Commodity stocks
invest in products like gold, oil, lumber and sugar
Commodities are goods and products like gold, silver, sugar, coffee, beef, copper and oil. Commodity stocks are investments in these products. These stocks trade on various exchanges, and can be very volatile, risky and actively traded. Many commodity stocks are not for the faint of heart. While they can return big gains, there is also the very real possibility of substantial losses.
Types
Some types of commodity stocks include individual stocks that invest in just one commodity, such as gold. Other commodity stocks invest in more than one commodity, such as precious metal stocks which invest in a variety of metals like gold, silver, copper, zinc and platinum. Several ETFs (exchange traded funds) invest in various commodities, similar to a mutual fund, where they hold a basket of commodity type stocks. While these ETFs may be more diverse, they are no less risky. Commodity options and futures are perhaps the most changeable and speculative of the bunch.
Time Frame
Options and futures on commodities are usually bought and sold on a relatively short-term basis. ETFs and individual stocks are frequently purchased with a longer term in mind. Commodity prices are affected by many variables including supply and demand, and acts of nature. Commodity stocks are not for the timid or cautious investor, and these investments need to be monitored regularly, if not daily.
Benefits
Commodities can provide big profits as well as big losses. They do offer diversity to a portfolio, and in some cases they act as a hedge against inflation or a falling dollar. Certain commodities also provide a safe haven in times of economic, political and global unrest. Commodities are not for prudent and tentative investors. But for those willing to take on some risk, commodity stocks may well reward or burn them.
