Top 5 Reasons Why Investing in Commodities may be Better than Real Estate

by 08 Aug 2012

Up until 2007, investing in real estate was almost always a safe and secure way to make money exponentially.  The formula was simple.  Find areas of growth, apply for a loan with a very low down payment, paying interest only or only a percentage of the interest, rent the property, refinance in a few years to pull cash out, and finally, sell after 5-10 years.  Fortunes were made this way and even people without access to large funds were able to invest in the real estate market.

After the collapse of the real estate market and the rapid decline in home prices, this type of investment is no longer viable.  Investing in real estate is a much more long term strategy for financial gain.  Whereas in the past you could've earned hundreds of thousands of dollars after a few years, this is no longer possible in most markets.

So for those who are looking to multiply their money and find profitable investments, is real estate still an option?  Or should they forget about real estate and focus on commodities?

Investing in Commodities has several advantages.  According to Bruce Babcock:

Many people have become very rich in the commodity markets. It is one of a few investment areas where an individual with limited capital can make extraordinary profits in a relatively short period of time. For example, Richard Dennis borrowed $1,600 and turned it into a $200 million fortune in about ten years.


The top 5 reasons why you should consider investing in commodities are:

1.  Large fortunes can be made very quickly.  As emerging markets grow, there is tremendous potential for an increase in profits.

2.  While the US continues to be in recession, as the US dollar falls, the price of commodities increases.

3.  If investors lose confidence in foreign currencies, they prefer to invest in commodities like gold

4.  There is an easier entry barrier, as you can start trading for a few thousand dollars and trade conservatively.  You do not have to invest thousands of dollars in the down payment, brokers fees, points, etc.

5.  With inflation, the price of commodities increases.  In other markets, the opposite tends to be true.  In the case of commodities, as costs of goods increase, price of commodities increases to keep up with demand.

So is it time to forget about investing in real estate and learn about investing in commodities?

Many argue that investing in real estate is a trend of the past.  But before you start thinking of investing in commodities, it's important for you to learn how to invest effectively or you can lose great sums of money - even more than you invested.

Commodities markets are very volatile, and you can risk losing money very quickly.  If you are not experienced and don't know the best times to buy or sell, or if you don't know how to predict trends and buy on the wrong side, you can lose money quickly.  There are stories of people losing millions of dollars within seconds of bad news reaching the globe.  You need to understand that this is the inherent risk of trading in commodities.  If you do the research, find the right platforms, and learn to trade effectively, you will have a much greater chance of staying on the winning side.

If you are weary of the volatility of investing in commodities, then perhaps putting your money in real estate may be the best choice for you.  Prices have dropped so low that many predict the market will trend significantly upwards soon.  Buying now can ensure that, over time, your investment can only increase.  The growth will probably be slow and nothing like the astronomical gains that some markets saw in the mid 2000's.  Yet you can rest assured that if you are willing to wait at least 10-15 years your money will yield decent gains.

So what should you keep in mind when deciding where to invest?

1.  How much of a risk taker are you?
2.  Are you willing to accept losing money?  Trading in commodities will almost definitely lead to losses.  The key is staying on the winning side over time.
3.  Are you willing to wait many years to see a return on your investment?

Once you determine what type of investment suits your personality best, then it's essential that you do your research and learn, learn, learn.  There are many opportunities available now in the real estate market with houses still foreclosing.

If you are a risk taker and see the potential in commodities trading, then investigate several platforms as commodities trading without the aid of a tool may prove too daunting and lead to loses.  Investigate carefully the different types of commodities and make sure you find a broker that can contribute his knowledge and help you find the right investments.  Broker commissions when investing in commodities tend to be much lower, which is another advantage to choosing this type of investment.

Sources:

http://www.rb-trading.com/begin1.html

http://howtotradecommodities.co.uk/

http://www.gold-eagle.com/gold_digest/Aurophile426.html

Author Bio:  Marcela De Vivo is a freelance writer from Los Angeles focusing on real estate, social media, and technology.  Even though she is a licensed realtor, she enjoys blogging and writes about SEO and social media at MarcelaDeVivo.com

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