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

oranges.

 

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.