March 3, 2008 / White Oaks Wealth Advisors

Commodities as Alternative Invesments

Why are investors looking into commodities? Remember years ago when “invest in soybeans” was just a sitcom wisecrack and kruggerands were being sold in low-budget TV commercials? To a lot of people, that was the image of commodity investing: an exotic, left-field opportunity that wasn’t for the average person. In fact, the individual investor faced hurdles even trying to enter the commodities market.

But with the recent surge in gold, silver and oil prices, all kinds of investors are taking a look at commodities, and finding ways to invest in them – through exchange-traded funds, closed-end funds, publicly traded entities, non-publicly traded entities (all regulated and registered), and even mutual funds.

It’s a chance to have assets outside the stock market. Commodities like timber and coal, crude oil, commercial real estate and gold, silver, and copper are not correlated to stock market performance. These non-correlated assets have been praised for their potential to add diversity to portfolios. In fact, Ibbotson Associates, the world-renowned financial research firm, noted that including such negatively correlated assets in a portfolio actually improved investment return over time while reducing risk. An Ibbotson study concluded that with just a 10% allocation of these “real” assets, the expected return of even a low-risk portfolio went up to 8.6%from 8.1%.

In 2006, Ibbotson shared the results of a commissioned study on 35 years of the commodity market. It found that $1 invested across major commodity indexes in January 1970 would have grown to $71.62 by October 2005, while $1 invested in U.S. stocks would have grown to only $42.21 across the same stretch.

What Yale does, others do. Some big endowments put healthy allocations of commodities in their investment portfolios. Look at the Yale Endowment, which generated a 28% return for fiscal year 2007. Its CIO, David F. Swensen, is allocating 28% of its funds to real estate, timber, oil and gas and other “real assets” for FY 2008, following a similar allocation in FY 2007. In recent years, many other endowed institutions have diversified into commodities.

While we’ve certainly seen a bull run in commodities this year, many analysts do not believe the market has peaked. If you would like to learn more about commodity investing, be sure to speak with a qualified financial advisor so that you have knowledge, education and guidance as you explore the possibilities.

The foregoing content reflects the opinions of White Oaks Wealth Advisors and is subject to change at any time without notice. Content provided herein is for informational purposes only and should not be used or construed as investment advice or a recommendation regarding the purchase or sale of any security. There is no guarantee that the statements, opinions or forecasts provided herein will prove to be correct. All information or ideas provided should be discussed in detail with an advisor, accountant or legal counsel prior to implementation.

Past performance may not be indicative of future results. Indices are not available for direct investment. Any investor who attempts to mimic the performance of an index would incur fees and expenses which would reduce returns.

Securities investing involves risk, including the potential for loss of principal. There is no assurance that any investment plan or strategy will be successful.

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Investment advisory services provided by White Oaks Wealth Advisors, Inc. Content provided herein is for informational purposes only and should not be used or construed as investment advice or a recommendation regarding the purchase or sale of any security. All information or ideas provided should be discussed in detail with an advisor, accountant or legal counsel prior to implementation. Securities investing involves risk, including the potential for loss of principal. There is no assurance that any investment plan or strategy will be successful.