Commodities basics: gold, oil, wheat, copper
Raw materials that fuel the economy. Why some investors hold them and what to know before adding them to a portfolio.
Written for plain-English understanding by Joseph Citizen. Why I built this →
Commodities are raw, basic goods used to make other things — gold, silver, oil, natural gas, copper, corn, wheat, coffee. They are the inputs to nearly every product in the economy.
How to invest without driving a tanker truck home
- Commodity ETFs — funds that hold physical metals or futures contracts on oil, agriculture, etc.
- Stocks of producers — owning Exxon is exposure to oil; owning Newmont is exposure to gold.
- Futures contracts — direct, but complicated and not appropriate for most beginners.
Why some investors hold them
Commodities sometimes rise when stocks fall, especially during inflationary periods or supply shocks. Some investors keep a small slice (often 5–10%) in commodities as a diversifier.
Why they can be frustrating
- Commodities pay no dividends and produce no earnings. Their return depends entirely on price changes.
- Long-term real returns of broad commodities have historically been close to zero or even negative.
- Commodity ETFs that use futures can suffer from 'roll costs' — the fund loses money rolling expiring contracts forward, eating returns.
Keep the momentum going.
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Important
This lesson is general financial education only. It is not personal investment, tax, accounting, or legal advice. Examples are illustrative. Past performance does not guarantee future results.