ETF

Commodity ETFInvesting in a commodity ETF, or preferably several commodity exchange traded funds (ETFs), is recommended by financial professionals because commodity investments are part of a sound diversification investment strategy for an investment portfolio.  Many investors put all of their investment money into just a couple of asset classes, such as stocks and real estate, and fail to properly diversify their investments across a broad range of asset classes, including commodities.  An investment in a commodity ETF is a way to make an investment portfolio truly diversified to help protect against unexpected financial events.

The reason why an investment in a commodity ETF is considered a good way to diversify an investment portfolio is because the economic forces that affect the prices of the price of the underlying commodities that a commodity ETF derives its value from are different than the economic forces that affect other asset classes.  For example, as the United States real estate market has experienced a historic plunge since 2005, a careful investment in commodities such as grains or oil has proven to be a lucrative investment that has paid off well since 2005, as the growing middle class population throughout the world demands commodities such as grains and oil to meet their higher living standard expectations.

Since the price of specific commodities is influenced by a wide range of commodity-specific factors, not all commodity ETFs have the same risk profile or investment returns.  For example, natural gas futures that provide value to natural gas ETFs are localized in nature, and are not influenced by world events, but instead are influenced by domestic supply and demand forces within the countries in which they trade.  Whereas, oil futures that provide value to crude oil ETFs are highly influenced by international events that affect the price of oil that trades worldwide.

How To Make A Commodity ETF Investment

Investing in commodities used to be a difficult task for the average individual investor, which is why so many investors are not accustomed to making an investment in a commodity ETF.  Before commodity ETFs were introduced, an investor who wanted to invest in commodities had to open up a futures and options trading account and buy commodity futures or options, which is something many people were not comfortable doing.  Nowadays, making an investment in a commodities is as easy as buying a commodity ETF, which is done in the same way as a stock purchase is made.  A commodity ETF can be bought and sold just like a stock can be bought and sold, through online brokers, via voice response brokerage services or by speaking to a live brokers.

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Posted in ETFComments Off on Why Invest In A Commodity ETF?

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