Should you invest in commodities like oil and wheat?

Question

Rich Dad · Accepted Answer

Commodities are where the real world punches Wall Street in the face.
Let’s be clear: oil and wheat aren’t “investments” in the cozy, dividend-paying sense. They’re economic levers. Oil moves transportation, plastics, airlines, manufacturing — basically modern civilization. Wheat feeds nations. When inflation spikes, wars erupt, or supply chains crack (think 2022 energy crisis or the 2008 food crisis), commodities don’t politely rise 8%. They can jump 30–100% in a year. That’s not boring. That’s opportunity.
But here’s the catch: commodities don’t produce cash flow. Oil doesn’t send you a dividend. Wheat doesn’t compound. They’re price speculation assets. You’re betting on supply-demand imbalances. For example, if OPEC cuts production by 2 million barrels per day, oil can spike 15–25% quickly. If drought hits the U.S. Midwest, wheat futures surge. Traders made fortunes in 2022 riding energy volatility. But when supply stabilizes? Prices collapse just as fast. Oil went from $120 to under $70 in months.
So how should a smart wealth builder use them? Not as a retirement foundation — as a tactical hedge or asymmetric bet. If inflation is running at 6–8%, commodities often outperform because they are inflation. Ray Dalio allocates 5–10% to commodities in diversified portfolios for that reason. You can access them through ETFs like USO (oil) or WEAT (wheat), or broader funds like DBC. No need to trade futures unless you enjoy insomnia.
Here’s where I get bold: commodities are powerful when paired with productive assets. Own oil-producing companies (like Exxon) that generate cash flow and benefit from high prices. Or farmland REITs that earn rent and rise with crop prices. That’s stacking the odds. Direct commodity exposure alone? It’s a timing game. And timing markets consistently is a professional sport.
Counterpoint: yes, volatility is brutal. Commodities can swing 20% in a month. If you panic-sell, you lose. If you overallocate (say 40–50% of your portfolio), you’re gambling, not investing. Smart money treats commodities like chili pepper — powerful, but you don’t eat the whole jar.
My take? If you’re young, diversified, and understand macro cycles, allocate 5–15% max during inflationary or supply-constrained environments. Don’t marry commodities. Date them during chaos.
Commodities don’t build wealth — they protect and accelerate it when the world gets messy.

Poor Dad · Answer

If your investment keeps you up at night, it’s probably not the right one.
Commodities like oil and wheat are highly volatile and unpredictable. Unlike a stable company that earns profits year after year, commodities don’t generate income. Their value depends entirely on price swings driven by geopolitics, weather, and global demand. Remember oil in 2020? It briefly went negative — meaning sellers paid buyers to take it. That’s not normal investing; that’s extreme speculation.
Historically, long-term stock markets return about 7–10% annually over decades. Broad bond funds return 3–5%. Commodities, however, tend to move in cycles. You might see a 40% gain one year and a 30% loss the next. Over 20–30 years, commodities have not consistently outperformed diversified stock portfolios. That matters if you’re building retirement savings or planning for financial security.
There is also the issue of complexity. Many investors don’t realize commodity ETFs often use futures contracts, which can suffer from something called contango — where rolling contracts reduces returns over time. That means even if oil prices stay flat, your ETF might lose money. This isn’t simple buy-and-hold investing. It requires monitoring, understanding macroeconomics, and accepting sharp downturns.
That said, a small allocation — perhaps 5% of a well-diversified portfolio — can act as an inflation hedge. When inflation spikes above 5%, commodities sometimes rise as well. For example, during 2021–2022, energy prices surged while traditional bond portfolios struggled. In that context, limited exposure can reduce overall portfolio volatility.
But be careful not to chase headlines. If oil is on the news daily, prices may already reflect that excitement. Many retail investors buy after a 30% run-up and sell after a 20% drop. That’s how savings disappear. If your goal is steady wealth accumulation, focus first on retirement accounts, index funds, emergency savings covering 6–12 months of expenses, and manageable debt levels.
Commodities should be a minor satellite, not the core engine of your financial future.
Slow, steady investing in productive assets beats betting on the price of raw materials.

Should you invest in commodities like oil and wheat?

Rich Dad Says

Poor Dad Says

The Bottom Line

Whose advice would you follow?

Share this debate

What do you think? (0)

More debates