Live brilliantly, Won't You?

Improve Your Financial Education: Starting With Commodities

Commodities, they’re a strange area of investing. Why? Well because they don’t produce income like a stock. A stocks dividend (or retained profits) explains its positive expected returns and growth for investors. Commodities on the other hand, just sit there when held by an investor. Paradoxically, when an investor invests in a commodity – they take it OUT of the economy rather than putting it to use. Economists and Financial Regulators strongly dislike the speculation in the commodities markets at the moment. The individual action of an investor is sensible and moderate, but when done en mass, it can have very undesired consequences.

But at the same time while this regulatory debate regarding commodities is ongoing, most retail investors don’t even understand how to invest in commodities. Why? Well it’s because the typical retail saver and investor does not actively seek financial advice, and when they do, it’s from salespeople, not advisors (See Note 6: Six Rules). These salespeople usually don’t sell complicated investment strategies including commodities, and if they do, it’s part of a massive packaged fund that effectively takes the investor right out of the picture.

So what’s the solution? Well, more articles like the one above by Financial Expert would certainly help. But the average investor wouldn’t actually seek it out. The answer is therefore proactivity on behalf of institutions that actually have investor education at the heart of what they do. A good example is MoneyAdviceService (Used to be MoneyMadeClear), originally launched in the UK by the FSA, and now under the authority of a separate education body. This is a website that prides itself on doing no selling, and simply providing investors with the facts. A bit of impartiality will no doubt go a long way with retail investors used only to the loaded sales talk by branch staff or life insurance cold callers.

On reflection, commodities are probably an avenue that should only be explored once an investor has broken through that threshold of needing advice spoonfed to them. Once they begin to proactively seek for investment ideas and traditional principles, they’ll find the information about commodities that they need. It’s probably best not to rush such things.

Leave a Reply

Powered by WordPress | Maintained By Simon Oates