A Quick Glance at Commodity Funds

Posted on 25. Aug, 2010 by GuestPoster in Commodities

If you have been active in the world of business and investing for some degree of time, the term commodity funds might not be new to you.  In fact, you may have already tried investing in one of these dynamic funds.  If not, now might be a good time to take a look at these (mostly) hands-off investment vehicles.

As the term suggests, commodity funds involve investments in basic commodities that people use on a daily basis.  These commodities include a wide variety of common items such as agricultural products, minerals, metals, and others.  Some specific examples include sugar, crude oil, soybeans, and rice.  As you can see, these are all products that many millions of people use every single day.

The concept of a commodity fund is very simple.  Essentially, it’s the same concept as purchasing shares of a mutual fund, except that you are buying shares of a managed commodities fund instead of stocks.  You can either buy or sell your commodities fund shares at any time.  As such, you will need to be aware of price changes as they happen to make sure you always get the best price.

Like traditional mutual funds, some commodities funds are more aggressive than others.  Although the more aggressive funds have the potential to make more money, they often carry more risk than the more conservative funds. Therefore, you have a choice of pursuing a short-term and fast profiting fund or a long-term conservative fund, depending on your investing goals.

Keep in mind that you are only buying shares, or a portion of the commodity, when you invest in this type of fund.  This means that only a portion of the entire investment is bought.  You don’t have to worry about someone driving up to your house and unloading a truckload of rice in your lawn.  That will never happen.  If at any time you would like to get out of the investment, you can do so anytime you would like, otherwise, all of the buying and selling of commodities is done for you.  For instance, suppose you have invested in a copper ETF.  The fund will take care of buying and selling all of the copper for you.  You don’t even have to know anything about metals to make this work.

There are various strategies you can use to invest in this type of fund.  Each approach has its own risks and rewards, but at the end of the day, the choice is yours to make and will depend on your personal risk tolerance level.  If you are willing to take a risk on the short-term approach for fast profits, you will have to make the decision for yourself as to whether it is too much risk.  If it is, you can always choose a more conservative strategy.

If you would like to learn more about this dynamic investment vehicle, it is recommended that you take the time to read through a good book on the topic.  One book that is highly recommended is “Energy Commodity Hedge Fund: A Practitioner’s Guide,” by John Thompson.

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Tags: commodity fund, Copper etf, oil ETF, oil fund, oil investment