Should You Buy These 3 Alternative Investments?
When people think "investments," they usually think of stocks and bonds, but these two options are just the tip of the iceberg. There are many alternative investments in the marketplace just waiting for investors to snap them up. However, some of these investments are obscure for a reason: They're a bad choice for all but a very small subset of investors.
In investment terms, a commodity is a raw material that's either used in its current form or as a component to build something else. Gold is the best-known and most popular as an investment, but many others exist, ranging from pork bellies to crude oil. There are three basic ways to invest in a commodity: buy a contract on the futures exchange, buy the commodity itself (e.g., physical gold bullion), or buy shares of an exchange-traded fund (ETF) or mutual fund that invests in the commodity, either directly or indirectly.
For the typical investor, the last option is the best and most practical one. Commodity mutual funds and ETFs are available through most brokers, and because they typically buy shares in several different companies that represent that commodity, you get a bit more diversification. Futures contracts are insanely risky: You are promising to buy a certain commodity at a certain price at some point in the future, which means you could easily lose your shirt if you guess wrong about where the commodity's price will go. And while buying the commodity directly may be an option in some cases (for example, companies like Bullion Vault allow you to buy as little as a gram of gold at a time and will store the gold for you in secure vaults), in most cases, it doesn't make much sense. You probably don't want to buy barrels and barrels of crude oil and hang on to them in the hopes of price increase. That sort of operation is best left to organizations that can handle the transportation, storage, security, and so on.
Source: Fool.com
