Investing can be a tricky game if you don’t know what you’re doing, but it can also be the best way to build true and lasting wealth. That being said, many people fail to achieve their financial goals or the level of financial freedom they long for because they fear investing. It’s true that the markets can be volatile, subject to inflation, and difficult to learn, but investing is still one of the most reliable ways of generating capital.
In recent years, cryptocurrency has burst onto the scene and completely disrupted traditional financial markets and now has become possibly the most popular investment option among millennials and Gen Zers. Even the old guard in the investing world has started to see crypto more like a type of commodity to be traded than the volatile new kid in the financial markets. So, this begs the question of whether it’s better to invest in digital assets or commodities like ounces of gold, barrels of oil, and other natural resources? Continue reading to get some tips that will help you make your next investment your best investment, whether it’s crypto or commodities.
What are commodities?
If you’re a newbie investor, the chances are that you’re not familiar with the term commodities as it relates to investment opportunities. Commodities are natural resources like oil, gas, precious metals, and even gemstones.
There are a few ways to invest in commodities, and those are to actually purchase the physical asset yourself, to invest in a commodities hedge fund, or trade futures contracts. There are benefits to all of those methods of investing in commodities, and which is best for you depends on your financial goals and current financial situation.
Most experienced investors will tell you that the safest way to invest in commodities is via a hedge fund or mutual fund, but speculating or trading futures is the one that offers the most potential for large capital gains. However, trading futures is complicated and can take a long time to learn. Of course, if you buy physical commodities, such as ounces of gold, you’re responsible for acquiring, storing, and protecting them.
Investing in a mutual fund that trades or invests in commodities is one of the best ways to diversify your investment portfolio. Mutual funds invest in packages, and one package may include a gold mining company like Alamos Gold and an oil company like Chevron, as well as investments in other natural resources—from bauxite to diamonds.
Investing in a commodities hedge or mutual fund presents other opportunities.
One of the great things about being part of a mutual fund is that you have an experienced fund manager who’s actively searching for every opportunity to grow the fund. In fact, sometimes a hedge fund or mutual funds also acts as a hard money lender.
A hard money loan is a type of loan option that’s typically offered by private investors and private lenders rather than traditional lenders and financial institutions. It’s called a hard money loan because an investment property is usually used as collateral or as the guarantor of the loan. The loan amount depends on the value of the property to be used as collateral.
The typical hard money lender puts higher interest rates on their loans, but it’s worth it for borrowers who have a low credit score or need funds instantly and know that they’ll have incoming funds to pay off the loan quickly. Hard money loans can be a great tools for house flippers, for example, because they expect to have incoming cash once the flip is successful.
As you can see, investing in a mutual fund that deals in commodities could open the door to other opportunities to generate capital. From investing to hard money lending, commodities present some amazing opportunities to build wealth.
What is cryptocurrency?
Cryptocurrency is a digital asset that was created over a decade ago with the goal of making it easier for peer-to-peer buying and selling online, especially internationally. Even though cryptocurrency is designed to be used for making online purchases, it’s become exponentially more popular as an investment option than as an actual digital currency.
One of the reasons digital currency has become so popular in the United States is the blockchain technology used to secure the currency and transactions made using digital currency. Once a purchase is made with crypto, it’s put on a public ledger that serves as the transaction history, and every computer in the blockchain can see the ledger. The security, transparency, and decentralization of money are the main things that have made digital assets so popular.
One of the main things that new investors tend to overlook when they invest in cryptocurrency is that they have to pay a crypto tax on their capital gains from trading digital assets. The last thing you want is the IRS coming for you because you’ve neglected to pay a crypto tax for your digital asset gains, but by using a crypto tax calculator, you can easily figure out what your tax liability is and keep track of it. You can find an easy-to-use cryptocurrency tax calculator on a free trial at cryptotaxcalculator.io.
Crypto or commodities?
Ultimately, whether you should invest in cryptocurrencies or commodities depends on your goals and your disposable income. If you’re a young person who’s merely getting your start in investing, becoming a crypto trader is the better option for you. Commodities are much more expensive to invest in and also present a higher risk.
Whether you decide to invest in stocks, bonds, commodities, or digital currency, the most important thing is to learn as much about the markets as possible. Of course, much of your learning will be through trial and error, but when you’re dealing with your hard-earned money, you want to keep the errors to a minimum.