Redefining Growth Through Alternative Investments

Commodities in Diversified Portfolios

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What’s the first thing that comes into your mind when you think about building a strong, resilient investment portfolio? Stocks? Bonds? Maybe real estate? Those are the usual options, right? But let me ask you this: have you ever considered commodities? Yes, I’m talking about things like gold, oil, or even coffee beans.

These aren’t just everyday items, they could be the missing piece to fortify your financial strategy and safeguard your future. Let’s unpack this often-overlooked but incredibly powerful investment tool.

What Are Commodities?

Let’s break it down. Commodities are raw materials, the building blocks of everything we use in daily life. Take a look at the gold in your wedding ring, the oil powering your car, and the wheat in your breakfast toast. All of these are commodities. They’re bought and sold all over the world, and their value impacts economies on a massive scale.

Now, commodities come in two main categories:

  • Hard Commodities: These are natural resources that are extracted from the earth, like gold, silver, oil, and natural gas.
  • Soft Commodities: These are agricultural products, such as wheat, coffee, cotton, and sugar. Think of them as the essentials we grow to sustain global demand.

 

Unlike stocks or bonds, commodities are tangible. You can hold a gold bar in your hand or see barrels of oil stacked in a warehouse. Their value doesn’t depend on corporate performance or market trends but on real-world factors: droughts, geopolitical events, and even natural disasters.

 

Why Should Commodities Matter to You?

Let me ask you this: have you noticed how everything – groceries, gas, even your daily coffee – seems to cost more these days? That’s inflation, and it’s not just a buzzword; it’s something that eats away at the value of your money over time. This is where commodities step in.

When prices rise across the board, commodities like gold and oil often hold steady or even gain value. They act as a kind of financial shield that protects your portfolio from losing ground. Imagine having that kind of safety net when the cost of living skyrockets. Wouldn’t that give you some peace of mind?

Why You Should Consider Commodities

  1. Diversification
    Have you ever heard the phrase, “Don’t put all your eggs in one basket”? It’s solid advice for investing too. Commodities add a layer of diversity to your portfolio. Unlike stocks and bonds, they don’t always move in the same direction. For instance, when the stock market takes a nosedive during uncertain times, commodities like gold tend to rise in value. This balance can cushion your portfolio from major losses.
  2. Inflation Hedge
    Think back to the last time you cringed at how much your favourite coffee blend costs. That’s inflation at work. While your money buys less, commodities like gold maintain their value—or even go up. It’s like having a lifeboat while the rest of the ship takes on water.
  3. Constant Global Demand
    Here’s the thing: as the world’s population grows, so does the need for raw materials. Oil powers industries, wheat feeds billions, and gold remains a timeless symbol of value. This constant demand makes commodities not just a defensive asset but also a way to grow your wealth over time.

The Risks of Commodity Investing

Let’s not sugarcoat it, like any investment, commodities come with their risks:

  • Price Swings: Commodity prices can be unpredictable. A sudden geopolitical conflict or a weather disaster can send prices soaring or crashing.
  • Storage Costs: Physical assets like gold bars or barrels of oil need secure storage, which can add to your costs.
  • Complexity: Investing in commodities often involves futures contracts or exchange-traded funds (ETFs), which can feel a bit overwhelming if you’re new to this.

But don’t let these risks scare you off. With the right guidance, you can navigate these challenges and make commodities work for you.

 

How to Invest in Commodities

There are several ways to dip your toes into the commodity market, depending on your comfort level:

  1. Direct Investment
    Do you want something you can hold? Buying physical gold bars or silver coins is a straightforward way to invest. It’s reassuring to have a tangible asset you can count on during uncertain times.
  2. Futures Contracts
    For more experienced investors, futures contracts let you buy or sell commodities at a set price on a future date. This approach requires some market savvy and a higher tolerance for risk.
  3. Commodity ETFs and Mutual Funds
    If you prefer convenience, ETFs and mutual funds offer an easy way to gain exposure to commodities without handling them directly. They’re ideal for beginners.
  4. Stocks in Commodity Companies
    Investing in companies that mine, drill, or produce commodities, like oil companies or gold miners, gives you indirect exposure while also benefiting from corporate growth.

Commodities in Real Life

Let me share a couple of real-life examples to show you how commodities can make a difference:

  1. Gold in a Financial Crisis
    Remember 2008? The stock market was in free fall, and many people saw their savings vanish overnight. But those who had invested in gold saw its value rise nearly 25% by the end of the crisis. Why? Because gold has always been a reliable store of value when everything else feels shaky.
  2. Oil’s Rollercoaster Ride
    In 2020, when the pandemic brought the world to a standstill, oil prices hit rock bottom, even going negative for a brief moment. But as economies reopened, demand surged, and oil prices rebounded sharply. This shows how commodities can bounce back to reward those who stick with them through the lows.

 

Conclusion

Commodities aren’t just raw materials; they’re a tool to build a stronger, more resilient portfolio. They hedge against inflation, diversify your investments, and tap into the steady demand for the resources that power our world.

So, ask yourself: Is your portfolio ready for the future? At MHG Wealth, we specialise in helping people like you build portfolios that stand the test of time. . Whether you’re looking to grow your wealth, protect it, or both, we’re here to guide you every step of the way.

Ready to take the next step? Contact one of our experienced alternative investment advisors today and discover how commodities can help secure your financial future.

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Jane Jablan

Investment Advisor

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