Money Rehab with Nicole Lapin - Should You Invest in Commodities? Here’s the Tea (and the Oil and the Gold…)

Episode Date: March 7, 2025

Today, Nicole is going to tell you about the investment hiding in plain sight: commodities. To learn more investing strategies, order Nicole's new book The Money School HERE! All investing involves the risk of loss, including loss of principal. Brokerage services for US-listed, registered securities, options and bonds in a self-directed account are offered by Open to the Public Investing, member FINRA & SIPC. Public Investing offers a High-Yield Cash Account where funds from this account are automatically deposited into partner banks where they earn interest and are eligible for FDIC insurance; Public Investing is not a bank. Cryptocurrency trading services are offered by Bakkt Crypto Solutions, LLC (NMLS ID 1890144), which is licensed to engage in virtual currency business activity by the NYSDFS. Cryptocurrency is highly speculative, involves a high degree of risk, and has the potential for loss of the entire amount of an investment. Cryptocurrency holdings are not protected by the FDIC or SIPC. Treasury accounts offering 6 months T-Bills are offered by Jiko Securities, Inc.,member FINRA & SIPC. Securities in your account are protected up to $500,000. For details: www.sipc.org. Banking services and the Bank Accounts are provided by Jiko Bank, a division of Mid- Central National Bank. For U.S. Investments in T-bills: Not FDIC Insured; No Bank Guarantee; May Lose Value. Treasuries risk disclosures, see https://jiko.io/docs/treasuries_risk_disclosure.pdf. See public.com/#disclosures-main.

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This is a paid endorsement for public investing. Full disclosures and conditions can be found in the podcast description. I'm Nicole Lapin, the only financial expert. You don't need a dictionary to 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 with me when they said I'd be 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 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 financial crisis. Since then, oil prices have seen a roller coaster 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 walky, 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 effects ticket sales. If the Carnival, US economy, 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. Money Rehab is a production of Money News Network. I'm your host, Nicole Lapin.

Money Rehab's executive producer is Morgan Lavoie. 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, moneyrehab at moneynewsnetwork.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 at Money News and TikTok at Money News Network 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.