Because commodities deal with different prices and the futures market, they can be confusing. While not everyone is interested in investing in this type of market, it is still good to understand them. Review the boxes below to learn about the risks and rewards of commodities.
Risks
High risk – Commodities are high risk due to the fluctuation of prices and changes in consumer demand.
Rewards
Diversification – Commodities tend to provide returns that differ from stocks and bonds. A commodity's value grows during economic uncertainty.
Commodities may not be for you, so remember that you still have many other investing options available such as stocks, bonds, mutual funds, and real estate.
To practice what you just learned, help Abdi with his financial decision about commodities.
Question
Abdi wants to invest in commodities. He has done some research and believes they would be a good choice. What advice would you give him about investing in commodities?
Commodities are high risk and more suitable for people who understand the futures market. While they are good for diversification because they differ from stocks and bonds, it still may be better to invest in other options such as bonds, mutual funds, or stocks.
