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Buying Copper Stock Isn't As Easy As It Looks
Buying Copper Stock Isn't As Easy As It Looks
Buying copper stock offers exposure to a metal crucial to the global economy, from power lines to the latest energy-efficient appliances.copper stock But this commodity isn't without risk, and its price can be volatile. It can also act as an inflation hedge, helping investors protect against rising prices for goods and services that could eat into their spending power. And, of course, many copper producers also throw off sizable dividends that can sweeten the deal.
The world needs a lot of copper.copper stock It's the third most consumed industrial metal after iron and aluminum, according to data from the U.S. Geological Survey. It's essential for a range of applications, including insulating electric wires and building electrical grids and renewable-energy plants. And, as the world electrifies and transitions to cleaner energy sources, demand is expected to rise considerably over the next several years. That should help boost profits for the top copper mining companies, and those earnings should give shareholders some solid returns.
However, because copper is a raw material, it's not as easy to invest in as stocks from technology companies or banks, for example.copper stock In addition to hefty shipping costs, the copper market is highly cyclical, making it a tough investment for many investors. The commodity's volatility stems from a variety of factors, from economic cycles to geopolitics and regulatory changes. But investors can reduce the risks associated with copper by investing in exchange-traded funds (ETFs) focused on the industry, which are more stable than individual mining companies and offer exposure to a broad sector.
In particular, investing in a copper ETF like the United States Copper Index Fund (NYSE: CPER) gives you access to a portfolio of miners with varying production volumes and geographical diversification, meaning that if one company stumbles, it won't drag down the entire fund. A buckshot approach to owning a handful of names might also be a smart way to reduce your risk, or you can invest in a fund that focuses on just the sector, such as Canada's Horizons Copper Producers Index ETF (TSX: COPP).
The best copper stock for you depends on a wide range of factors, from your overall investment goals and tolerance for risk to the current construction of your portfolio. In general, investment pros recommend that an allocation to commodities like copper not exceed 5% to 10% of your total assets. But, even within that percentage, gains and losses can follow each other quickly, so you'll need to be nimble on your feet if you want to maximize the chances of a successful investment.
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