One of the world’s oldest forms of investment is commodities. It is good practice for a long-term portfolio to consist of trading in commodities, even if it’s only a small percentage, because they remain relatively free from the chaos of individual stock shares. With the latest bull market approaching the 90-month mark, investors should consider whether they need to invest in something more tangible prior to the next bear market.
What does a commodity add to an investment portfolio?
The commodities market allows investors to put their money into something that is more likely to recover any lost value. A company can go out of business, but commodities like gold and silver will most likely always be in-demand. Commodities like water will most definitely, always be in demand. Therefore, investors know they can extract their wealth once the market recovers.
These are the top five performing commodities over 3 years.
US Coffee C
Arabica coffee has experienced modest growth rates of 15.29% this year, which should more than satisfy investors. A great reason to add US Coffee C commodity to a portfolio is the 30.30% gain over the last three years.
This represents a viable long-term investment, which is something many commodities have lacked in recent times.
London sugar represents a commodity of both long-term growth and short-term growth. During 2016 London sugar has seen growth rates of 27.95%, while its’ three-year growth rate has been 13.04%. The second of two best-performing long-term commodities has successfully produced an increase in value over the last three years.
Most investors will look at gold as a solid wealth protection strategy. This year silver has proven to outgrow gold in the precious metals sector of the commodities market. It has seen a magnificent growth rate of 34.68%. Unfortunately, its three-year performance has been disappointing, with a decline of 20.77%.
Investors shouldn’t see this as a long-term problem. Silver saw such great declines due to the recovery in the world economy. It’s less stable footing, when compared with gold, caused it to experience a larger decline.
Gold remains one of the best performing commodities, with a 2016 annual growth rate of 24.26%. Its three-year decline was much more manageable, with an annual decline of 5.63%. It looks set to recover from the past three year losses by the end of the year. Investors with money in gold seem to be in favor of leaving it in gold thus far, to experience the full benefits of a general recovery in the precious metals market.
Crude and Brent oils have seen modest recoveries. They have moved firmly into positive growth territory. Traditionally minded investors could consider heating oil as an alternative to Crude and Brent. The three-year performance of heating oil matches Crude and Brent, with a 52.76% decline. The recovery is much better however, with a 34.73% increase in the price to date.
The oil industry is steadily recovering, and has historically shown itself to be a conservative investment option.
The commodities market does come with significant swings. Investors should beware of using too much leverage when working with commodities. They are no different from any asset in regards to value; buying low and selling high is always the best strategy to implement. Consider investing in commodities if you’re looking to put your money into a more tangible asset. These five best performing commodities are forecast to remain in growth territory for at least the rest of the year, but as always, there is substantial uncertainty in the financial markets.