Why You Should Own Commodities

Every investor looks for ways in which they can create some kind of diversity in their portfolios. Most investors hold stocks, 401ks, or IRA’s. However, most investors would also like to hold a number of other investment choices.

One thing that an investor could get to increase the risk of your portfolio and at the same time try to increase your returns is to look into commodities. Very different from buying stocks, commodities are things such as gold, coffee, oil, and pork bellies. When investors trade in these, they increase or decrease the price of these commodities, and thus the prices of many everyday goods. Investing in commodities adds a different element to your portfolio because commodities trade differently than stocks. Many commodities, such as gold, trade in the opposite direction of the general stock market often.

If there was a sudden price jump in oil, then many stocks may be negatively effected by the added cost, but if you owned the commodity then you would make money. As the price of oil went up, then so would your commodity holdings. If you buy commodities, then you are creating an extra layer of security for your entire investment portfolio.  You can even now purchase commodity ETFs (which of course are quite different from a financial ETF, inverse ETF, energy ETF, a copper ETF, etc.)

If you don’t feel that you understand how to purchase directly into the commodities markets, then you can get a mutual fund or a professional money manager to do it for you. Even within the commodities market you are going to want to diversify your holdings. Holding too much of any one commodity will have the same effect as only holding one stock. Your whole portfolio would be subject to the violent up or down swings of the market. Stock, bonds, and mutual funds are great, but sometimes you need to add a little variety to your portfolio.  Enter commodities mutual funds, which are much safer then many other forms of investments that you could choose.  Be sure to see if you can find a no load mutual fund when looking at investing in a commodities mutual fund.

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