Investing in commodities pays especially in times of inflation, according to many experienced investors. Why do they reason like that? And how can you invest in commodities yourself? Read quickly what every investor needs to know.
Invest in times of inflation
The higher the inflation, the less the money in your savings account is worth. Moreover, savings at such moments yield relatively little due to low interest rates. That is why, in times of inflation, people are more inclined to make money from the stock market. Will the inflation increase in 2018? Not according to the Federal Planning Bureau, but there are also investment experts who think so. In short, it is a matter of waiting.
When to invest in commodities?
Investing in commodities, in particular, is gaining popularity in times of inflation, as commodities traditionally perform better than other investment products at such times. In other words, when inflation rises, commodities almost always increase in value.
The explanation? If people feel that inflation is imminent – in other words, they suspect that prices will rise soon, while their wages will follow slowly – they would rather spend their money today than tomorrow.
Consequently, the demand for consumer products is increasing. This usually involves a mild (or healthy) inflation rate of around 2%. and the demand for raw materials to make those products logically also increases.
No insurance policy
Contrary to what some people think, you cannot just view commodities as an insurance policy during a downturn. This is because the demand for raw materials comes mainly from industry, for example, metals used for electronics.
Finally, investments are pro-cyclical: their value rises or falls depending on economic conditions. Commodities can themselves be more volatile than shares! Inform yourself extensively before investing in commodities, and remember that your investment portfolio generally needs to be well diversified.
How can you invest in commodities?
There are different ways to invest in commodities. You can:
- buy shares from companies that process or sell commodities
- buy an ETF ( tracker fund) that follows a specific commodity. In other words, you buy a piece of an index.
- Investing in an investment fund with a commodity theme (wood, water, oil …)
Inflation only stimulates demand and the economy under certain conditions. This usually involves a mild (or healthy) inflation rate of around 2%.