Commodities
Commodities, whether they are related to food, energy, or metals, are an important part of everyday life. Anyone who drives a car can become significantly impacted by rising crude oil prices. The impact of a drought on the soybean supply may influence the composition of your next meal. Similarly, commodities can be an important way to diversify a portfolio beyond traditional securities—either for the long term or as a place to park cash during unusually volatile or bearish stock markets, as commodities traditionally move in opposition to stocks.
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Commodities are great for diversifying portfolios beyond stocks and bonds, as commodities tend to move in the opposite direction of equities. The commodities markets are typically driven by supply and demand. There are a number of ways to invest in commodities, such as futures, options, and exchange-traded funds (ETFs). A popular way to invest in commodities is through a futures contract, which is an agreement to buy or sell a specific quantity of a commodity at a set price at a later time.
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