Keyword: risks of investing in commodities for beginners
When I first started dabbling in commodities, I thought I had it all figured out. Buy gold when times are bad, oil when the economy picks up, and maybe throw in some agriculture for fun. Easy, right?
Well… not exactly.
Investing in commodities taught me some hard lessons — and if you’re just starting out, I’m here to help you avoid some of the mistakes I made. Let’s talk about the risks of investing in commodities for beginners, from someone who has been there, Googled that, and lost a little money learning.
Why I Got Into Commodities in the First Place
Before we jump into the risks, here’s a bit of context. I started investing in commodities because I wanted to diversify my portfolio. Stocks and bonds felt a little too vanilla. I kept reading articles that said commodities were a “hedge against inflation,” and with prices rising everywhere, it made sense to me.
So I dipped into some commodity ETFs — GLD (for gold), USO (for oil), and DBC (a mix of several). That’s when I realized commodities aren’t just another asset class. They come with **unique risks** that most beginners (myself included) overlook.
Risk 1: Volatility Is Wild
Let’s start with the obvious: commodity prices swing like crazy.
I bought into USO (a crude oil ETF) thinking I’d catch a nice trend upward. A week later, oil prices dropped by 10% due to some OPEC drama and unexpected inventory numbers. My portfolio took a hit — fast.
Why it happens:
Commodities are driven by real-world events:
Weather (hurricanes can shut down oil production)
Geopolitics (wars, sanctions, OPEC decisions)
Economic indicators (interest rates, inflation, unemployment)
Supply chain issues
These events can cause huge price swings in a matter of days — or even hours. As a beginner, this was jarring. I wasn’t used to waking up and seeing a 7% drop overnight.
Lesson: Only invest money in commodities that you can afford to see fluctuate — or even lose in the short term.
Risk 2: Futures Are Complicated (and Risky)
Most commodity ETFs don’t own the actual physical commodities. Instead, they use futures contracts — agreements to buy or sell a commodity at a set price in the future.
When I first heard about this, I thought, *Cool, sounds advanced but manageable. I was wrong.
The problem with futures:
hey expire, so ETFs must “roll” into new contracts, which can cause losses.
The market can be in contango (future prices higher than current), meaning ETFs lose money just by rolling over.
If you try trading futures yourself (like I did in a demo account), the leverage can be dangerous. A small move against you can wipe out your position.
I once made the mistake of holding a futures-heavy ETF during a rollover period. The oil price barely moved — but the ETF value dropped due to roll costs.
Lesson: Understand the mechanics of futures before diving in. They’re not beginner-friendly and can behave in surprising ways.
Risk 3: Commodities Don’t Generate Income
This one hit me after a few months: commodities don’t pay dividends or interest.
I was used to getting quarterly dividends from my stock investments, but my shiny gold ETF (GLD)? Nothing. Just silence.
Commodities are purely price-based investments. You’re relying entirely on appreciation. If the price stays flat, your money just sits there doing nothing. In inflationary times, that can actually mean you’re losing purchasing power.
Lesson: Commodities can be a good hedge or diversification tool, but they’re not income-generating. Keep that in mind when balancing your portfolio.
Risk 4: Timing Matters More Than You Think
With stocks, you can buy and hold for years, and things usually trend up. Commodities? Not so much. They move in cycles, and timing matters a lot more than I expected.
I once bought into a natural gas ETF after reading about a cold winter forecast. What I didn’t realize: the price had already baked in those expectations. A warmer-than-expected December hit, and prices tanked. I was left holding a position that looked promising on paper but fell fast.
Commodity timing is influenced by:
Seasonality (think crops or heating fuel in winter)
Short-term supply shocks
Sentiment/speculation
Lesson: Do your homework and be cautious. What seems like an “obvious” play might already be priced in.
Risk 5: ETFs Can Behave Differently Than the Underlying Commodity
Here’s one that surprised me the most. I thought buying a gold ETF meant I was tracking gold 1:1. Turns out, not exactly.
Commodity ETFs — especially ones based on futures — often don’t move in sync with spot prices. Why? Because of things like:
Roll yield (positive or negative depending on futures market conditions)
Management fees
Tracking errors
For example, during one stretch when gold prices were going up, my GLD ETF was barely moving. That’s when I learned about tracking differences and fund structure.
Lesson: Always read the fund’s fact sheet and understand what exactly it tracks — and how.
Risk 6: Tax Complications
I won’t pretend to be a tax expert (I have TurboTax for that), but I learned that some commodity ETFs — especially those structured as limited partnerships — can trigger complicated tax forms like K-1s.
Some funds are taxed differently depending on whether they hold futures, physical commodities, or are structured as grantor trusts. It’s enough to make your head spin during tax season.
Lesson: Check the fund’s structure before buying. If you’re not ready to deal with K-1 forms or unique tax rules, stick to simpler ETFs like GLD or SLV.
Risk 7: Emotion-Based Mistakes Are Easier to Make
Because of how volatile commodities are, I found myself more emotionally reactive. Watching oil prices drop 5% in a single day made me want to sell out of fear. That’s not great investing behavior.
I had to learn how to zoom out and view commodities as part of a long-term strategy — not a quick trade.
Lesson: Don’t let emotions drive your decisions. If you’re going to invest in commodities, prepare yourself mentally for the rollercoaster.
So, Are Commodities Still Worth It?
Absolutely — but with caution.
Commodities can play an important role in diversifying a portfolio, especially during inflationary or uncertain economic periods. But the risks of investing in commodities for beginners are real — and often underappreciated.
Here’s my advice:
Start small
Try broad-based ETFs like DBC or GSG that spread the risk across multiple commodities.
Learn before you leap
Understand what drives commodity prices, how futures work, and what each ETF actually holds.
Treat it as a supplement, not the core
Commodities are a powerful hedge — not a substitute for a solid portfolio of stocks and bonds.
Final Thoughts
I still invest in commodities — but I do it with my eyes wide open now. I know they can be unpredictable, messy, and emotionally challenging. But they also offer opportunities that other assets don’t.
If you’re a beginner, I hope my journey helps you navigate the wild world of commodities a little more smoothly. Don’t be afraid to start — just take your time, learn the ropes, and always know your risk tolerance.
Next Article To Read: How Commodities Helped Me Diversify My Investment Portfolio