Top 5 ways to invest in stocks and commodities

Investing in commodities is not for the faint hearts. What makes it the best is that in each commodity basket you stick with the best stocks. There is no doubt that commodities have been challenging the investors for years.
Commodities are famous for taking the investors towards rapid ascents and devastating falls. The biggest attraction of the commodity is the rapid rise that gives hope of making more money from the rising prices to the investors. However, the prices can change overnight. It is important for the investor to invest in the companies that can survive in this market even after the sudden drops. Here we have the 5 top ways of investing in stock and commodities.

1-Own physical commodities

The best ways to invest in a commodity is to invest in the physical goods. In this way, you will have the direct exposure to the increase or decrease of the rates. You will have the authority to sell the commodity when you want and convert the goods into cash.
There are some logistical challenges that you have to deal with while buying physical commodities.

• When you buy metallic good, you can easily find a dealer but with a slight markup.
• You cannot take the possessions of 1,000 barrels of petroleum or metric ton of copper
  This is the cause owning physical goods only work in specific conditions with certain commodities.

2-Future Contracts

With future contracts, you will be exposed to the changing price of the assets without taking the possession. In this deal, you will agree to sell or buy a certain amount of commodity in future and the price can fluctuate according to market conditions.

• If the price falls the seller takes the benefit
• On the rise of price, the buyer will earn the profit
  The only drawback of future contracts is that you have to deal with extensive leverage. You will only invest thousands of dollars if you have the guarantee that future contract will provide you a benefit of over $100,000. In case you are planning to invest in the entire contract and not investing some money then you should be prepared to deal with the risks. Dealing with the future contracts, you have to give specific authorization from the brokers. You might have to hire a new broker if your present broker does not provide the facility.

3-Commodity ETFs

The exchange traded funds in which you can invest in physical commodities like natural resources, agricultural goods and precious metals. The investors are comfortable with the exchanges traded funds. The advantage of ETFs is that will provide you exposure to many other commodities,

• Most of the funds have a huge amount of physical commodity along their assets
• The theoretical amount of commodity is related to each share of ETF
• You will get an indirect interest in the shares and you cannot claim the physical commodity
• Most of the ETF are future contracts and not physical goods.
• The performance of commodity ETF is mixed
• Ensure that you are satisfied with the commodity and how the ETF works before making an investment

4-Own stocks connected with Commodities

One of the best ways to invest in commodities is through the shares of companies that will be advantageous when the price increases. Gas, oil and mining exploration companies have direct exposure to affiliated businesses and commodities rates. When the underlying commodities are showing a good performance the oilfield service companies and heavy equipment manufacturers, tend to do well.

The individual stocks come with the risk of company related issues due to the independent nature of commodity rates. Many stocks offer return of capital or dividends to the shareholders. The incentives will have a positive effect as compared to owning physical goods that do not produce any positive cash flow.
It is lucrative to invest in the commodities and you have to ensure that you are doing it the right way. Many investors earn more profit from direct investments in the goods and others know the skills to earn a decent amount from the stocks commodities.

5-Energy commodity

The rates of oil has been flat since the past decade and it is dangerous sign for the investors. Most of the gas and oil producers are threatened because the triple digit price of commodity has ended. Now the investors are not interested in drilling more wells because the demand is reducing. On the other hand, electricity and energy producing commodities are gaining the attention of the investors. As the utilization and cost of energy is, increasing most of the investors are ready to invest in such companies. They give the highest returns for the investment in this sector.

Bottom line

Investing in stocks and commodities is completely different from investing in real estate and gold. When you invest in the commodities, you have to deal with the physical goods. The management of physical good takes efforts and that is why commodities will take you to the triple digit price within days.