There are more ways to invest than simply buying and selling stocks, exchange-traded funds (ETFs), or bonds. Many investors prefer to invest in physical assets, like commodities such as metals.
One popular metal to invest in is copper. Copper is used in many modern electronics, including semiconductors and wiring. It plays a major role in multiple industries, including home construction and vehicle production.
Copper, iron, aluminum, and similar metals are often called industrial metals due to their common industrial uses. Other, more rare metals, with higher economic value and fewer industrial uses, like gold and silver, are called precious metals.
Copper also tends to be less expensive than other metals, like silver or gold, making it appealing to investors who are worried about trading in other metals due to their high prices.
How To Invest in Copper in 3 Steps
To start investing in copper, you’ll need to follow these steps:
Decide How You’ll Invest
There are many ways that investors can start investing in copper. You can purchase physical copper, though this option comes with the complications of transportation and storage.
Perhaps the simplest option is investing in copper ETFs. These funds aim to move in tandem with copper prices, giving investors an easy way to get exposure to the metal.
Another possibility is to trade derivatives, such as copper futures or options. These give investors the opportunity to profit from their predictions about copper’s price movements without having to deal with the actual physical metal.
A third way to get exposure to copper is through investing in mining businesses that extract copper from the Earth. This isn’t a pure copper investment, as you’re also betting on the success of that specific company. If copper underperforms but that company exceeds expectations, you may still profit. On the other hand, investing in a mismanaged company could lead to losses, even if copper prices boom.
Open an Account
Once you’ve determined your plan for investing in copper, you’ll want to open a brokerage account. Which broker you want to work with will depend on how you plan to invest.
If you’re planning to invest in copper ETFs or mining companies, most brokers should be able to support that. If you’re going to rely on derivatives, there are brokers that specialize in those.
Whichever option you choose, pay close attention to the fees each broker charges. You’ll probably want to choose the one that has the lowest costs for the trading you plan to do.
If you’re buying physical copper, you’ll have to find a source to purchase the copper from. You’ll also need a plan for storage. Some people choose to store their metals at home, while others work with large storage facilities.
Submit a Buy Order
Once you’ve opened an account, you’re ready to start buying copper. You can submit a purchase order to buy the stock, ETF, or derivative of your choice, adding copper exposure to your portfolio.
What You Need To Know Before You Invest in Copper
Before you invest in copper, it’s important to understand the factors that influence copper’s value.
Like almost everything, supply and demand are the primary factors that affect the longer-term value of copper. Lower supply and higher demand boost prices while high supply and low demand reduce them. In some cases, businesses or countries will stockpile copper. This allows them to dip into reserves if supply falls or demand rises temporarily, smoothing out price volatility.
Copper is primarily an industrial metal, unlike precious metals such as gold. That means that demand for copper is driven by things like home construction, manufacturing, and electronics production. When economies are strong, demand for copper tends to increase; weakening economies suppress the price of the metal.
Recent sustainability initiatives also have driven increases in the price of copper, thanks to its increased use in electric vehicles and renewable energy.
Understand the Risks of Investing in Copper
Like all investing, investing in copper isn’t without risks.
If you invest in copper ETFs, you’re facing the risk that copper prices may fall or hold steady, preventing you from realizing a profit. Investing in copper mining businesses gives you exposure to the businesses in addition to copper as a metal, adding more risk of exposure to mismanagement or other problems at the company you invest in.
If you choose to invest using options or derivatives, you may face yet different risks. Some derivatives involve potentially infinite risk. Investors must be aware of how much risk they’re accepting when using derivatives that involve high amounts of leverage, or debt.
If you invest in physical copper, you’ll need to keep the metal safe and protected. It can be damaged by weather conditions or improper storage and could be lost or stolen.
Pros and Cons of Investing in Copper
Multiple ways to invest
Lower price than many other metals
Industrial uses give it value
Price is correlated with the strength of the economy
Investing in copper miners does not give pure exposure to the metal
- Multiple ways to invest: Investors can get exposure to copper by holding the physical metal, buying shares in the mining business and ETFs, or trading derivatives.
- Lower price than many other metals: Copper tends to be cheaper than other metals, including gold and silver.
- Industrial uses: Unlike other popular metals, such as gold and silver, copper has industrial uses, which some argue gives it a higher intrinsic value.
- Price is correlated with the strength of the economy: People investing in metals as a hedge against poor market performance may want to choose another option, as copper’s value is often correlated to economic performance and it’s seen as a market bellwether.
- Investing in copper miners does not give pure exposure to the metal: One of the easiest ways to invest in copper, buying shares in mining businesses, also exposes you to additional risks.
What To Watch Out for After You Invest in Copper
Once you invest in copper, it’s important to pay attention to your portfolio’s performance.
All investing is subject to risk and most investments are volatile. They may lose value before they gain value. But it’s in your best interest to pay attention to your portfolio and the market to see if it’s time to adjust your investment strategy.
You may want to adjust your plans and invest in copper in a different way or opt to sell your copper investments and invest in something else. However, if you sell your investment for a profit, be ready to pay capital gains taxes.
Should I Invest in Copper?
When you invest, you need to be aware of the risk that you’re taking.
Copper’s price can fluctuate significantly over short periods, so you have to be willing to accept large swings in your portfolio’s value.
Investors who are interested in starting to trade commodities like metals may be interested in copper. Those who prefer a set-it-and-forget-it approach will likely want to stick to index mutual funds and other, more passive, investments.
Frequently Asked Questions (FAQs)
How can beginners invest in copper?
Beginners can invest in copper by buying shares in copper ETFs. These make it easy for these new investors to get exposure to the asset without having to handle the physical metal.
Do I need a lot of money to invest in copper?
Copper is one of the cheaper metals that is commonly traded. That means that investors can get started without needing a lot of money to invest.
What is the best way to invest in copper?
There are many different ways to invest in copper, each with pros and cons. The simplest is likely buying shares in copper ETFs. Derivatives give you access to leverage related to this metal, and buying shares in mining companies may let you earn dividends and benefit from good corporate management. Which mode of investing is best for you will depend on your preferences and investing goals.