7 March 2011

How Long Should You Hold Onto Commodities?

In a previous post, I mentioned that commodities are an absolute must have in terms of investing in them to maintain the value of your money at the very least, and to profit massively from them during periods of turmoil, such as currently is the case in Libya for example. The question remains however, when commodity prices have risen, when do you sell them?

The thwarting of oil production means that for those of us putting petrol in our cars, myself included, its misery. A recent article in the guardian suggested that if this unrest continues, UK residents may see petrol rise to £2 a ltr. Current world events are sending the prices of commodities sky high and those who have money in them are smiling all the way to the bank.

Unlike property and owning businesses, investing in commodities isn’t so much a passive cashflow generator, [although you can make a lot of money if you decide to be trader] as it is a means to protect the value of your money and leave it there whilst witnessing its value continue to rise.

I am of the opinion that ultimately you want to have a chunk of savings in the bank for unexpected emergencies that may crop up. Once that has been accomplished, being in commodities prevents the value of your hard earned money from eroding, which will continue as long as money continues to be printed.

Ultimately, in trying to reach yell0brickrd, the aim should be to invest in a passive income model, which generates continual money each month whilst you put your feet up. Check out the following idea that gold and silver expert 'Mike Maloney' mentioned in his book regarding this subject. 

With reference to precious metals, at the height of its bull run, it took less than 500 oz of silver to purchase an average sized home. We are in another bull run right now, which could last another 10 years. With the price of silver incredibly depressed at the moment, it is still a fantastic time to get involved.

As an idea, he mentioned that you may want to look at holding until it reaches this kind of area again where it costs less than 500oz to buy an average sized property and then trade in a portion of your commodities in order to gain a nice monthly income.

The great thing about this as well is that if you borrow money for your property investments, which should be the case for leverage, when it costs slightly less than 500oz to buy a property, you can put in a 10% down payment for example and mortgage the other 90%.  By doing this you can purchase multiple properties, which equals more income each month.

For more information on understanding the fundamentals, check out basics of commodities!

Who else has some ideas on this subject, how long should we be holding and when should be selling some or all? Comment welcome!


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