Oil & Commodities
Oil Returns vs S&P
-11.10%
Versus S&P
•
6 hours ago
-11.10%
Versus S&P
•
6 hours ago
6m High
6m Low
Crude Oil
$15.88
$11.91
S&P 500
60.26
46.10
Crude Oil
S&P 500
Does not follow the stock market
Sources: Invesco DB Oil Fund, SPX
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Highlights
Good For
Hedge inflation + add diversification
Time Horizon
Varies from short-term to long-term depending on how you invest
Earnings from
Price appreciation + value appreciation + futures profits
Diversification
Environmentally Friendly
Commodities market prices have a high negative correlation with the stock market, as documented over the past 140 years. It's been noted that the two markets tend to alternate in price leadership in cycles spanning 29 to 32 years. However, commodity prices generally do not track a long-term upward trajectory like, say, the S&P 500 does. Over a nearly 50-year period from 1970 to early 2021, commodity prices rose only a bit and saw dramatic spikes and drops throughout that time.
Did you Know
Commodity prices tend to move together through what are called 'super cycles,' which are bull or bear market periods that tend to last 15 to 20 years.
In 2021, the S&P GSCI (a benchmark for commodities investing) outperformed the S&P 500 for the first time in a decade, surging 35% compared to the S&P 500's 23%.
Coffee had a standout performance among commodities in 2021, surging 84%, while crude oil rose 40% and copper increased by 21%.
Considerations
Helps diversify your portfolio
Can offer inflation protection
Has the potential to outperform other asset classes
Reasons to Invest
Potential for extreme volatility
Exposure to foreign and emerging markets, which can further increase risk
Can involve futures contracts, adding speculative risk
Drawbacks
How You’re Taxed
Income Tax
Capital Gains
How you're taxed on commodities depends on how you invest in them. Commodity ETFs have special tax rules, with the exact impacts depending on the legal structure of the ETF and whether it's a futures-contracts or physical commodity ETF. You can expect to receive a Schedule K-1 or a Form 1099 from the ETF issuer each year detailing your tax reporting obligations. Meanwhile, gold and other precious metals are categorized by the IRS as collectibles, which are taxed at the long-term capital gains tax rate of 28% when held for over a year. This includes precious metals ETFs.