Why We Love Commodities
You may have heard a lot about inflation lately. If you need a good primer, head over to our article about what inflation is (and how to beat it).
Simply put, inflation is when the cost of stuff goes up. Many assets, like stocks and bonds, can struggle or lose value during times of high inflation. So how do you balance out your portfolio when stocks and bonds could both go down, and inflation could eat away at cash sitting in your bank account?
This is why OnlyFunds puts some commodities into every account. Commodities is just the financial word for a raw material that you can buy and sell. It's the "stuff" that goes into making all the goods we buy. Think of inputs like oil and gas, metals, and agricultural goods - everything from copper to coffee.
What we've seen since the pandemic is the price of all this stuff going up. While people were at home in lockdowns they switched their spending from services (like vacations and hair salons) to goods (like home exercise equipment that everyone tried to order and then use twice before giving up). This made companies want to make more of the goods, which they need commodities to make. And so the price of commodities went up.
At the same time, covid shut down some factories producing the commodities. Aluminum making plant shut down? Price of aluminum goes up for Coke cans. Someone gets covid on the oil rig? Gas gets more expensive. And so the price of commodities went up even more.
And this didn't all go back to normal after the pandemic either. The supply chains that deliver all these commodities around the world got snarled up too, and the world is still in the process of untangling them, so just getting stuff from one place to another adds to the price. On top of that Russia's invasion of Ukraine sent the price of more commodities skyrocketing, since both Ukraine and Russia produce a lot of them. Oil, gas, wheat, and copper were all affected.
On top of that, China, a producer of many of these commodities, is trying to keep covid to a minimum with strict lockdowns. They have been shutting down factories and mines and other places that produce and ship these commodities even today. All this together means we've seen some pretty wild increases in the prices of commodities.
All of this can weigh on the rest of a portfolio. So what can you invest in when the price of stuff keeps going up? Well, why not own the stuff itself. Price of oil going up means some of the companies in your portfolio may lose money? Own oil. Price of wheat going up meaning food-producing companies will lose some profit? Own wheat. Owning a big basket of commodities tends to help offset the negative effects of inflation.
As an added bonus, what OnlyFunds invests in is even better than just owning a basket of commodities. The fund we use buys and sells commodities at different times based on momentum - the idea that if the price of a certain commodity is going up or down now, it might go up or down in the future. Using a complex algorithm, the fund makes even better use of the money in that basket.
You can take advantage of this and other OnlyFunds investing tricks without lifting a finger - after Opening an Account that is.