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The Ongoing Commodities Boom - What Every Investor Should Know

Commodities / Investing Jan 31, 2008 - 09:08 PM GMT

By: Mary_Rivas

Commodities

Gone are the days when you only needed to know about stocks and bonds to make money in the financial markets. With revolutionary changes taking place in the global economy and investment industry, you can not afford to ignore commodities.

Never before have commodities been in such great demand worldwide at a time when supplies are extremely low. It will take many years for this supply-and-demand imbalance to improve. This means opportunities for you---rising commodity prices worldwide.


What are commodities? They are real assets that you and everyone in the world needs in life. As you go about your day, observe how often you use, in some form, essentials such as natural gas, corn, wheat, rice, cotton, wool, copper, gold, silver, sugar, coffee and cocoa. Commodities (also referred to as natural resources) are necessary for everyone on the planet. And, today there's growing global demand for natural resources that every investor should be aware of.

Often people will shy away from investing in natural resources, such as gold, silver, oil and sugar, because they think it's complicated to invest in them or they believe it takes a lot of money to invest in these real assets. That used to be true but no longer is. You see, there have been big changes in the last few years in the investment industry that now give any investor easy and inexpensive access to this asset class. It's easier than ever to invest in natural resources. For example, you can invest in some commodities funds with just a few hundred dollars. Many people, including experienced investors, simply do not understand the magnitude of investing in these real assets and as a result are not taking advantage of the amazing global commodities boom of our time.

Commodities futures (paper that represents a commodity) fall into four main categories:

*energy products (e. g., crude oil, natural gas, heating oil),

*metals (e. g., gold, nickel, copper, lead),

*agricultural products and livestock (e. g., wheat, coffee, corn, sugar and meat).

*financial products (e. g., government bonds and stock index futures),

Why Invest In Commodities Now?

For now, I will summarize the key reasons. There are four main reasons to invest in commodities today.

1) Low supplies and high global demand of commodities means rising prices for natural resources.

2) This asset class provides enhanced portfolio diversification, and can increase your return and lower your risk.

3) Real assets can provide protection of capital during an economic decline and when stocks move down.

4) The timing is right. On average, the length of a commodity bull cycle (rising prices) is about 18 years, and we have a ways to go.

There's a lot I can write about on each of the four points listed above. But this article serves as an introduction to this unique asset class. In future articles, I will delve into the details for each point.

Many Commodities Are Making Record Highs

Many commodities are making record highs because of the dynamics of low supply and high demand. There is rising global demand for natural resources due to the fast developing economies of China , India , Brazil and others. China , the fastest growing economy in the world, for example, has become the world's leading consumer for copper, steel and oil. And, very importantly, there's not enough supply of commodities to meet worldwide demand.

Low supplies are the result of decades of underinvestment in producing natural resources. During the 1980's and 1990's, there was minimal investment in commodities that was needed to produce supplies. Mining companies, for example, did not invest in equipment to mine or produce metals. It can take over a decade to find raw materials and bring them to market. Although agricultural products, such as coffee, are produced in less time, it still takes years until they are ready for use. It can take around five years to fully grow one coffee tree.

Simply put, when you have growing or even moderate global demand for natural resources in the face of historically low supplies, you get rising prices.

Investing Beyond Stocks and Bonds

Investing in commodities is not the risky business many people imagine. It's amazing how many investors believe that stocks are safer than commodities. Commodities have historically had more attractive returns and less risk than stocks. Recent research, such as that done by the Yale School of Management's Center for International Finance, sheds some very interesting light on this asset class. Their study showed that by diversifying an investment portfolio with stocks and commodities, it can have less risk than a portfolio that is 100% invested in stocks.

With inexpensive and easy ways of investing in natural resources today, there's no good reason to not take advantage of commodities investing. To learn more, visit www.powerpathtomoney.com

By Mary Rivas

Mary Rivas has over 16 years of experience working in the investment management industry, and is the author of Power Path To Money, which is available at www.powerpathtomoney.com . She wrote this book to teach people 1) how to use low cost ways to easily invest in commodities and 2) how to invest in themselves to achieve maximum success. Her book reflects her philosophy that successful investing is achieved by being knowledgeable about investment opportunities and by developing one's inner power.

Mary Rivas Archive

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