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Commodities Investing

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Should I invest in commodities like oil and gold?

Maybe — but only with a small portion of your portfolio.

There are three main arguments for investing in commodities. The first is diversification: commodity prices often move in different directions than stocks and bonds, so they can help smooth out a portfolio’s returns. Reason two is to protect against a spike in inflation, because costs of raw materials tend to rise at least as fast as overall prices when inflation heats up. The final rationale is to guard against the possibility that the financial system will fall apart, in which case hard assets probably would hold their value better than financial assets.

Commodity prices can be outrageously volatile, however. Take oil prices, which dropped about 75 percent during the last six months of 2008. What’s more, commodity prices can stagnate for decades: Gold hit $875 an ounce in 1980, and didn’t reach that level again for nearly three decades. After adjusting for inflation, gold remains at less than half its 1980 peak, despite recent gains.

So what to do? You may want to keep 5 percent or so of your portfolio in commodities — but don’t bet the farm on them.

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  • Gold, Oil, and More: 5 Rules for Investing in Commodities

    Diversifying your portfolio with a natural resources mutual fund or ETF will lower its volatility, offer a hedge against the dollar and ? usually ? provide some protection against stock market losses. You’ve heard about the importance of diversifying (ad nauseam), and commodities will also...

    Articles | Oct 16, 2009

  • Why Oil Prices Are So Volatile

    Oil prices have been all over the map this past year: as high as $145 and as low as $30. Here’s what’s causing the big swings — plus some experts’ bets on where prices are headed now. Crude Oil Prices 2000-Present What’s Driving Prices There are four major factors that...

    Articles | Sep 1, 2009

  • A Look at Commodities Investing Over the Long Term

    On Wednesday, we looked at the proper way to consider an investment in commodities. Today, we'll look at how commodities have performed as a diversifier over the long term. by Larry Swedroe

    Blog posts | Jul 31, 2009

  • Does Commodities Investing Mean Too Much Diversification?

    Some advisors and academics say you should stay away from commodities investing because of their poor returns and high volatility. But that's the wrong way to look at commodities. Here's how you should look at commodities if considering an investment. by Larry Swedroe

    Blog posts | Jul 29, 2009

  • What to Consider When Investing in Commodities

    There's a lot of misinformation out there about investing in commodities. Here's some of what you need to know about the right way to invest in commodities. by Larry Swedroe

    Blog posts | Jun 4, 2009

  • The Dish on Diversification

    Yes, the strategy failed you in the crash, as virtually every asset class except Treasuries took a heart-stopping dive. But if you’re hoping to climb out of the hole, it’s still your best alternative. Why now may be the time to begin buying stocks, REITs and commodities again... It’s long...

    Articles | Mar 27, 2009

  • How to Spot a Bottom

    Is the recent rebound a sign that the stock market has finally bottomed? Or is it just a dead-cat bounce in a stubborn bear market? Only hindsight will tell for sure. But history offers some useful clues. Find out what economic indicators to watch for signs of a real and lasting turnaround....

    Articles | Apr 4, 2009

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