Weekly Q&A: Investors Ask, Clement Answers #8

This week, Clement answers questions about unusual commodities, is it worth buying only 1-2 shares, and are options trading a good starting point for beginners.

Commodities can be very unusual.

I remember first looking into commodities, expecting to find things like Gold, Silver, Copper, and mainly metals. But I was wrong.

Those metals are indeed traded on exchanges, but there are much more interesting, quirky commodities.

For example:
On the CME, you can trade Lean Hogs Futures (pork). Each contract is for 40,000 pounds of lean hogs, and is settled in cash.

The ICE has Frozen Orange Juice Futures. Each contract is for 15,000 pounds of frozen OJ, and has a physical delivery (meaning you could actually get the commodity delivered!)

There are also futures for Live Cattle, Feeder Cattle, Sugar, Oats, Wheat, Rough Rice…and many more.

Investing.com has real-time future prices available here, for more info: Commodities Futures Prices - Investing.com

I’d be very careful with options trading, as it as more appropriate for investors with more advanced knowledge and skills, and usually works best as part of an overarching strategy.

The best way to start is to master stocks. To understand how they move, why they move, what makes them move, and succeeding in making a profit.

Then, you can incorporate options for more elaborate strategies, but again, this requires a lot of knowledge and is not suitable for beginners.

I don’t think you should try to run before you’re able to walk properly, and jumping into options without an underlying understanding of the stock market is, in my opinion, a surefire way to lose money.

Take it slow, find your footing with stocks, and move on to options if you are still interested. There is no prize for getting ahead of yourself, the prize is nice returns - which you’ll be able to make only if you know what you are doing.

That’s a good question.

I’m always saying that you don’t need much to start investing, but is one or two shares enough?

Well, stock picking when you only have access to one or two stocks is extremely risky business. You can’t diversify, you can’t average in, and you are missing out on a lot of potential entry/exit/management strategies that would open up with a little more money.

If you have $2-3K to invest, honestly, your best risk/return option, in my opinion, would be a low fee S&P 500 index fund. Do as the market does, with general market risk. For even more diversification, you could go for the Total Stock Market Index, which includes small caps as well.

You could, of course, decide to go with a few shares of a specific company you believe will do well. It’s not optimal, but the decision is yours to make.

In any case, investing is always worth it, and compound interest works on $100 as well as it works on $10000. Decide how much risk you are willing to take on, how much you believe in the individual stock you are considering, make a decision, and go for it.

If you have questions of your own you’d like Clement to answer, please leave them in the comments below or send them directly to Clement via Twitter - @ClemThibault.