Commodity ETFs: A Beginner's Guide for Diversified Investing

A commodities ETF is a unique investment tool. A commodity ETF allows you to speculate in the commodities market through a more diversified investment vehicle. Here are the basics of how the average person should use commodity ETF's.

Commodity ETF's

The term ETF stands for Exchange Traded Fund, which means that you can trade your shares of the fund on the stock exchange. A commodity ETF is one that invests solely in commodities. It may be made up of thousands of shares in commodity companies and several futures contracts. However, you are buying into a highly diversified portfolio of commodity assets. This presents you with a much safer option to get involved in commodities than simply buying futures contracts.

Investment Considerations

While commodity ETF's are a little safer than dealing directly in a commodity market, you will still want to use some caution. Commodity ETFs should be utilized as a portion of a much bigger, diversified portfolio. Many investors may feel tempted to make this the majority of their investment portfolio. However, the best approach is to invest in many different types of investments with the commodity ETF being one of them.