Commodities essentially refer to the raw materials that are either used in manufacturing or for being consumed as food. Hence by investing in commodities you could invest in everything from gold, silver, energy or oil and wheat etc. Among professional investors commodities market is an extremely popular way to plan long-term investments. In fact, most investors spend their days tracking metrics like today gold rate in Punjab 22 carat or 18 carats trying to find the right time to invest. However, new investors are still on the fence about the commodities market and prefer to go the typical route by investing in stocks and bonds. However, by doing so you are missing out on a great opportunity. So today, we will explain to you the biggest benefits of the commodities market so you can invest in it and make huge profits:
- Diversifies portfolio
Commodities are not only good for hedging against inflation; they also diversify your portfolio. Commodity prices can move in tandem with the economy, but they are also influenced by the world markets, including the U.S., European Union, China and Japan. By diversifying your portfolio across different commodity sectors (such as metals, energy or agriculture), you can reduce your risk and increase your return potential in any given year. Diversification of a portfolio is extremely crucial if you want to become a successful investor. Commodities allow investors to buy exposure to both the stock market and the commodities market so that they can benefit from both markets’ growth potential while minimizing risk in one area (i.e., commodities) or another (i.e., stocks). Commodities are relatively more stable than other forms of investment like stocks. Hence by diversifying your portfolio and including commodities in it you will be able to minimize portfolio volatility.
- Hedge against inflation
Commodity markets are one of the best ways to hedge against inflation, which is the rate of increase in the prices of goods and services. If you own commodities, you can lock in a fixed price for your future purchases. This protects your purchasing power from rising prices. Commodities are a hedge against inflation because they have a limited supply and are inherently valuable. You can confirm this simply by tracking gold price in Gujarat or elsewhere during inflationary times and seeing how there is no negative effect on the prices. The most common way to hedge against inflation is by purchasing a physical commodity and holding it for the long term. For example, if you believe that the price of gold will increase over time, then you can buy gold and hold it as an investment. This protects your purchasing power from rising prices.
- Margin for trading commodities is very low
In the past, commodities were considered a risky investment and it was difficult to get returns on investment. But today, the situation has changed. Due to the rapid development of the economy, the prices of commodities are extremely stable and the margin at which the traders sell these is low as well. It means that you can buy them at a lower price and make good profits in future. The margin offered by your broker will vary depending on the type of commodity you are trading, but it is generally low compared to other financial instruments. This means that you will not need much money to start investing in the commodities market and you can make a profit without taking too much risk. Read more From Wikipedia