When someone asks you how you plan to get rich you likely answer with investing. But I bet when you said investing, you meant through the use of stocks and bonds. What if I told you there was much more potential in natural resources?
Natural resources are extremely volatile, but that’s not necessarily a bad thing. When stocks fall and inflation starts creeping in, natural resource prices tend to go up. It’s a negative correlation that can work in our favor.
They provide a great hedge against the upcoming inflation we’re bound to experience and actually help you earn a buck or 2. I know what you’re thinking. I’m talking about commodities and Bitcoin can be considered 1 as well, but let’s ignore that in this post. We’re going to be focusing on natural resources.
What Are Natural Resources?
Before I dive in, it’s important to understand what natural resources actually are. They are naturally occurring substances that we use. They exist without any action from us. They’re just there, like water or oil.
Some examples of natural resources include oil, gems, precious metals, lumber and water. There are many more, but you get the general idea.
Each category can be broken even further to include different forms of oil or different types of gems, like diamonds or rubies.
Why Am I Suddenly Interested in Natural Resources?
You’re probably wondering, why am I suddenly talking about natural resources? I’m always writing about crypto or index funds. Well, yes, I love both of those things, but I wanted to find an alternative investment that would help me diversify further.
I have a plan with my stocks and my crypto. I’m holding my stocks forever and my crypto I’ll take profits when we get closer to the bear market to buy back in when the price drops. But I wanted more protection for my stock portfolio against upcoming inflation.
Whether inflation is coming or not, the fear is there for people and it’s effecting my stocks. That’s a reality I was hit in the face with the past few weeks.
After doing some research, I found Marin Katusa’s Blog and found it so interesting. His insight into the natural resource field was so in depth and inspiring which really got me hooked. I definitely recommend downloading his free book to get a better idea of the market.
What Type of Natural Resources Should You Invest in?
I’ve already mentioned the many different categories of natural resources, but which ones should you really focus on? Well, according to the pros at Sciencing, the top resources include:
- Water
- Oil
- Forests
- Iron
- Coal
These resources are considered the top and I would probably start here. Start learning all you can about 1 or 2 of these and then branch out from there if you want. I’ve been starting my research into water and crude oil.
Why Invest In Natural Resources?
As I’ve mentioned earlier, this is another way of diversifying your portfolio and mitigating overall risk. When inflation of the fear of inflation starts to kick in, you’ll have added protection. Our Tesla stocks will fall, but our natural resource stocks will start to rise. You’ll barely feel the damage.
An interesting note to consider is that as our economy starts to open, our need for natural resources will start to increase. We need lots of lumber, natural gas and metals to start building again. I’m not saying these will go up, but it’s not a bad sign to look into.
Why You Shouldn’t Invest in Natural Resources
It’s a risky investment. Natural resources are extremely cyclical investments. At one point they’re up over 100%, then within months they fall 80%. Blink once and it’s back up 50%. You need to really understand the market and be prepared to sell as quickly as you bought.
But it’s important to carefully think about what resources to start in, if that’s what you’re interested in doing. Be prepared to wait to see some returns. Just like the prices can fluctuate within months, it could potentially take over a year to see any moves as well.
Final Thoughts
Natural resources are a great new addition to any portfolio. I’m not only using it as a hedge against inflation, but also as another means of increasing my net worth. There is a lot of opportunity out there with natural resources.
