MONEY GAME TIP OF THE DAY: Commodities Offer Very Poor Real Returns


Today’s tip comes to us from Pragmatic Capitalism, and it’s pretty simple. As tempting as it is to jump into commodities, in the inflation-adjusted long term they have been a poor investment.

Societe General analysis of the commodities market shows that it has under performed treasuries, 10 year bonds, corporate bonds, and the S&P 500 over the last 130 years.

Here’s why:

  • They are not productive assets.
  • Commodities have no cash flow, so if you want to turn a profit, you have to hope that you can sell it to someone else at a higher price in the future.
  • Its hard to analyse their current/future worth.
  • You’re betting against human ingenuity — i.e. betting against the idea that humans will improve a commodity (by say, lowering its cost) or something more efficient to replace it.

Put these things together and commodities end up sounding like a short-term speculative bet, not an investment. Just keep that in mind.