What is a Commodity?
The definition of a commodity is a raw material or
agricultural product that can be bought and sold. A few
of the most well-known commodities are gold, silver, oil,
coffee, sugar, and copper. Commodities are
interchangeable. They have the same value no matter
who produced or discovered them. For example, if you
and your neighbor both grow and produce 10,000
oranges, each orange has the same value as the other
What do commodities have to do with personal finance? Well...Not really all that much. They are
used in investment portfolios to provide diversification (spreading money around to different assets to reduce risk) and a hedge on inflation(Commodities usually rise with inflation). A simple example is to buy gold and silver coins. Many investors purchase coins to reduce the risk of inflation on their investment portfolio and to protect against a drop in the value of the local currency.