People have been debating which form of investing is more lucrative than the other for decades. One of the most popular debates is whether if commodities or stocks make a better investment. The answer to the question has many different factors, yet, what any investor can’t deny is that there are risks and benefits associated with both entities. The answer can also boil down to the type of investor that you are as an individual and not necessarily how much money people have made through them in the past. Identifying the good and bad will help you choose which investment is right for you and your own needs.
What Is Common Stock?
Common stock are shares representing a certain percentile value of a company. If you buy one share of common stock then you now own .00000000001% of the company or something like that. Essentially the more stock you have the more you own of a company. A company must be held public for it to have its shares traded in the stock exchange. With the help of their investor’s money, the company can raise the capital needed for them to grow.
What Are Commodities?
Commodities are either raw materials or agricultural goods that are bought and sold on an exchange. Commodities can be purchased through ETFs, which basically are stocks that track a commodity’s performance. Stocks are valued by a company’s financial performance, so if the company does well, then so does the stock. Commodities do not share common stock’s financial backing since commodities themselves don’t produce cash.
Benefits Of Both
Both stocks and commodities can be very lucrative if handled in the correct manner. Stocks have the potential to reach extraordinary prices if the company does very well over a long period of time. Even when trading daily or weekly, the stock will likely perform positively if the company is financially strong. In a similar way, commodities can reach high price points helping investors profit greatly off them.
Stocks and commodities are also very liquid, allowing investors to pull out their money if necessary. This level of freedom and profitability allows for a solid investment performance from both sides of the spectrum.
Negatives Of Both
As for the positives, there are plenty of negatives regarding both stocks and commodities. As I stated before, investors with a huge stake in a company usually have some rights as to how and who will be managing the company. Unfortunately, the same cannot be said for investors who buy smaller amounts of shares.Without the rights of the more fortunate investors, others are left without any clue as to how the company is being handled. This leaves some investors at a major disadvantage when they initially buy shares.
Now when it comes to commodities, the investor has absolutely no control over how well it will perform; regardless of the amount of money they put in. This not only puts them at a disadvantage, but their risk is now completely unimaginable. The high volatility of the commodity can wipe out your entire portfolio if you’re not careful. In this way, commodities can be less attractive for people than stocks since they have so much risk.
Practicality is imperative when it comes to investing. If you think that you understand stocks better than you do commodities then feel free to invest in them. But if you think commodities are your calling then don’t let anyone hold you back. There have been successful investors from both sides, each one having to dedicate themselves to mastering their own specific niche.