Investing in Commodities – A Good Idea for Any Portfolio

Commodities are fungible goods that are traded based on their material value, with things like branding, manufacturing quality, etc. taking a back seat. Typical commodities are resources such as crude oil, natural gas, or precious metals, which are seen as fungible because the buyer doesn't usually care where the oil was extracted or who mined the iron they're buying.

It should be noted, however, that commodities do not always equal unprocessed resources. For example, generic pharmaceuticals, base chemicals, or industrial steel are all manufactured from base resources, but they are still considered to be highly fungible.

So, for example, iron may be seen as a commodity since it doesn't matter to the steel producer where the iron comes from. The steel producer then turns the iron into steel, which is also considered to be a commodity since it doesn't matter to the car manufacturer where the steel comes from. But the cars made with steel are no longer fungible, as consumers are willing to pay very different prices for one brand or type of car compared to another.

Historically, highly fungible goods and resources have been seen as an ideal investment option when inflation was high or the dollar was weak. That's because demand tends to rise under such circumstances, which increases commodity prices. You can often buy these goods cheap when the economy is strong, then sell them at an increased price during a recession.

Investors should always aim for diversification since portfolios that aren't diversified enough are always at risk of losing money. This is where commodity-based investment strategies come in; by buying commodities or investing in commodity-trading mutual funds, ETFs, or hedge funds, you can ensure you gain returns on your investment even during an economic slump.

Investing in fungible goods can be used as a hedging strategy for portfolios otherwise heavily dependent on the economy doing well.

Note, however, that while demand for commodities has consistently been high, prices can vary significantly due to geopolitical events. One well-known example is the market price of crude oil, which directly depends on the political and economic situation in oil-producing countries. Because of this, commodities are considered to be relatively volatile investments.

If you're looking to diversify your portfolio and legally qualify as an accredited investor, CARL can provide you with access to quantitative hedge funds that specialize in commodity trading. These offer the same benefits as standard hedge funds (high returns and hedging strategies against inherent risks), with a twist.

Since quants use digital market modeling to make investment decisions, they are known to perform exceedingly well in volatile market environments. That's because the computer simulation can anticipate many market fluctuations, depending on the quality of the data it has been fed. This, in turn, means that quants can negate some of the typical volatility of the commodities market – and in some cases, they can even use it to the advantage of their investors by reacting to minuscule changes quicker than any human hedge fund manager ever could. This may allow a quant to make numerous micro-trades resulting in a significant combined profit for the fund and its investors.

The CARL app provides you with access to such commodity-based quants while also giving you the tools you need to take full advantage of them, from historical performance analyses to real-time portfolio overviews. Set up a CARL account today and optimize your investments on the commodities market today.