How long has your money dictated to you where it prefers to reside?
Is that fine with you? Take control. Become a monster by learning to properly invest your money.
Make your money make money.
First of all, we are discussing the action or process of investing money for profit or material for a result. Investing can also be defined as the surrounding of a place by a hostile force in order to besiege or blockade it.
You might ask,
"Where could a beginner begin? "
Gold!
Commodity [ kuh-mod-i-tee ]
noun [plural com·mod·i·ties.]
1. an article of trade or commerce, especially a product as distinguished from a service.
2. something of use, advantage, or value.
3. any unprocessed or partially processed good, as grain, fruits, and vegetables, or precious metals.
Yes, by definition, it is a fact, gold is a commodity.
Interestingly, commodities of food, energy or metals, are an important part of everyday life. Commodities can be an important way for investors to diversify beyond traditional stocks and bonds.
"What is a traditional stock, and bond?"
As an investor, stocks and bonds are part of a variety of options to choose from. The investment you select reflects your financial goals, investment preferences, and tolerance for risk. Stocks and bonds represent traditional investments. Traditional means that you put your money down and hold on. Although you want to make changes as necessary to protect your investment, these types of investments can add stability to more aggressive — and riskier — investment strategies. For example, some risks accompany trading and hedging.
Investing in stocks is great. When you buy stock, you’re buying ownership in a corporation, or company. The benefit is a mutual profit. Normally, investors buy stocks and hold them for a long time, making decisions along the way about reallocating investment capital as financial needs change, selling underperformers, and following a variety of advice tactics.
You want to make sure that your stock portfolio is carefully balanced among the different types of stocks (growth, value, domestic, international, etc.) and your other investments.
"A well-balanced traditional portfolio (which includes stocks and long-, short-, and intermediate-term bonds) generally offers a steady return of between 5 and 12 percent, depending on the specific investments and the amount of risk you’re willing to assume.(http://finance.zacks.com/investing-for-beginners/)"
"Investing in bonds is traditional, too, right?"
To raise money, governments, government agencies, municipalities, and corporations can sell bonds. When you buy a bond, you’re essentially lending money to this entity for the promise of repayment in addition to a specified annual return. In that sense, a bond is really nothing more than an IOU with a serial number. Some people, to sound impressive, call bonds debt securities or fixed-income securities.
Although some entities are more reliable than others, bonds generally offer stability and predictability well beyond that of most other investments. Because you are, in most cases, receiving a steady stream of income (the annual returns, for example), and because you expect to get your principal back in one piece (at the end of the bond’s life), bonds tend to be more conservative investments than stocks, commodities, or collectibles.
"Okay, let's look at commodities."
It used to be that most people did not invest in commodities because doing so required significant amounts of time, money and expertise. Today, there are a number of different routes to the commodity markets, and some of these routes make it easy for even the average investor to participate.
"What about the Futures Market?"
A popular way to invest in commodities is through a futures contract. A futures contract is an agreement to either buy or sell an asset on a publicly-traded exchange. The asset is usually a commodity, a stock index or a currency. The contract specifies when it will be delivered and at what price. Most contracts specify that the asset must actually get delivered, although some allow a cash settlement instead. Most contracts are paid off before the delivery date. Futures are available on commodities such as crude oil, gold and natural gas, as well as agricultural products such as cattle or corn.
Most of the participants in the futures markets are commercial or institutional users of the commodities they trade. These hedgers may use the commodity markets to take a position that will reduce the risk of financial loss due to a change in price. Other participants, mainly individuals, are speculators who hope to profit from changes in the price of the futures contract. Speculators typically close out their positions before the contract is due and never take actual delivery of the commodity itself.
Investing in a futures contract will require you to open up a new brokerage account, if you do not have a broker that also trades futures, and to fill out a form acknowledging that you understand the risks associated with futures trading.
"Each commodity contract requires a different minimum deposit, depending on the broker, and the value of your account will increase or decrease with the value of the contract. If the value of the contract goes down, you will be subject to a margin call and will be required to place more money into your account to keep the position open. Due to the huge amounts of leverage, small price movements can mean huge returns or losses, and a futures account can be wiped out or doubled in a matter of minutes.( http://www.finra.org/Investors/InvestmentChoices/P005912)"
Most futures contracts will also have options associated with them. Options on futures contracts still allow you to invest in the futures contract, but limit your loss to the cost of the option. Options are derivatives and usually do not move point-for-point with the futures contract.
"Okay, let me see the stock part."
Many investors looking for a commodity play use stocks, which are less prone to volatile price swings than the futures market. Stock investors need to do some research to help ensure that a particular company is a good investment as well as a good commodity play. Oil companies allow investors to select from drillers, refiners, tanker companies or diversified oil companies. Stocks are easy to buy, hold, trade and track, and it is possible to play a particular sector. Stock options, which require a smaller investment than buying stocks directly, are another way to invest in commodities. While risk is limited to the cost of the option, the price movement will not usually directly mirror the underlying stock.
"What are ETFS and ETNs?"
Exchange traded funds (ETFs) and exchange traded notes (ETNs), which trade like stocks, allow investors to participate in commodity price fluctuations without investing directly in futures contracts. Commodity ETFs usually track the price of a particular commodity or group of commodities that comprise an index by using futures contracts, although a few back the ETF with the actual commodity held in storage. ETNs are unsecured debt designed to mimic the price fluctuation of a particular commodity or commodity index, and are backed by the issuer. A special brokerage account is not required to invest in ETFs or ETNs.
"Can we utilize Mutual Funds?"
While mutual funds cannot invest directly in commodities, they can invest in stocks of companies involved in commodity-related industries, such as energy, agriculture or mining. Like the stocks they invest in, the fund shares may be affected by factors other than commodity prices, including stock market fluctuations and company-specific risks.
In conclusion, there are different types of commodity investments for novice and experienced traders to consider. Although commodity futures contracts provide the most direct way to participate in price movements, other types of investments with varying risk and investment profiles also provide exposure to the commodities markets. The key is to invest with the tool that works best for you.
Rely on accurate research tactics, and fact based investment strategies.
Have fun; make money, money.
