← Money Rehab with Nicole Lapin
Money Rehab with Nicole Lapin
Should You Invest in Commodities? Here’s the Tea (and the Oil and the Gold…)
00:10:05
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- [00:00]
Nicole Lapin
You have probably heard me call myself the Fee Police because I hate, hate, hate fees. It makes it really hard to stay on budget, which then can delay our financial progress. When we're trying to make progress, life's curveballs often feel like taking one step forward and two steps back. A Chime checking account makes financial progress easier with features like no maintenance fees and fee free overdraft up to 200 bucks or getting paid up to two days early with direct deposit. Learn more at chime.commnn when you go to chime.commnn you' see all the reasons I love Chime. Like did you hear me say that Chime allows you to overdraft up to $200 with no fees? Chime also has no monthly fees or maintenance fees and chime has over 50,000 fee free ATMs. So as the fee Police myself, I approve make progress toward a better financial future with Chime. Open your account in just 2 minutes@chime.com MNN that's chime.com MNN as in money News Network. Chime feels like progress. Banking services and debit card provided by The Bancorp Bank NA or Stride Bank NA members FDIC SpotMe eligibility requirements and overdraft limits apply. Boosts are available to eligible tribe members enrolled in Spot Me and are subject to monthly limits. Timing depends on submission of payment file. Fees apply at out of network ATMs. So I just used NerdWallet's card finder tool to find a better credit card for me and listeners. This is genius. All you have to do is answer a few questions and in minutes you'll get matched with recommendations tailored to you. Some of these cards weren't even on my radar, but had the exact perks that I am looking to double down on. The best part, no research needed. The nerds already did that for us. So if you, like me, want to easily find the right card for you, head over to nerdwallet.com to get matched today. Disclaimer terms and conditions apply. Credit products subject to lender approval. See nerdwallet.com for details.
- [01:53]
Morgan Lavoy
Foreign I'm Nicole Lapin, the only financial expert you don't need a dictionary to.
- [01:59]
Nicole Lapin
Understand it's time for some money rehab. So my fifth book, the Money School, launched this week. Yay. And if you've listened to Monday's episode, my latest book is all about proven investing strategies to help you grow wealth. And so to celebrate this week, I'm sharing some of those investing strategies here on the pod. Today, we're actually Starting where I started with commodities. My very first gig in financial reporting was from the pit at the Chicago Mercantile Exchange where commodities like coffee, oil, gold, and even frozen concentrated orange juice are traded. And yes, I thought they were messing.
- [02:44]
Morgan Lavoy
With me when they said I'd be.
- [02:46]
Nicole Lapin
Working at the stock exchange that sold orange juice. Apparently they were not. Fun times. The most relevant commodity of your portfolio will likely be gold. But with everybody talking about egg prices like they're the new Bitcoin, it's a pretty good time to become well versed in commodities as an asset class. So, coffee, oil, gold, OJ eggs. What is the through line here? A commodity is something that you can touch that can be easily exchanged one for another or for cash. And oddly, on brand, with this egg thing, commodities come in two flavors, hard and soft. Soft commodities include anything that has to be grown or harvested. So think soybeans, cotton, cattle, and yes, for the last time, I promise, eggs. Hard commodities are resources extracted from the earth, like palladium, silver, platinum, gold, crude oil, natural gas. So what the heck does this mean for you? Well, you don't have to be working on the floor of the Merc to invest in commodities. Commodities have long been a popular investment for people looking to diversify their portfolios beyond traditional stocks and bonds. I mentioned gold earlier, so let's double click on that. Gold has often been seen as a safe haven asset, especially during times of economic uncertainty. From 1971, when the US left the gold standard, to today, gold has delivered an average annual return of about 7.8%, according to data from the World Gold Council. In the words of J.P. morgan, Gold is money and nothing else. When people are stressed about the future, they flock to gold. Plus, gold historically has been a good hedge against inflation. In finance, hedges are all about protecting yourself against future losses, like a strategic form of insurance. However, gold's performance is highly cyclical, often surging during economic downturns and stagnating or declining in periods of growth. So while it's not constant, it's is predictable. But not all commodities are like that. Commodities like oil and agricultural products typically have significant price swings, which can mean big gains but also big losses. Oil specifically has been one of the most volatile commodities. Historical returns on crude oil have been all over the place, largely due to geopolitical tensions, supply demand dynamics and technological changes in energy production. Between 2000 and 2008, for example, crude oil prices skyrocketed by nearly 600% before crashing during the global global financial crisis. Since then, oil prices have seen a rollercoaster of highs and lows which have been perpetuated by world events like the pandemic and the war in the Middle East. A lot of factors impact the price of oil, which is globally traded in US dollars. So fluctuations in the value of the US dollar can also directly impact oil prices. It's a little wonky, but imagine the global oil market as an international carnival where all the rides and games are priced in tickets US dollars. Now imagine people from different countries come to this carnival with their own currencies and they need to exchange them for tickets dollars at the entrance. When the US dollar is strong, it's like the ticket booth is raising its prices. People from other countries find that their currency buys them fewer tickets dollars, making the rides and the games oil more expensive for them. As a result, they might decide to spend less and go on fewer rides. Conversely, when the US dollar is weak, it's like the ticket booth is offering a discount. Now people from other countries get more tickets dollars for their currency, making the rides and games oil cheaper. They might decide to enjoy more rides since they can afford more. The strength of the US economy affects the dollar, like the reputation of the carnival affects ticket sales. If the carnival is seen as exciting and well managed, more people want to come and demand for the tickets dollars increases, making them more valuable. But if the carnival seems poorly managed or uninteresting, fewer people come and the value of the tickets dollars may decrease. Also, as a side note here, even if you don't end up investing in oil or commodities, following geopolitical happenings never hurts. And one of the big players to keep your eye on is OPEC or the Organization of Petroleum Exporting Countries, which is made up of oil producing countries like Saudi Arabia, Iran, Iraq, Kuwait and Venezuela. Since they control basically all of the world's oil supply, their moves can lead to a decrease in the global oil supply, potentially driving up oil prices. Higher oil prices can lead to increased costs for transportation and manufacturing, impacting various industries and consumer prices. Conversely, lower oil prices can reduce costs for businesses and consumers. Predictable and stable policies from OPEC can contribute to market stability, while unexpected changes or conflicts within OPEC can cause the market to go cuckoo bananas. That is not a financial linguist term, by the way. So despite the somewhat volatile nature of commodities, you'll notice that a lot of MVP investors keep them in their portfolios. If you heard Tuesday's episode, you might have clocked that Ray Dalio's now famous All Weather Portfolio calls for 7.5% gold and 7.5% in other commodities. But let's just state the obvious here. How the heck do you invest in commodities? Clearly, not everyone is buying gold bars and oil drums. But there are other options. One option is to invest in companies that produce or sell commodities, like mining firms or oil producers. This gives you indirect exposure while still benefiting from commodity price movements. Exxon, for example, is an oil and gas company, both commodities. American Waterworks, a publicly traded utility company, is another example. But you know what I'm going to say about this? Stock picking can be risky. If you're investing in individual commodity based companies, you need to understand both the company and the industry. Exxon isn't just about oil. They've got a history of oil spills and refinery explosions. And if your all weather portfolio is holding 7% of a stock that's tanking, well, that's not so. All weather. So a popular route is to invest in commodity focused ETFs or mutual funds, which provide exposure without the hassle of storage and security. You could also look into commodity futures contracts, but those are also pretty complex and risky, so they're generally better suited for experienced traders. And there you have it. That's the quick and dirty masterclass on commodities. If you want to know more, you know where to find it. My new book, the Money School. For today's tip, you can take straight to the bank. If you have any nice jewelry that's been appraised for insurance, take a moment to check when that appraisal was done. If it was done more than five years ago, it might be time for an update. The price of gold has risen dramatically and you might be underinsured here, so consider getting another appraisal. Trust me, after all the hell I've gone through, losing my home in the LA fires, you can never ever have too many appraisals.
- [09:36]
Morgan Lavoy
Foreign Rehab is a production of Money News Network. I'm your host, Nicole Lapin. Money Rehab's executive producer is Morgan Lavoy. Our researcher is Emily Holmes. Do you need some Money Rehab? And let's be honest, we all do. So email us your money questions moneyrehaboneynewsnetwork.com to potentially have your questions answered on the show or even have a one on one intervention with me. And follow us on Instagram @moneynews and TikTok MoneyNewsNetwork for exclusive video content. And lastly, thank you. No, seriously, thank you. Thank you for listening and for investing in yourself, which is the most important investment you can make.