According to experts, a diverse portfolio is incredibly advantageous to investors as it safeguards them from potential losses. There is no better way to accomplish this than by investing in the commodity market. Commodities refers to basic goods, raw materials, and even expensive metals. For example, gold, crude oil, sugar, rice, coffee, etc. all fall under the category of commodities.
Of course, as an individual, you may wonder why you should invest in commodities. The best reason is that it can be extremely lucrative. It will also help in preserving your purchasing power during times of inflation. This is because the prices of most commodities appreciate during such times. It’s important to know that commodities operate in their own domain and are not affected by any price fluctuations in the stock and real estate markets.
Market specialists recommend that you should dedicate about 5-10% of your overall investment portfolio towards commodities. This will help you offset any losses suffered in stocks. Remember to be careful with commodity trading in India during times of deflation, as the prices can depreciate exponentially. Always take into account the current market situation and invest accordingly.
Investing in the commodity market will shield you against financial losses incurred during natural calamities. Such events have negative effects on stocks and bonds, while they positively impact the pricing of many commodities. This is also true for events like wars and economic crises. For example, during wars, there is a stark rise in oil prices. Another added benefit is the high liquidity option, which makes it easier to buy and sell commodity shares.
Normally, commodity brokers will solicit a certain minimum amount of deposit from the investor before agreeing to the deal. This sum is mostly low with regards to commodity market investments. It means the input from your side will be quite low, while the output gained will be maximum.
How to Invest in Commodities?
Everything has its own pros and cons, and investing in the commodity market is no different. It is generally considered a bit risky as the trading technically takes place in the future. The trading takes place between traders or investors who set a specific date in the future and a predetermined price to sell or buy commodities. It’s highly recommended that you adopt a calculative approach while exchanging commodities through stocks and Exchange Traded Funds (ETFs).
You’ll initially be required to open a brokerage account. This will allow you to trade via the exchange. Don’t hesitate to ask for expert advice and conduct extensive research from your side. After doing this, you have the option of investing in a variety of commodities. Remember never to put all your eggs in one basket. You can invest in physical commodities, commodity futures, commodity-related stocks, and ETFs. There are many index funds that hold a wide-array of commodity-related stocks.
Expert traders generally resort to two different types of analysis to gauge the price movements of commodities: Fundamental Analysis and Technical Analysis.
Fundamental Analysis: This process is a combination of various factors that have a bearing on commodity prices. They include tragedies, worldwide events and many other types of occurrences. These elements have a long-term impact on the commodity market. Hence, this strategy is best suited for medium and long-term investors.
Technical Analysis: This technique includes analysis of patterns with the aid of charts. It is perfect for people looking for short-term investments.
It’s better to employ a combination of these techniques in order to obtain the best results. Given the plethora of advantages associated with commodity investments, you should definitely consider including this in your portfolio. There are various options regarding commodity trading in India. So make sure you do your due diligence and choose the options that best suit your needs.