Why You Should Invest in Precious Metals

Nobody want’s to have to work forever. The most common way people avoid this is through retirement plans from working with big companies or taking out policies with a personal investor. The problem with both of these is that you can never really know where your money is or what’s being done with it exactly. Sure you’ll get the odd quarterly report, but chances are you aren’t following the stocks diligently, heck chances are you don’t know much about the markets your money is being invested in. So your left sitting relatively clueless about what’s going on.

Well there is another way. Looking past the complexities of bundled stock and non-government bond options there rests the commodity markets. These are the markets you should be looking at investing in and understanding. They don’t require a degree, just some understanding of fundamentals and a good instinct.

Imagine you have 100 thousand dollars, that’s right 100k. If you were to invest that in the stock market, you’d hope for maybe 7.5% returns per year. So at the end of the year you’d make a whopping 7.5k, not quite understanding how you got there. Now let’s say you put that same money in gold for a day you’d be looking at a return of -10% to +30% per year. Now you may be thinking, what -10%, I don’t want to lose 10k dollars in a year. The reality is that gold and other commodities are day traded and paper traded. This means that they are traded everyday at high’s and lows and that they are traded using “paper”, meaning not the physical stock itself. The latter is just a practical point, because physically moving 100k dollars of gold would be quite a mission.

Now let’s look at the math using an easier commodity to price, Sunflower Oil, on July 17, 2018 you could buy/sell Sunflower Oil at $765 ex Rotterdam, on July 18, 2018 you could buy/sell Sunflower Oil at $770 ex Rotterdam. So let’s take that 100k and invest it here, saying you bought what you could afford, so 130 metric tonnes on the 17th. Now you sell the paper of ownership for this Sunflower Oil at the market on the 18th at a profit of 5 dollars per metric tonne, which is $650. If you took that $650 out and just reinvested the 100k twelve times like that, you’d make $7,800, $300 more than a full year of investing in a market you don’t understand.

The high gains exist in another market, the housing market. Returns admittedly can be over 50% which from a money making strategy is nice. Issues arise from having to put in physical hours and deal with taking a lot of liquidity risk in investing in property. Here is another selling point on the commodity market, the investments you make here is almost as liquid as cash, because commodities are always in demand. Companies will always need precious metals like gold for jewelry and electronic wiring, and people will always need things like Sunflower Oil to cook with.

In summary investing in commodities is a far more viable option than other conventional investments. It is high yielding, and when managed correctly are extremely easy to manage risk for. Outside of both of these the markets are very liquid and most importantly they are easy to understand where they get value from.

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