One overlooked investment vehicle is the commodity market. This allows an investor to make money as the price of commodities goes up over time.
But what is a commodity? A commodity is something that has a demand, usually has a limited supply and is sold through multiple different companies. So, gold, water, corn, and livestock would all be considered commodities.
Now that you have an idea about what a commodity is, let’s look at how do I invest in commodities? There are basically three different methods you could use to invest into the commodity market.
1. Buy them
The easiest way is to simply go out and buy the individual commodity. For example if you believe the price of silver is going to go up you could always buy some silver and sell it when the price gets higher. This does come with a few big problems however..
2. Buy Futures
A much better idea is to buy a few future contracts for silver. By buying futures you are buying a lot of silver, only the delivery date may be many months into the future. So while you would not actually own any silver you would own the contract giving you control of silver at some point in the future.
As the price of silver goes up the price of your commodity is also likely to go up. You could then profit by selling your contract to someone else before it matures and you end up with the silver yourself.
3. Buy ETFs
Another way to benefit from the price of silver would be to buy a silver ETF. Commodity ETFs will either hold the commodity themselves or invest into companies that produce that commodity. As the value of a commodity goes up these ETFs are likely to benefit.
So if you were going to buy silver you could simply buy a silver ETF like SLV and benefit as the price goes up without having a specific date which you would own the commodity if you do not get out.
