Portfolio diversification forms the cornerstone of long-term financial growth. Commodity investments provide a great way for you to preserve your wealth and also often make great profits off of, if and only if you can appropriately time your investments. Alternative investment opportunities like those in commodities are one of the major reasons why I personally recommend a lot of my clients to take up SDIRAs.
Investing in Gold, Silver, and Teak
The thing with commodities like Gold, Silver and recently Teak, is that they offer a cushion against any market volatility that exists in financial markets. These goods enjoy a privileged status that is not afforded to any other financial instrument owing to the historical value attached and the fact that these are drivers of inflation and deflation throughout entire market systems. Oil, in particular, can drive up costs for producers that are reflected across the entire economy, gold prices are generally indicative of the performance of the US economy which can foretell a lot of significant economic eventualities.
The Economic Significance of Commodities
Try thinking of commodity markets as the substitute investment instrument for securities, stocks, and bonds. In the larger scheme of things, all the corporations listed in financial markets are subjected to the swings in the larger economy. A falling stocks and securities market speaks volumes about the performances of the companies in the market; it implies that there is a fall in the profitability of the market. The response of investors in the market is usually to jump ship because no one wants to risk their finances on a market that might potentially crash and this magnifies the overall effect of the fall.
One major reason for a fall in the profitability of the corporations is the role of inflation itself. As part of a rudimentary economic analysis, rising inflation also implies a rising cost of production. This initial shock in prices could stem from the global oil markets, which are subjected to a global oil market and lie out of the control of any one individual. As the costs of production rise, companies experience a fall in revenues and ultimately their profits.
With this fall in revenues, the overall financial integrity of the system is compromised. There are fewer funds available to continue operations, provide wages and this can snowball into a fully fledged financial crisis. At least that’s the calculation that goes through an investor’s head.
In this entire process, commodities can show up in two different ways; these being:
The Root of Inflation Itself Lies in Certain Commodities
The situation described above relies on one factor, that of rising oil prices. This is just one example of how commodities can sometimes be the ultimate deciders of the general economic and financial environment. These are basic goods that serve either as the raw material used in the production of further services and products; like oil or cotton, or they serve as consumption necessities in the economy; like wheat. Any fluctuations in these markets are reflected in the performance of the financial market. These goods can be considered as the basis of many economic fluctuations.
Substitute for Financial Instruments
Commodity markets tend to work in the opposite direction to financial markets. When the financial markets start to lose points, you always find that commodity markets start to rise. In this scenario, many investors hope to make a quick profit by moving in early and then offloading later when the prices are high enough. Then there’s also the other advantage of storing their wealth in a market for goods that are usually rather stable. The commodities market actually serves as a way to make quick profits while also helping store the value of your wealth by siphoning it out of crashing markets.
Why Should You invest in Gold and Silver?
Commodity markets help people diversify their portfolios across commodities that are not related to each other at all. So diversification within financial markets themselves can be quite a task. However, when you go with two different markets it’s a much safer bet. Especially since commodity markets behave opposite to the stock market. It can serve as a way to shore up your losses in financial markets with the gains you get from commodity markets.
In addition to this, there are some advantages specific to investing in precious metals like gold and silver:
Hedging Against Inflation
As a matter of economic fact, the price of gold and silver rise, as the standard of living rises within a specific area. One reason for inflation is the rise in living standards because it stimulates demand within the economy. The price of gold has historically increased owing to the rise in living standards across the world. Investing in gold can help you keep pace with the inflation that has been characteristic of the global economic regime.
Protection From Deflation
Gold also maintains its values in times when the dollar loses its purchasing power. During a time of deflation, most other commodities lose their values, while gold and silver have never been seen to follow the same patterns.
This is an advantage of trading in commodities more than anything else really; you can trade these anywhere in the world to your advantage if you can work the logistics out.
The Rising Popularity of Teak
In recent years, teak has begun presenting immense financial value to investors. According to the consultancy giant McKinsey, a large part of the global demand for teak is going to emerge from developing countries like India and China. Considering that each of these countries makes up a significant portion of global demand for any commodity, it’s very likely that teak prices will soar throughout the world.
Countries like Panama, Nicaragua and Sri Lanka are encouraging investments in teak to the degree of offering nationalities to investors. Given this expected boom in the near future, teak presents a very valuable alternative investment option to many people.
If you want to learn more about Teak as an alternative investment check out this excellent webinar presentation by clicking here.
ABOUT THE AUTHOR:
Mikkel Thorup is the host of The Expat Money Show podcast and the author of #1 Best-Selling book Expat Secrets on Amazon. He has spent nearly 20 years in continual travel around the world, visiting more than 100 countries including Colombia, North Korea, Zimbabwe, and Iran.
His goal is to help Expats like you to generate additional streams of income, eliminate your tax bill, and take advantage of offshore structures so you can travel the world freely and never have to worry about money again. For more information on his legal (but creative) tax strategies for Expats watch this free video.