Trading commodities has been popular for many years, as investors can use a number of different resources to gain access to their favorite commodity investments. But it was only a more recent development that commodities earned their keep in a long-term portfolio. Now, a small, but important, allocation to commodities is a necessity of any well diversified portfolio, as these investments offer a number of advantages such as hedging against inflation and maintaining low correlation levels to traditional asset classes [see also Commodity Investing: Physical vs. Futures].
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The search for the perfect portfolio has long been the goal for investors, as many tinker with the makeup of their underlying holdings in order to maximize returns. While there is no set standard for a portfolio, it is widely agreed that any group of holdings needs to be well diversified to deliver the most stable returns. This brings the inclusion of stocks, bonds, real estate, and more recently, commodities.
Commodity investments come in all shapes in sizes. While futures are arguably the most popular way to obtain exposure to your favorite commodity, there are numerous other options out there. There are a number of exchange traded products that offer exposure to futures, as well as physical commodities like the SPDR Gold Trust (GLD), which invests in physical gold bullion. Finally, there are commodity stocks, which generally consist of mining and exploration companies like BHP Billiton. This latter option may be particularly attractive to investors seeking high yields, but still want to reap the benefits of commodity exposure in their portfolio [see also Why Commodities Belong In Your Portfolio].
In the world of commodity investing gurus, few can match the track record or fame of Jim Rogers. The investment legend is probably best known for his work with George Soros in creating the Quantum fund, but Rogers has been more active in the commodity space as of late with the creation of several indexes and a book on the subject as well. Lately, Jim Rogers has been on the precious metal bandwagon, pushing many investors to buy up these products to defend against further dollar weakness and fiat currency debasement by central bankers around the world. Yet, with gold hitting fresh highs on a seemingly weekly basis, Rogers has begun to advocate for investors to look to other corners of the investing world for gains in the future [see also Jim Rogers Says: Buy Commodities Now, Or You’ll Hate Yourself Later].
Investors looking for the optimal way to play the markets have found that a diversified portfolio is truly the best way to allocate assets. Diversification spreads risks while granting exposure to various corners of the market that behave quite differently depending on the current environment. For quite some time, the biggest debate has not been whether investors should diversify, but how to do it. Many fight over allocations to two asset classes; equity and fixed income, as these two are the traditional mainstays of any portfolio. While finding the right balance between the two can have a major impact on your portfolio, there is one asset class that many investors overlook; commodities.
Numerous commodities saw healthy bull runs in 2010, inspiring investor confidence for a strong 2011. Gold for example, has continued its historic run, breaking through the $1,700 per ounce mark and then some, while oil has been on more of a roller coaster ride as far as its prices are concerned. But while a number of commodities have fared well so far this year, others have not been so fortunate. Cotton in particular, was one of the best performing futures last year, only to suffer major blows through the first seven months of 2011 as well [see also The Ultimate Guide To Gold Investing].
The past few months have been something of a roller coaster ride for major equities, as investor confidence has declined along with broad markets. During times like these, finding returns for your portfolio can be next to impossible, as certain assets will be up one day only to be slaughtered the next. Commodity investors may be especially confused with market performance, as the recent erratic sessions for the U.S. dollar seem to be tossing futures contracts back and forth on a daily basis.
In recent years, alternative energy has grown immensely in both popularity and use, as nations across the globe seek to end the fossil fuel addiction by which modern society is currently saddled. While there are various forms of renewable energies, one of the most popular and practical comes in the form of solar energy. Solar energy is generally derived from photovoltaic modules, which are usually made from crystalline silicon to help capture the sun’s light. With the sun being a never-ending source of energy (at least for our lifetimes), it is no surprise to see a wealth of companies make a move into the solar industry, with one of the best-known companies being First Solar (FSLR).