Dipping your toes into the financial market will be a fully educational experience. One term that you will likely come across in the beginning of your endeavors is commodities funds. Of course, for the term to be of any use for investments, you have to know what it means. A commodity fund can actually refer to a number of things. It provides an opportunity to get involved in various aspects of the financial market. As you learn, you will decide what type of investing is most interesting and lucrative for you.
Commodities are tradeable bulk goods and raw materials. The ones that get a lot of attention are oil, gold, corn, soy and hugs. You can read about them and their prices nearly every day in the public newspaper. The existence of commodity mutual funds give even the beginning investor an opportunity to get in on the action. Commodity funds can refer to any of the following four things:
Commodity Funds: a true commodity mutual fund. That means that you have a direct holding in the given commodity. A gold fund, for example, that holds gold bullion, is a true commodity fund.
Commodity Fund Holding Futures: a commodities fund that is actually derivative instrument. This is the more common way to invest. Since you probably don’t actually want to get involved with the deliver of hogs, corn, or oil, you invest in the mutual fund by purchasing futures contracts. You reap profit from price changes this way.
Natural Resource Funds: even more indirect access to the commodities market. Without investing the actual commodity, but rather commodity related fields: mining, energy, agricultural businesses.
Combination Funds: commodities mutual funds where you invest in a combination of both actual commodities (the first type of investment) and commodity futures (the common second type). For example, you can invest in a gold fund that has holdings both in gold bullion and futures contracts.
There isn’t really any way to guarantee what the best commodity funds are. The market can be very volatile. You will notice everything from seemingly eternal lulls in fluctuation to sudden wild, short term price swings. A given commodity can reach record highs to record lows in just a few days. For this reason, commodities are considered a sophisticated investment offering portfolio diversification. Beginners can invest in the mutual funds, but should take advice from market experts. Certainly, it should not be the first type of fund that a beginning investor should look into.
Commodities are tradeable bulk goods and raw materials. The ones that get a lot of attention are oil, gold, corn, soy and hugs. You can read about them and their prices nearly every day in the public newspaper. The existence of commodity mutual funds give even the beginning investor an opportunity to get in on the action. Commodity funds can refer to any of the following four things:
Commodity Funds: a true commodity mutual fund. That means that you have a direct holding in the given commodity. A gold fund, for example, that holds gold bullion, is a true commodity fund.
Commodity Fund Holding Futures: a commodities fund that is actually derivative instrument. This is the more common way to invest. Since you probably don’t actually want to get involved with the deliver of hogs, corn, or oil, you invest in the mutual fund by purchasing futures contracts. You reap profit from price changes this way.
Natural Resource Funds: even more indirect access to the commodities market. Without investing the actual commodity, but rather commodity related fields: mining, energy, agricultural businesses.
Combination Funds: commodities mutual funds where you invest in a combination of both actual commodities (the first type of investment) and commodity futures (the common second type). For example, you can invest in a gold fund that has holdings both in gold bullion and futures contracts.
There isn’t really any way to guarantee what the best commodity funds are. The market can be very volatile. You will notice everything from seemingly eternal lulls in fluctuation to sudden wild, short term price swings. A given commodity can reach record highs to record lows in just a few days. For this reason, commodities are considered a sophisticated investment offering portfolio diversification. Beginners can invest in the mutual funds, but should take advice from market experts. Certainly, it should not be the first type of fund that a beginning investor should look into.
This blog is very nicely explain commodities funds and helpful for all beginners who want to invest in commodities. Thanks for sharing
ReplyDeleteSaar Pilosof