Your Questions About How To Invest In Commodities

Lisa asks…

How to get involved in investing at a young age.?

Hi, i want to get involved in investing, such as trading stocks, commodities, etc. Problem is, i have no idea how to get involved. What do i need? how to research stocks, investing, and risk taking. And is there anyway i can learn how to invest wisely?

John answers:

Yes, go to yahoo finance and set up a practice account. This is a good way to learn.

Ken asks…

Who or what determines the price of grain?

Who or what determines the price of grain? When a farmer goes to sell his grain, what sets the buying price?

The commodities market? If so, can someone explain in simplified terms how this works? Are there other factors that influence the price?

Again, if so, is the cost of grain rising because people are investing more in commodities? Because it’s a safer investment in economic times like this?

I’ve been thinking about this and just wondering if my thoughts are correct. Is it part of the reason for our rising cost of food? I know that they say supply and demand and corn being diverted to ethanol production is one reason. I appreciate all who take the time to answer. Thanks very much.

John answers:

The price is set at the Commodities Market. This process in all honesty works on a simple supply/demand theory.

If there is great demand for grain and a limited supply, prices will rise. And vice-versa if demand is low and supply is high, prices will fall.

I believe the question that you are looking for is how the price of a product is discovered. That discovery process all comes from the amount of buyers and sellers if any product at any given moment in time.

I’ll give you a great example of this process. A County Fair. When you go to the fair there are dozens of vendors trying to get you to spend money on popping balloons or dunking a clown with a softball for a prize. There is always a posted sign that says what the initial price might be. Lets call it the “Opening Bid”. So the Bid to dunk the clown is $5.00. You tell the operator that price too high, I’m not paying for it. The operator then says, “Well hold up, how about $4.00?”. You then say, “Mmmmmm, Naw, that still too steep”. The operator then says, “Fine. My final bid is $2.50 to dunk the clown.” You decide that is a fair price. The moment you complete that transaction, the price to dunk the clown has gone from $5 to $2.50.

Now lets say everybody and their grandmother wants to dunk the clown (ie: demand). The price on the sign says $5.00, but there is a line around the block and although you offer the operator $5.00, they snub their nose at you because somebody else is offering $8.00. Unless you are willing to meet that price, you don’t get to dunk the clown. As such, demand has caused the market to increase the cost of the product/service.

This same example can be applied to the cost of grain. If 10,000 farmers are all looking to sell their grain and only 2,000 buyers want it, supply exceeds demand and the price will drop at the exchange in which both buyer and seller are doing business.

Ruth asks…

Advice on balancing Loan Payments vs Savings?

Currently after taxes and 401k deductions, I’m getting around a $3800 / mo. paycheck.

Currently about $1,300 of that is going toward paying off what is about 50k in student loans. At the rate I’m paying my loans should be paid off in about 4-4 1/2 years, paying around 6-7,000 in interest over that time.

After deducting the $1,300 and other expenses from my paycheck (rent, food, gas, etc…) I still have about $700-1100 of unspent money that I bank (into my checking).

I’m wondering if this money would be better spent either:

A) being used to further pay off my loans. This doesn’t leave much as far as saving money goes.

B) kept in my checking and saved, as an emergency fund or otherwise

C) partially invested in something (commodities, money market, stocks, etc…). This one it a little risky considering the economy…

If C), what are some recommended investment vehicles (I already put 12% of my paycheck into 401k, I’m 24 and figure this is a good time for me to bank money in at an economic downturn). Money Markets don’t earn much, and I really don’t know how comfortable I feel buying stock…
Emergency Fund:

The amount of this fund seems to vary from person to person. Some people say 3 months, someone said 8 months.

I could see 3 months, but anything more is very unrealistic for someone with my income. If I had to wait to save up 8 months worth of pay I’d never be able to invest in anything!

John answers:

From what I’ve read, student loan debt is considered “good” debt. If you pay on time, the history on the loan will have a positive effect on your credit score. Also, the interest on the student loan is far lower than on any other kind of loan. If I had the extra money each month, I would put it into an emergency savings account. Once you establish and reach your savings goal, then I would put any extra money towards student loan debt.

George asks…

What are the best things to invest in to make your portfolio recession proof?

Assuming there is an impending US recession in the next few years, how should I invest my money now so that I won’t be affected?

CDs, commodities and foreign markets?

John answers:

Do not worry too much about the next few years. Instead worry about the next few months. T-bills are very recession proof. In fact they are the most preferred of recession investments. Next would be long term governerment bonds, assuming the Fed cuts interest rates to zero again like they did in 2001. The Fed gets very upset about recessions. I do not know why. They actually serve a very useful purpose in shaking the deadwood out of the economy.

Long positions in equities do not do very well during recessions. Short positions do very well, especially in the high PE stocks.

There is an option available to you in the form of recession insurance on your equity portfolio. It is called purchasing puts on QQQQ. Very effective insurance. If the bottom drops out of equities, the puts will become worth very much more.

Michael asks…

How to quadruple my money in 10 days?

hey everyone. i know this sounds different? i guess haha, but i was wondering what kind of options i have; in terms of wanting to quadruple my $250 in 10 days or less.

advice on investing,what sorts of stocks. commodities,futures,precious metals..etc
im not a pro,iv done a bit of learning. tips and advice welcome.thanks

looking for serious input, thanks for your help

John answers:

Your best odds would be betting odd/even or red/black on a roulette wheel four times and let it all ride each time.

You will either make it if you are lucky in your choices or the misery will end quickly…it won’t take 10 days to do it either….

I am serious….there is no guaranteed stock investment to give you that kind of return in 10 days that has less risk.

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