Why are investors looking into commodities? Remember years ago when â€œinvest in soybeansâ€ 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 wasnâ€™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 â€“ through exchange-traded funds, closed-end funds, publicly traded entities, non-publicly traded entities (all regulated and registered), and even mutual funds.
Itâ€™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 â€œrealâ€ assets, the expected return of even a low-risk portfolio went up to 8.6%from 8.1%.
While weâ€™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.