In this article, you’ll learn:
What commodities are
How investors can access commodities
What ETCs are and how they work
Why commodities may be used in a portfolio
Commodities are raw materials or natural resources that are traded throughout the global economy.
Common examples include:
Like shares or bonds, commodities are a separate asset class that investors can choose to include in a portfolio to increase diversification.
There are several ways to gain exposure to commodities. For many investors, one of the simplest options is through exchange-traded commodities (ETCs). ETCs are designed to track the price of a specific commodity.
ETCs allow investors to benefit from changes in commodity prices without needing to buy, transport, or store the physical asset themselves. They are traded on stock exchanges and can be bought and sold through a standard brokerage account, similar to ETFs.
Unlike ETFs, which usually track a basket of shares or bonds, ETCs typically focus on a single commodity.
In short: ETCs can offer a familiar and accessible way for investors to invest in commodities using a regular investment account.
Gold is a widely used commodity in investing, but buying and storing physical gold can be inconvenient and costly. A gold ETC can offer a more practical alternative.
A gold ETC tracks the price of gold and removes the need for personal storage. In many cases, the provider holds physical gold in secure vaults to help ensure the ETC reflects the price of the underlying commodity. This does not mean you own a specific gold bar, but it helps support the structure of the product.
Why include commodities in your portfolio?
Commodity prices are influenced by a range of factors, including:
Some of these factors differ from those affecting shares and bonds. As a result, commodities may behave differently from traditional asset classes.
Because of this, investors may use commodities to help diversify their portfolios, particularly during periods of market uncertainty. Commodities have also historically tended to rise alongside inflation, which is why some investors include them as part of an inflation-aware investment approach.
In short: commodities can help diversify a portfolio and provide potential protection against inflation.
Diversification and asset allocation may not fully protect you from market risk.
Commodity investments can be more volatile than traditional assets such as shares or bonds. Prices can rise and fall sharply, and returns are not guaranteed.
Capital at risk. The value of investments and the income from them can fall as well as rise and are not guaranteed.
Commodity ETCs can offer a structured way to invest in physical assets such as gold or oil. By providing exposure through the stock exchange, they can allow investors to access commodity markets without dealing with storage or logistics.
Commodities are a distinct asset class
ETCs provide exchange-traded access to commodities
They remove the need for physical storage
Commodity investments can be volatile and higher risk
Getting started with investing doesn t have to be complicated. With a clear plan and a long term perspective, even small steps can make a difference over time. Many investors begin with a few simple steps:
Consider what you want to achieve and how investing fits into your plans.
You'll need an investing account with an online investment platform, bank or provider.
A diversified portfolio may include equities, bonds and ETFs.
Investing gradually over time can help manage market fluctuations.