Are you an active investor? Do you only invest in equities and bonds? Then chances are placing a small percentage of your overall portfolio into a commodities exchange traded fund or mutual fund may have a place in your investment plan. If you consider the modern portfolio theory as many financial advisors do, they have a place in someone’s portfolio. By owning assets that are uncorrelated in this manner their prices are independent of each other and move in an independent manner. By having such assets in your portfolio, it will reduce the portfolio’s overall risk. As equities rise and fall, the price of commodities do not necessarily follow as they move on their own accord.
The most common commodity that people wish to own is gold. Gold serves as a haven for investors who fear inflation as they view it as a hedge. And historically commodities during periods of inflation have performed better than equities and bonds. And depending on the period you are examining the performance of commodities have performed significantly better than most other asset classes.
However, in recent years the most common commodities that people wish to own such as gold and silver have lagged most other markets and asset classes. In fact over the last five years commodities have not performed anywhere near equities peaking in 2010 and falling consistently ever since. In fact, if you consider the two most popular commodities in gold and silver they are nearly half of what they were selling for per ounce just four years ago. In other words with the equities markets considered expensive in the United States and bonds not producing yields that are considered attractive it may be time to consider such commodities as gold and silver.
As an advisor who preaches saving for retirement, I think this is a good time to consider investing in physical gold and silver in IRA’s. There are many ways to invest in IRA’s and placing actual gold and silver in them is one such method. Now you could buy bullion coins that are not minted by official mints, but if you are going to invest long-term in gold and silver bullion I recommend coins minted by the United States Mint in the form of gold or silver American Eagles. Not only is the content of the coin guaranteed by the United States Government it is the most collected coin currently in the world. Check with special IRA trust companies that will hold your physical bullion coins as you are not allowed to possess them personally. And right now with these two commodities being as inexpensive as they are it to me is a splendid buying opportunity.
If you do not want to invest in actual bullion, there are some options for you as well. With exchange traded funds and mutual funds there are opportunities for investors to participate in these commodities as well as others. Now actively managed funds tend to have higher management fees, and other fees associated with futures contracts as these funds tend to not own the metal. Other funds own the metal and avoid the higher fees. Depending on what you want to own you need to do some research on what the fund does as far as holding the metals or any commodity.
As a disclaimer on commodities, while they can reduce the overall risk of a well-balanced portfolio, they are extremely volatile on their own. In some years, they may double in value and in others they may lose all the previous gains. Investing in commodities is not for the faint of heart and in many instances is a long-term strategy.
For more information or if you have any questions feel free to contact me.
