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Commodity Mutual Funds

If you are a beginning investor, you might be interested in investing in commodities. Commodity mutual funds are a type of investment vehicle that is attracting many new investors. Commodities are portions of investment portfolios, such as gold, silver, wheat, oil and so forth. Each portion, or unit, of a commodity is the same value as the next unit of the same commodity. For instance commodities of Texas crude oil will be the same for every person investing, and a portion, or commodity of gold will have the same value as the next portion of gold. You can trade your commodity on a spot market for cash, if you want to, or you can trade it for some other type of commodity on a futures market.

Commodities have to be standardized, which means their value per unit must be the same as the next unit. Only certain things can be classified as commodities. For instance, jewelry cannot be classified as a commodity, because jewels are unique and have different worth. However, oil and wheat can be classified as commodities, because one barrel of oil will have the same value as the next barrel of oil from the same source. If you were to invest in foreign oil and domestic oil, you may pay different prices for a unit of each commodity, even though there isn't much difference in the two types of oil. The difference in value would have something to do with market price for each commodity.

Commodity mutual funds are a safer way to invest in the stock market. You can invest as little as $500 if you want to into commodity mutual funds through an investment company. By investing in commodities, you are assuming less risk, than if you were to invest into a single stock. However, commodity mutual funds are also very attractive investments to retail investors, also known as private investors. If you have an abundance of capital to risk, you could possibly become a millionaire in a fairly short amount of time. There are a few well known retail investors who put up huge amounts of money and became instant millionaires. It is more likely that you would not ever hit the jackpot on a one time investment, but it could happen if you were to become a private investor in commodity mutual funds.

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Definition of the Day Diversification

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