3 Ways to Invest in Commodities Funds should i buy xbox live gold

Compared with stocks and bonds, tradable raw materials don’t get much respect. But experts say commodities should make up a small percentage of a portfolio because these assets behave differently from equities or fixed income, making them a good diversification tool.

But buying and storing natural gas or cattle isn’t exactly practical for most investors. And trading futures contracts directly is a complicated world and mainly the purview of sophisticated hedge funds or trading shops.

So mutual funds or exchange-traded funds have become popular ways for average investors to get exposure to the natural resources that are staples of everyday life, such as oil or agricultural products.

The most easily accessible and convenient way for investors to own commodities are through funds, says christian magoon, founder and CEO of amplify etfs.Should i buy xbox live gold

his company just launched amplify yieldshares oil-hedged MLP income ETF ( AMLX).

But not all exchange-traded funds are created equal, and each has its benefits and drawbacks. Some etfs buy shares of commodities producers while others buy futures contracts or buy and store the commodity itself. Because some commodities etfs may require filing an additional tax form, consult a tax expert before adding these investments to a portfolio.

Equities. Funds that own commodities producers, such as the vaneck vectors gold miners ETF ( GDX) or the flexshares morningstar global upstream natural resources index fund ( GUNR), have racked up billions in market capitalization.

A key advantage to owning the equities, if you hold them long enough, is that the gains can be taxed under long-term capital gains rules, says jay jacobs, director of research with global X management co.Should i buy xbox live gold but with futures trading, a portion of the gains are taxed under the higher short-term capital gains tax.

Jacobs gives the example of a theoretical silver miner, whose operating costs run to $15 per ounce of silver produced. If silver trades at $15, the miner makes no money. If the price goes to $16, the miner makes $1. But if the price jumps to $17, the miner’s profit has doubled even though silver didn’t appreciate anywhere near 100 percent.

But leverage is a two-way street. That can work against you too if you find yourself in a bear market, says jacobs, whose company runs several commodities etfs including the global X silver miners ETF ( SIL).

The disadvantage of investing in commodities through equities is that investor sentiment can have a bigger influence on how the commodities companies trade than the value of their underlying commodities, magoon says.Should i buy xbox live gold

Futures contracts. Funds such as the united states oil fund ( USO) or the powershares DB commodity index tracking fund ( DBC) that invest in futures offer more direct exposure to commodities than those investing in company shares. Futures contracts are agreements to buy or sell commodities at a fixed price in the future.

Also, many of these funds don’t have much flexibility over which futures contracts they can own, magoon says. Because futures contracts expire, this often means the fund must sell the contract that is closest to its settlement date and buy one further out that is more expensive.

Compared with stocks and bonds, tradable raw materials don’t get much respect. But experts say commodities should make up a small percentage of a portfolio because these assets behave differently from equities or fixed income, making them a good diversification tool.Should i buy xbox live gold

But buying and storing natural gas or cattle isn’t exactly practical for most investors. And trading futures contracts directly is a complicated world and mainly the purview of sophisticated hedge funds or trading shops.

So mutual funds or exchange-traded funds have become popular ways for average investors to get exposure to the natural resources that are staples of everyday life, such as oil or agricultural products.

The most easily accessible and convenient way for investors to own commodities are through funds, says christian magoon, founder and CEO of amplify etfs. His company just launched amplify yieldshares oil-hedged MLP income ETF ( AMLX).

But not all exchange-traded funds are created equal, and each has its benefits and drawbacks. Some etfs buy shares of commodities producers while others buy futures contracts or buy and store the commodity itself.Should i buy xbox live gold because some commodities etfs may require filing an additional tax form, consult a tax expert before adding these investments to a portfolio.

Equities. Funds that own commodities producers, such as the vaneck vectors gold miners ETF ( GDX) or the flexshares morningstar global upstream natural resources index fund ( GUNR), have racked up billions in market capitalization.

A key advantage to owning the equities, if you hold them long enough, is that the gains can be taxed under long-term capital gains rules, says jay jacobs, director of research with global X management co. But with futures trading, a portion of the gains are taxed under the higher short-term capital gains tax.

Jacobs gives the example of a theoretical silver miner, whose operating costs run to $15 per ounce of silver produced.Should i buy xbox live gold if silver trades at $15, the miner makes no money. If the price goes to $16, the miner makes $1. But if the price jumps to $17, the miner’s profit has doubled even though silver didn’t appreciate anywhere near 100 percent.

But leverage is a two-way street. That can work against you too if you find yourself in a bear market, says jacobs, whose company runs several commodities etfs including the global X silver miners ETF ( SIL).

The disadvantage of investing in commodities through equities is that investor sentiment can have a bigger influence on how the commodities companies trade than the value of their underlying commodities, magoon says.

Futures contracts. Funds such as the united states oil fund ( USO) or the powershares DB commodity index tracking fund ( DBC) that invest in futures offer more direct exposure to commodities than those investing in company shares.Should i buy xbox live gold futures contracts are agreements to buy or sell commodities at a fixed price in the future.

Also, many of these funds don’t have much flexibility over which futures contracts they can own, magoon says. Because futures contracts expire, this often means the fund must sell the contract that is closest to its settlement date and buy one further out that is more expensive.