Lithium spot prices have soared steadily throughout 2021, flowing with equal momentum into 2022 as well. Prices of stocks such as LIT and LAC have also risen all along with a few sporadic and intermittent dips, indicating underlying market volatility.
The volatility in lithium stocks is dependent on the complex relationships between the demand and supply of lithium in the market - demand from majorly electric vehicles (EVs) and electronics manufacturers. And supplies from companies that mine and produce lithium.
The variability in stock prices can be due to any economic or geopolitical reason that disrupts the intricate interplay of supply and demand.
Since the Lithium market is associated with inherent unpredictabilities, it is wise to opt for long-term investments while avoiding the lure of short-term profits. Our future relies heavily on minimizing pollution, and lithium plays a pivotal role in that.
Let's see how:
Benefits of Investing in Lithium
1. Promotes Portfolio Diversification
Investing in lithium is a step toward diversifying your portfolio and reducing risks. Precious metals asset classes, including gold and solver, are common yet necessary investment portfolio inclusions, acting as a hedge against inflation.
In the current times of high inflation and interest rates, it makes good sense to allocate a small portion of your portfolio to lithium.
2. Increased demand from EV industries
The EV industry is a boon for our future that can singlehandedly make or break our plans to combat global warming. Lithium-ion batteries are ubiquitous in the EV market and sit at the center of the EV revolution.
Compared to other batteries, the benefits of lithium-ions are numerous like fast charging, lightweight, and temperature tolerance. These advantages explain why the EV industry is hugely reliant on lithium.
China and the US have implemented policies to promote the transition to EVs and pledged fast adoption in the automobile market. Countries like India have followed suit, with new EV startups like Ather and Ola leading the trend.
3. Electronic Industry and Lithium
Lithium batteries also finds widespread use in the electronics and telecommunication industries. Our smartphones, laptops, and cameras are all powered with lithium-ion batteries. It is surprising to know how integral and infiltrated is lithium in our lives.
4. Medium of Renewable Energy Storage.
The prospects of renewable energy are exemplary but with one small caveat - efficient storage of energy. Energy generated from wind, solar rays, and tides needs to be stored for future use.
Our best bet at present is lithium-ion batteries that provide long life and constant power output. The move to renewable energy will surge the demand for lithium worldwide. Apart from these avenues, lithium is used in medicines as well.
Now that we are aware of lithium’s prospects, let's understand how and where to pick these long-term investments.
Investing Options - Stocks and ETFs
Stocks and ETFs are the two most accessible ways to invest in lithium. In both these classes, you don't trade directly in lithium but instead, invest in companies that produce and supply the metal.
While investing in individual stocks can be risky, one can mitigate the risk by investing in ETFs, which are a set of diversified stocks. Beginner and retail investors will find the safety of ETFs appeasing but seasoned investors could participate in the high-return field of equity trading.