How to Build Wealth With a Commodity ETF

Many of the most experience and successful investors in the world, like Jim Rogers, say commodities will probably be the highest performing investment sectors in the years ahead, and investors should consider taking a portion of their investment funds and putting it in them.

1 Before describing a commodity etf, you need to understand what a commodity is. A commodity is a raw material like gold, corn, silver or copper. Other things are sold as commodities, but the foundation is raw materials, and that's what should be focused on in these times anyway.

2 Next, there needs to be an understanding of demand and supply. Commodity prices over the long term are completely defined and determined by the demand for a particular commodity, and how much of that demand can be supplied. It's that simple and direct.

3 So what is a commodity ETF? It's an investment vehicle used to track individual commodities or a basket of commodities. A basket of commodities means when you add more than one commodity together.

Some commodity ETFs are made to track a single commodity, while others are made to track a variety of different one. You need to know which one does what before you invest.

4 One of the benefits of investing in a commodity ETF is there is no more risk than the original capital you invest.

With commodity futures, you could lose more than your original money depending on the performance of the specific commodity prices because you're leveraging your capital when you
buy a future.

5 Investing in a commodity is a pure price play. This makes it simple, as I mentioned above, because prices over the long term are determined only by supply and demand.

So all you've got to do is keep up on the events or circumstances that may have an effect on the price, and make any investing decisions accordingly.

6 When a commodity ETF invests in futures, there is money left over because of leverage, so what that does is allow the ETF to invest in what is usually an interest-bearing government bond, where expenses are defrayed and which dividends could also be paid out.

Some of the expenses could be storage costs of a commodity and trading expenses.

Because a commodity ETF is a tracking vehicle, there aren't that many times a manager will make trades, so that cuts down on expenses.

7 Unless you have a lot of experience and knowledge of a certain commodity and its supply and demand, it would be better to start off with a commodity broker when you invest.

But even so, it's good to keep abreast of the commodity sector you invest in so you can ask intelligent questions and have an understanding of the answers given you.

8 So there you have it, a great way to build wealth through commodities in a way that lowers your risk, and has a lot of upside.

It all comes down to knowing the commodity you're going to invest in, what the supply and demand is for that commodity, and choosing the particular ETF that tracks the commodity.