Commodities are goods like gold, silver, oil, gas, wheat, corn, etc.

Many, such as gold, have been used traditionally in investing in “flight to safety/quality” situations, where nervous investors shift their investments (or a piece) from “riskier” to “safer” assets as a hedge versus some broader markets or to diversify their overall portfolio from broad market risk.

Despite that most of these common commodities have some sort of “intrinsic” value, many market values are still highly speculative and far beyond any price implied by the “intrinsic” value.

Let’s look a bit more at some real world data points for a common commodity — Gold.

The market dictates the price (as it does for most tradable investments), but the total supply of gold in the world isn’t an exact science (and what about the all gold we haven’t found/mined yet). Thus, estimates of the market cap, or the value of all the gold in the world (or what about space) is based on an estimate of the supply, which is still a bit subjective today.

Based on one estimate, the market cap of gold right now is about $6.4T.

Since gold is a very old investment class, we also have a lot of historical data to get an idea of what kind of price history/returns & volatility we’ve seen in the past and how perceived risk/return tradeoffs would have panned out in various situations and timeframes.

As we can see in this chart of historical prices, gold has spanned from about $200 — $2,000 (adjusted for inflation using the CPI) in the past 100 years.

Since gold isn’t changing or innovating like a company (whose price is based off expectations of it’s future earnings), and the supply isn’t changing rapidly (although it is mined/discovered at a non-fixed/known rate), speculations on future gold prices are analyzed a bit differently than a stock or bond. There’s no real concept of a default (like with a bond), a bankruptcy or acquisition (like with a stock), or interest (like with a bank account).

Real Estate investment decisions are very common in some shape or form — your housing choice. You can obviously directly invest in real estate by buying a house, and then choosing to live in it or rent it out until you decide to sell the property. Some people also invest in mutual funds, equities, REITs (a special type of real estate investment fund), etc. to get less direct exposure to the real estate market.

In the scenario where you own/are mortgaging a property and want to rent out the space, the general vision is likely — buying a property, taking out a mortgage to do so, renting the space to tenants in exchange for rent, and using the rent to pay the mortgage payments + additional fees associated with the rental situation/house upkeep, and eventually having the house (which is hopefully now worth even more than when you bought it) fully paid off through these rental payments. The lazier you want to be with it (hire a management company, outsource all the repair work, etc.), the smaller you’ll likely run your margins.

Running this sort of direct real estate rental investment program is a bit capital intensive (probably need to put a down payment on the house + get approved for the mortgage, etc.) / be able to survive the ebbs and flows of tenant occupancy, etc.

To have direct real estate just be a portion of your diversified portfolio versus employing most of your capital towards the rental property obviously requires an even larger overall portfolio. Thus, for many, an investment into a mutual fund/ETF/REIT/equity with exposure to areas of Real Estate they’re interested in is the easy solution to adding some Real Estate to their overall investment portfolios.

Nonetheless, a direct real estate rental program can be somewhat accurately modeled (at least in the near term), as the structure of the returns will run somewhat like a business (or even like a bond in a sense) — revenues and expenses netting you a frequent profit (or loss) in the short-term (like a coupon except I hope you never buy a negative coupon), and much of the value laying contingent in the final cash flow value (principal repayment in a bond or an acquisition, sale, bankruptcy, etc.) like in a stock. The final sale value is variable here like with a stock (unlike a bond 0 or 1 situation), but you can also easily influence the final value a bit (or even the rental payments) with this sort of investment — renovate the house, etc. :)

Another good way to think about real estate and mortgages in general — much like a bond is just a loan from an individual or an institution to an institution, a mortgage is like a loan from an institution (like a bank) to an individual (you). In the same sense that there are several different ways to structure a bond, there are several different ways to structure a mortgage (frequency of payments, term length, interest rate, principal payment timing, etc.).

When contemplating investment choices, it can be beneficial to remember that paying off principal on existing debt is much like using that money to make an investment guaranteed to yield you that investment rate. Similarly, many refinancing opportunities can also be constructed with a bit of thought or creativity :)

Just like with all debt (although a mortgage is likely at near the lowest rate and requires a bit more thought), as a broad statement — most debt should likely be knocked out first before investing (or at least strongly considered).