All stock brokers will agree that investment diversification is a sound financial decision. However, few will recommend commodity mutual funds, which is one of the better diversified options. This is mainly because they do not have the time to do the research nor do they want to explain them to you.
As the old saying goes, don’t put all your eggs in one basket. The same is true with your money. Don’t put all your investment money in one stock, or even the same sector of stocks. Investment diversification is an easy concept to understand. What’s not easy is deciding where to spread your money. And for various reasons most people don’t consider commodity mutual funds.
Most people tend to put all their investment or retirement money in the stock market. They either invest in the company they work for, or buy stocks of companies that they like, such as Ford, GM, Wal-Mart, or any company that is popular. Or they are using a brokerage house for advice and pick and choose from the brokers suggestions. If they have a large sum of money in investments, they probably have a financial counselor. This advisor should have some of their money in the bond market, which is a good, sound investment diversification strategy.
The stock market is easy to understand and most people are comfortable with checking their stock’s performance online. The bond market is a little tougher to follow day to day, and most people just buy the bond and wait for their broker or adviser to recommend a change.
Commodities operate in a little different fashion than stocks. Buying a commodity means you actually own something, or in the future you will own something, whether it be so many bushels of corn, pounds of gold, or barrels of oil. You are dealing with real goods, not the performance of a company. Typically, you are buying a contract for a future buy or sell of these goods. And it is a contract you never expect to complete.
So why will commodities be good for my portfolio? You know when the bottom falls out of the stock market and all stocks are dragged down with it, not so with commodities. The price of commodities reacts more on the good old supply and demand principal. The fewer the products available, the higher the price goes. If there are more products than buyers, the price will go down.
If you have a small percentage of your portfolio (around 10% is recommended) in commodity mutual funds, then you have some protection from a downward swing in the stock market. Commodities also do well during times as of inflation. And they are a good hedge during times of a weak dollar.
The commodity and commodity mutual fund market is a little tougher to follow and to understand than the stock market. The prices of gold and oil are easy to follow because they are a couple of the most popular commodities. The prices of corn, cotton or pig bellies are not so popular. Unless you are a producer or buyer of these commodities you probably don’t have a clue what their price is.
But commodity mutual funds are a great tool to add investment diversification to any portfolio. They offer investment protection from inflation, a weak dollar and swings in the stock market. Over the last few years, there has been a large increase of investing in commodity mutual funds do to the bad performance of the stock market.
With the large amount of choices in the stock and mutual fund market, stock brokers usually do not research or recommend commodity mutual funds. They probably have hard enough time pushing their stock pick of the day, let alone trying to sell commodity products. For that reason, you need to do your own research into commodities and commodity mutual funds. They can add value to your retirement fund.
After years of investing in the stock market I finally realized my portfolio needed some diversification with commodities. Looking into all the possible choices of investing in commodities I decided commodity mutual funds was my best decision. Please check out my website to see if commodity mutual funds are a good fit for youhttp://commoditymutualfunds.biz.
