Commodities: God’s Securities

     The oldest way of investing is through buying commodities. Humans have been bartering commodities for thousands of years. The first commodity exchange created in America was formed in 1848 in Chicago. So how can you get involved with commodity trading? Before we see how you can get involved, we first must know what commodities are.

     What is a commodity? They’re simple goods used in commerce that can be used to make things or exchange things for other commodities. There are two different types of commodities:  Hard commodities and soft commodities.

     Hard commodities are raw materials taken or extracted from the earth. These commodities are gold, silver, oil, uranium, and more. These commodities are traded more frequently due to how durable they are and how long you can hold onto them before they expire, if they do.

     Then you've got soft commodities. This type of commodity is grown for human use/consumption. They are coffee, sugar, cattle, and more. But keep in mind, these are the rawest form.  So you wouldn't trade beef.   It would be cattle instead.

There are even subcategories too. You have energies, livestock, metals, and agriculture. These are how you're going to divide your commodities.

     Energies are traditional fuel sources we use every day. They’ll be coal, crude oil, gasoline, etc. Energy commodities are going to be the butter to your bread.

Livestock commodities are things that we eat and use that come from animals. They'll be leather, meat, animal fat, and more. These are important to know, but you're not going to be any livestock-commodity trading.

     Metal commodities are simply metals we use and surround ourselves with every day. These’ll be silver, copper, gold, and so on. Metal commodities are going to be your bread. If you do some commodity trading, chances are it’s going to be with metal commodities.

Agricultural commodities are grown for human use or consumption. These’ll be cotton, sugar, coffee, and much more. You might do some agricultural trading, but not that much compared to energy and metal commodity trading.

     Condensing what we know, most if not all the commodity trading we do will be with hard commodities. Then to condense even further, it's going to be with energies but more importantly metal commodities. For more specifics, most trading we do will be crude oil, gold, silver, and a few others that are easy to trade and manage. So you may be wondering how are commodities traded? Let me get into that.

     It’s the exchange of assets, normally futures contracts, which are based on the price of the commodity that’s being traded. A futures commodity contract works like this: You agree to buy 25 grams of gold for $1,000 in 60 days. But you don't transfer physical goods.  Instead you would then immediately take a different position in the market and sell that 25 grams of gold for the new market price. But this is an extremely volatile way of trading. So let me recommend what we’ve discussed in prior discussions:  Your BFF and your friend from the past, ETFs and stocks.

     There are commodity stocks and ETFs that allow you to invest in commodities without getting your hands dirty. Let's get into commodity stock.

With commodity stock, you do not buy commodities, but you're buying a piece of a company that's involved in commodities. So you would buy a few shares of Newmont Corp., due to their involvement, exploration, and production of gold. You’ve then got commodity ETFs.

If you have seen some of my media, you know I am a sucker for ETFs.  ETFs are the best way to invest.  Even when it comes to commodity ETFs, they are the simplest and easiest ways to invest in commodities.  You can either invest in ETFs whose holdings are commodity companies, or you can invest in ETFs that deal with commodities directly. Doing either of these would allow you to be invested in commodities and keep a diverse portfolio.

     So with all of this information and a few questions answered, there is one last question. Why did I call “commodities” God’s securities? It's based on something Author Robert Kiyosaki the guy who wrote Rich Dad Poor Dad said about gold. He called Gold “God’s Money.” The reason he called it God's money is because gold was here before humans, and it will be here when we’re gone. But when you think about it, doesn't that apply to almost every commodity? So why not call them “God’s securities”?  Because they were here before us, and chances are they’ll be around when we’re gone.