Copper ETF | Expand Your Horizons With Commodity Funds

Expand Your Horizons With Commodity Funds

If you’ve been looking at ways to expand your investment portfolio, you may keep hearing about commodity mutual funds. These investments tend to be rather volatile and can be categorized as a speculative investment as opposed to a more secure and conservative one. But what exactly are commodity funds? And how do they work?

A commodity fund is basically a mutual fund that invests in commodities; namely, articles of commerce, or goods whose value is determined based on supply and demand. These include a wide range of metals, resources, and agricultural products, such as platinum, gold, silver, copper, aluminum, palladium, crude oil, coal, iron, wheat, soybeans, sugar, coffee beans, rice, salt and ethanol.

There are different ways of investing in commodities. When you are dealing with commodity index funds, also known as ETCs, or exchange-traded commodities, you are referring to funds that are traded on the stock market. These fall into the category of ETFs, and are popular in part due to their ability to be bought and sold quickly. You can short the market with an ETF if you do it right, but at the same time it’s important to realize that it can be a risky investment.

Building or expanding a portfolio with these can be complicated. There are always new ETFs for various commodities coming onto the market, and it’s hard to know if you should choose an oil ETF over one for sugar, or even stick to the basics with gold. Speaking to an investment broker can help; in fact you may wish to just turn the entire task of choosing which ones to invest in over to someone more experienced.

It’s important to realize that with any commodity funds, you are not buying the actual commodity itself, but rather shares. That means that if you buy into a copper ETF you are not buying actual copper bullion that is being stored somewhere for you, but shares of it. You can’t take it home for show and tell. But because of this you are able to invest in a more diverse selection of commodities, and with a minimal investment.

Like all mutual funds, you cannot control all the investment moves that are made within your fund. It is managed by a person or group of people who are experienced in the field, and who make the decisions about when to buy, sell, and make other major decisions about the direction the fund will take. You, and all the rest of the shareholders who are investing in this fund, take part in both the profits and any losses that come about.

For someone who would like to expand their horizons by investing in commodities, these funds offer a less risky entry point than the more complex option of buying up stocks of the commodities themselves.

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