Commodities are raw materials that are either consumed directly, such as food, or used as building blocks to create other products.Investing in commodities
There are several ways to consider investing in commodities. One is to purchase varying amounts of physical raw commodities, such as precious metal bullion. Investors can also invest through the use of futures contracts or exchange-traded products (ETPs) that directly track a specific commodity index. These are highly volatile and complex investments that are generally recommended for sophisticated investors only.
Another way to gain exposure to commodities is through mutual funds that invest in commodity-related businesses. For instance, an oil and gas fund would own stocks issued by companies involved in energy exploration, refining, storage, and distribution.
Commodity stocks vs. commodities
Do commodity stocks and commodities always deliver the same returns? Not necessarily. There are times when one investment outperforms the other so maintaining an allocation to each group might help contribute to a portfolio's overall long-term performance.
