Commodities are raw materials either used directly such as food used indirectly to produce another product. For example, oil is a commodity that’s used in the production of many different goods and services. You can purchase physical goods, invest in stocks, purchase ETFs that track specific commodity indexes or invest in commodity futures. Commodity futures are agreements to buy or sell a predetermined amount of a commodity at a specific price on a specific date in the future.
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You can diversify when you invest in commodities by spreading them over various asset classes. Diversifying your portfolio can help shield your money against inflation. It’s important to remember, however, that diversification and asset allocation do not guarantee returns.
There are a few ways you can get around inflation:
- Use real estate as a hedge. When inflation starts to bust out of its box, you can bet that real estate goes up with it. Owning real estate during times of increasing inflation means you can charge more for rent to boost your income.
- Invest in TIPS. Treasury Inflation-Protected Securities (TIPS), while not super exciting, can protect you against inflation. TIPS principal increases with inflation and decreases with deflation. You receive the adjusted principal or original principal (whichever is higher) when the TIPS mature.
- Equity investments can benefit you. Equities can preserve your portfolio against the downsides of inflation.
- Consider REITs. Real estate investment trusts (REITs) serve as an inflation hedge because real estate does well during periods of inflation. REITs are companies that own and often operate income-producing real estate. They can include office and apartment buildings, warehouses, hospitals, shopping centers, hotels and more. REITs can offer an income stream for savvy investors.
Finally, we’re left with investing in commodities. Commodity prices, such as natural gas and grains, crude oil and metals, usually rise when inflation goes up, so investing in commodities may help couch your portfolio against inflation.
Why Commodities During Inflationary Periods?
During periods of higher inflation, you can insist on investing in companies in industries that not only have staying power but that can raise prices during inflationary periods.
Evaluate which types of companies are useful during periods of inflation. No matter what happens with the value of the dollar, commodities will still be in demand.
3 Commodity Investments for Right Now
Let’s take a look at three types of commodity stocks you may want to consider investing in now.
Freeport-McMoRan Inc. (NYSE: FCX)
Freeport-McMoRan Inc. mines copper, gold …….