22 January 2011

Basics Of Commodities

The very first thing I’ve had to do on my journey so far is demystify all of the big words the financial world uses to describe tools of money. There are a million definitions flying about for a million complicated words and as I get involved in the various aspects of reaching 400k a year I will try to break them down for myself as a layman and explain them to you. So in the first instalment of that, I want to take some time to break down the basics of commodities; what they are, and why we should use them as part of the overall plan to build wealth.

Commodities are those things which come out the ground. We're talking wheat, rice, silver, soybeans, gold, oil, etc and all of the things which nature gives us, and we utilize. In 'Metals And ISA's', I discussed silver as an investment and how to get started. It truly is the last bargain investment for the masses, particularly when one considers the fact that the prices are extremely depressed. For the price of a dinner for one, you can get yourself involved in something that will dramatically rise in value over the coming years ahead. Despite the volatility, leading investors of the day are in unanimous agreement that this metal will do very well, particularly in 2011. The other examples I have just mentioned are also classified as commodities and can be utilized to attain wealth.

The Argument For Commodities

One of the reasons that agricultural commodities, for example, are such excellent investments is because all around the world, diets are improving, demand for particular foodstuffs therefore are increasing which drives up the price and investors can subsequently benefit. Any shortage of supply and adverse effects of bad weather benefits the investor also because demand remains constant regardless. Depending on how one decides to play commodities, they can make profits on a daily basis or utilize it as another hedge against inflation, which erodes the value of your money.

ETF vehicles can be used to gain exposure to the commodities market. Check out 'Income To Make You Rich Pt 2' for more information on what they are and how they are utilized. In this case, they will be referred to as ETC’s which are basically the same thing, and stand for Exchange Traded Commodities.  

Recommend a book!

I make no claim to be an expert and as readers will now know I am a huge fan of reading and acquiring knowledge which can then be applied to experience fantastic results. For more information on my views on this, take a look at ”Why Invest In Yourself

I recommend checking out 'Hot Commodities' by billionaire investor Jim Rogers for more detailed information regarding commodities and why they are so essential for the true investor. As an individual who predicted the last major commodity wave and profited massively from it, I would say he knows what he is talking about.

In closing, I would say that I have leant that commodities are one of the essential investments that I will continue to put money into to hedge myself against the eroding value of my currency, this will be in addition to continuing to build a business and invest in property, the ultimate for passive cashflow!

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