Commodities For Dummies, 3rd Edition

Chapter 3

Investing in Commodities: Only for the Brave?

IN THIS CHAPTER

Understanding real versus imagined risks

Getting a grip on leverage

Navigating the risks of a global slowdown

Looking at tools to effectively manage risk

Commodities have a reputation for being a risky asset. Many investors are simply scared of investing in this asset class. This fear is largely unfounded because, statistically, there’s no greater risk in investing in commodities than there is in investing in stocks or in any other risk asset. To be sure, while the stigma surrounding commodities has certainly diminished over the years — mainly due to widespread adoption by both retail and institutional investors — this acceptance has come at the expense of another emerging asset class: cryptocurrencies. Indeed, cryptocurrencies seem to have replaced commodities as high risk, mainly due to the volatility and price action involved. Compared to cryptocurrencies, commodities now appear to be an old stalwart in investors’ portfolios.

That aside, investors have historically shunned commodities in favor of what they ...