How to Evaluate the Return on an Investment Portfolio

What are raw materials? It’s not just grain, oil, or copper. It’s the pulse of global economic processes. Every bag of coffee, ton of coal, or barrel of oil lays the foundation for national GDPs, company budgets, and institutional investors’ decisions. Raw materials create the infrastructure of global commodity circulation, set trends for markets, and shape investment horizons.

What are raw materials: categories

These are basic resources that underpin the global economy. They are actively traded on exchanges and are divided into four main categories:

1. Energy resources. Include oil (Brent, WTI), gas, coal, uranium. In 2023, oil covered 33% of global energy consumption. Brent serves as a benchmark in 60% of contracts. Prices influence inflation and the currencies of exporting countries.
2. Metals. Divided into industrial (copper, nickel, aluminum) and precious (gold, silver, platinum). Copper is an economic growth indicator. Gold is a protective asset in crises: demand for it increases by up to 15% when the stock market falls.
3. Agricultural products and livestock. Key positions include wheat, soybeans, corn, cotton, livestock. Soybean export leaders are the USA, Brazil, Argentina (80% of the market). Livestock futures are used for hedging.
4. Financial derivatives on commodities. These are contracts, ETFs, options, and futures. The volume of transactions on CME exceeded $35 trillion in 2023. They allow earning on price movements without physical delivery of goods.

Raw materials are not just resources but tools for managing risks and capital on a global scale.

How raw materials work on exchanges

Every commodity transaction takes place on specialized platforms. The London Metal Exchange (LME), the New York Mercantile Exchange (NYMEX), ICE, and CME provide liquidity, transparency, and market price.

Pricing

Prices are formed in real-time. Price is influenced by the supply/demand ratio, political risks, weather conditions, and the dynamics of the dollar. For example, a drought in Brazil can instantly raise the price of coffee by 18%.

Market participants

Traders, institutional investors, hedge funds, producers, and processors. Each uses the market in their own way: some hedge, some speculate. For example, agricultural companies fix the crop price six months before harvest by entering into futures contracts.

Trading in commodities requires high liquidity, understanding of volatility, and constant analysis. This is the only way to predict fluctuations and manage risks.

Investing in raw materials

Financial flows are directed to the commodity market for a reason. Investments in commodity assets allow:

1. Diversify the portfolio. In 2008, when the stock market collapsed by 37%, the commodity index only decreased by 14%.
2. Protect assets from inflation. Gold grew by 41% from 2019 to 2022 when US inflation reached 8.6%.
3. Access global trends. The rise of electric vehicles increases demand for lithium, cobalt, and copper.

The benefits of investing became particularly noticeable against the backdrop of geopolitical crises. Gas prices in Europe tripled after 2022, making energy resources highly profitable assets.

How traders use commodity market analysis

Using multiple types of analytics allows predicting price movements with up to 85% accuracy. The analysis includes:

1. Fundamental analysis. Evaluates macroeconomics, crop yields, geopolitics, currency exchange rates. For example, a USDA report on grain stocks can change global wheat prices by 7–10% within a day.
2. Technical analysis. Applies charts, indicators, and trend models. Most traders use moving averages, RSI, Bollinger Bands. This helps identify entry and exit levels.
3. Seasonal analysis. Makes forecasts based on historical cycles. For example, gas prices traditionally rise in November–January when the heating season begins in the Northern Hemisphere.

What are raw materials in the eyes of a trader? It’s a constantly changing mosaic where it’s important to quickly read signals and make decisions.

Factors influencing prices

Commodity prices move under the influence of many variables. The main triggers are:

1. Demand and supply. The balance between production and consumption volumes sets the trajectory. For example, in 2020, the pandemic reduced oil demand by 30%, causing prices to plummet to $18 per barrel. In 2021, on the contrary, a sharp recovery in demand pushed Brent above $70.
2. Geopolitics and climate. Military conflicts, sanctions, regime changes — each of these factors can reshape the market structure. Climate conditions also directly affect yields and production: droughts, floods, frosts regularly create local shortages.
3. Currency exchange rates. Since most commodity trading is conducted in dollars, fluctuations in currency pairs like USD/EUR, USD/CNY, and others have a significant impact. Strengthening of the dollar reduces the attractiveness of commodities for importing countries, restraining price growth.

Each of these factors can sharply change price dynamics, even under stable market conditions. Understanding the relationships between them allows for more accurate forecasting of commodity asset movements.

Commodity markets and their structure: from farmers to ETFs

Modern commodity markets function as high-tech ecosystems. Each player performs their function:

1. Producers supply physical raw materials: mines, farms, agroholdings.
2. Processors purchase resources for industrial needs.
3. Financial intermediaries and exchanges provide access to trading.
4. Institutional investors add liquidity through funds and derivative instruments.

In 2023, the capitalization of the largest commodity ETFs exceeded $420 billion. Funds like the Invesco DB Commodity Index Tracking Fund allow investing in a basket of resources: oil, gas, copper, wheat, and gold — in one package.

Trading in commodities on these platforms represents a powerful financial mechanism. It connects the interests of farmers in Iowa with investment portfolios in London.

What an investor should consider

Investing in commodities is accompanied by both potential profitability and risks. Below is a detailed list of the main characteristics:

1. Profitability. The average annual return of commodity ETFs is 7–12%, with jumps of up to 30% in six months under favorable market conditions.
2. Risk. High volatility: for example, the price of nickel on LME in March 2022 increased by 250% in two days due to supply shortages.
3. Liquidity. The highest liquidity is observed in oil, gold, and wheat — daily turnovers exceed $100 billion.
4. Regulation. Strict control by exchanges and financial commissions reduces manipulation risks but requires compliance with strict rules.
5. Entry barriers. Modern platforms lower the threshold to $50–$100, allowing private investors access to the market.

Risk analysis is a necessary step before entering the market. Without assessing volatility, seasonality, and geopolitical background, it is impossible to form a sustainable strategy.

Why it’s worth learning about raw materials now

The world is entering an era of deficits: water, grain, rare earth metals. Every climate change, sanction, global conflict increases the value of resources. Therefore, understanding what raw materials are is not just knowledge — it’s a decision-making tool.

The electrification of transport requires lithium, nickel, and copper. Agricultural crises make food resources new growth points. Oil and gas, despite the green agenda, will remain systemically important at least until 2040 according to the IEA forecast.

Conclusion

What are raw materials for an investor? It’s not a short-term trend but the foundation of a long-term strategy. The market requires analytics, understanding of cycles, and precise asset selection. Successful investments in this segment are based on statistics, seasonality, fundamental reports, and smart diversification.

An investor who can assess the value of raw materials and build a strategy based on it not only gains profit but also gains an instrument of influence.

Balanced capital allocation is the foundation of financial stability. The answer to the question of what can be included in an investment portfolio not only determines the potential return but also the level of risk that an investor is willing to tolerate. The mistaken belief that a case is simply stocks and bonds has long lost its relevance. Today, a well-constructed basket includes instruments from different classes, reflects the investment goal, and takes into account the macroeconomic context.

What role do financial elements play in the structure?

Each asset performs its own function. Some provide capital growth, others stabilize income, and still others reduce volatility. Understanding what constitutes an investment portfolio helps to develop a strategy that reflects individual financial priorities.

The more classes of instruments are used, the higher the protection against market distortions. By combining stocks, bonds, currencies, futures, and other forms of investments, a stable system can be created that works both in times of economic growth and during downturns.

What can be included in an investment portfolio — a complete list

When forming a long-term strategy, it is important to consider diversification by types. Below are the main instruments that make up a modern investment case:

• stocks — equity instruments that entitle the holder to a share of the company’s profits;
• bonds — debt securities with fixed income;
• ETFs and mutual funds — funds that combine multiple assets in one instrument;
• precious metals — protection against inflation and currency depreciation;
• currency — investments in foreign currencies for hedging or speculation purposes;
• futures — derivative instruments with the ability to speculate or hedge prices;
• options — contracts for buying or selling at a fixed price;
• startups — high-risk, but potentially high-yield venture investments;
• real estate — a long-term capitalization instrument with low volatility.

This variety allows for flexible risk management, income growth, and adaptation to market realities.

Types of assets in a portfolio and the goals of their inclusion

Not all elements are equally useful. Understanding which options are responsible for growth, protection, or stability is critical for choosing the structure. For example, stocks are the main driver of profitability, bonds are the anchor of stability, ETFs are a diversification tool, and futures are a hedge against downturns in individual segments.

An experienced investor selects instruments based on their strategy: conservative, moderate, aggressive, or balanced. Each model has different priorities and class ratios.

Examples of risk level compositions

To understand what can be included in an investment portfolio, it is useful to consider typical examples of allocations. Below are four main types:

• conservative — 70% bonds, 10% stocks, 10% currency, 10% precious metals;
• moderate — 50% stocks, 30% bonds, 10% ETFs, 10% gold;
• aggressive — 70% stocks and ETFs, 10% futures, 10% startups, 10% currency;
• balanced — 40% stocks, 30% bonds, 15% ETFs, 10% metals, 5% futures.

These proportions allow for adapting the case to personal financial goals and risk tolerances.

How often should the composition of an investment portfolio be reviewed?

Even an ideal basket loses balance over time. The answer depends on the chosen strategy, but in practice, adjustments are usually made quarterly — depending on market fluctuations and dynamics.

Reviewing is also appropriate when life goals change, for example, before retirement when it is necessary to shift the focus towards more conservative instruments. During a crisis, rebalancing helps reduce losses, strengthen protective positions, and maintain investment stability.

This approach allows for maintaining an optimal balance between risk and return, and most importantly, retaining control over capital allocation. Such actions are crucial for those who consciously choose what can be included in an investment portfolio and strive to build a balanced strategy considering goals, investment horizon, and current market conditions.

How to evaluate assets for an investment portfolio?

Each element in the case should be evaluated based on three criteria: return, risk, liquidity. The most profitable instrument is not always the best choice. A stable case is not built on a single star. It is created based on compatibility and their ability to offset each other’s vulnerabilities.

Instruments with high volatility, such as futures or options, require experience and caution. Beginners should focus on basic instruments: stocks, bonds, ETFs, and currencies.

The role of diversification and correlation

What can be included in an investment portfolio is one of the key questions when building a reliable strategy. Without diversification, the basket turns into a set of individual risks. It is important that assets have low correlation — meaning they do not move synchronously. If all positions rise and fall simultaneously, diversification loses its meaning and does not protect against downturns.

This is why experienced investors include different classes and markets: emerging countries, commodity instruments, currency pairs, funds of various directions. This structure allows for surviving any crisis with minimal losses.

Common mistakes made by beginners

Even with an understanding of what can be included in an investment portfolio, many make mistakes. Below are typical errors:

• lack of diversification;
• overweighting in one currency or industry;
• ignoring the time horizon;
• choosing illiquid assets;
• neglecting periodic rebalancing;
• seeking quick profits without calculations.

A conscious approach, rather than intuitive decisions, is the key to success in investing.

Conclusion

Understanding what can be included in an investment portfolio allows one not to depend on a single asset and to create a stable financial structure. Today, dozens of instruments are available on the market, each of which can perform its function in the overall structure: from capital growth to crisis insurance.

The key skill of an investor is not just to select elements but to manage them within the system. Only then does the basket become not just a collection of papers but a working mechanism for achieving financial goals.