How to Invest in Mineral Stocks

Trading in mineral stocks can be a good investment if you're a commodities speculator with capacity for risk. In general, commodities tend to react to changing economic fundamentals way more differently than traditional financial assets, and you have to anticipate that the odds are heavily set against you in case your aim is to build permanent wealth. However, investing in mineral stocks may provide your portfolio with a hedge against inflation, since commodity prices typically rise when inflation is accelerating. You can purchase mineral stocks on the stock exchanges via futures contracts that standardize the quantity of the commodity being traded.

The speculative nature of commodity trading means that there is a lot of optimism baked into mining companies. You have options for investment, but need to be conversant with both major mining companies -- the well-capitalized ones with world-spanning operations that explore, develop bulk mineral deposits and sell them on the open market -- and the junior ones that search for new deposits without necessarily developing them. A mining major has proven and probable reserves and will be easy to evaluate and easy to invest in. However, a junior can have decent returns when it has enough success and finds a large deposit of a mineral that the market wants a lot of.

If you're a sophisticated investor, you can venture into exchange traded funds holding mineral resources. You can gain exposure to metals prices -- both precious and industrial -- on a number of ETF options that trade on the stock exchanges. These ETFs mostly seek to replicate the performance of indices whose benchmark consists of publicly traded mining companies that are involved in industrial and precious metals exploration, extraction and production. These can give you access to an asset class that adds valuable diversification benefits to your traditional stock-and-bond portfolios.

The investment objective of most mutual funds is long-term capital appreciation and you can leverage this as you invest in funds that incorporate stocks for companies involved in the mining of, or exploration for, mineral resources. Do your research to determine the funds that suit your investment strategy. Some funds have significant exposure to precious metals portfolios such as silver-, platinum- and base-metal-mining stocks. Others concentrate on companies principally engaged in activities related to gold, copper or diamonds. Returns vary widely from year to year depending on the constituent commodities, therefore these funds should serve to diversify your portfolio with a long-term time horizon.