The threat of a massive economic meltdown has had investors talking ever since the 2008 recession. Each person has their own plan for how they would survive another stock market crash, and what they would do to keep their heads above water. Most people feel that the likelihood of this happening is relatively low, but there are still others who note the wide variety of problems in today’s world and prepare for the absolute worst. For those looking to hedge against a stock market downturn, we outline five-must buy commodities to help protect your portfolio [see also Four Commodities To Buy Before Roubini’s “Perfect Storm”].
Gold/Silver
This is the most obvious choice on the list. These two precious metals have long been safe haven assets for investors all over the world as they not only provide a hedge against inflation, but tend to outperform other assets in times of market turmoil. Since the U.S. abandoned the gold standard in 1971, this precious metal has seen a meteoric rise in value; gold prices have appreciated over 500% since the year 2000 alone.
It should be noted that silver’s price is typically more volatile than that of gold’s, making it a potentially more rewarding (or damaging) investment. For those looking to make a play, you can bet like the billionaires with the SPDR Gold Trust (GLD) and the iShares Silver Trust (SLV). Still others are only comfortable with physically owning precious metals themselves, which is certainly another viable option, but one that takes a bit more research and care [see also Three Reasons Why Gold Is Overvalued].
Timber
At first, timber may seem like an unorthodox idea, or a commodity that has little investment potential, but both of those assumptions would be false. Others may ward off this asset given the recent weakness in global housing markets, but this isn’t true either. In fact, timber’s performance has been very strong throughout its history. The price of timber has risen by an average of 5% per year for the past century, and those gains include strong performances during some of the worst markets in U.S. history. “During America’s last major inflationary period – from 1973 to 1981, when inflation averaged 9.2% – timberland values increased by an average of 22% per year” writes Larry D. Spears.
Since the beginning of the 20th century timber has outpaced the S&P 500 and has risen by approximately 15% each year since 1987 (save one bad year during the U.S. housing crash). During the Great Depression, when stocks fell roughly 70%, timber investments soared by more than 200%. Moving forward to the most recent recession, the S&P dipped more than 35% in 2008 while the wooden commodity actually gained 9.5% [for more commodity actionable ideas subscribe to our free newsletter].
Farmland
Rising populations in booming emerging markets across Asia and Latin America are driving food demand now more than ever. The result: farmland prices, both at home and abroad, have appreciated greatly in recent years as agribusiness has expanded tremendously to meet the needs of an ever-growing world population. Buying a plot of land requires a bit more hassle than going to the jewelry store, although doing your homework could pay off big time.
Historical data reveals the appeal of this timeless hard asset; between 1987 and 2004, farmland prices averaged annual increases of 4.8%. What’s even more exciting is that prices have gone on to appreciate even more rapidly in recent years thanks to record-low interest rates and steadily growing demand for commodities. Farmland prices have averaged annuals gains of 15% between 2004 and 2008, showcasing the ability of this asset class to deliver uncorrelated returns to broad equity markets. Experts have expressed their concerns that land value increases of this magnitude are unsustainable, although they have also acknowledged that increasing food demand from all over the globe is a key factor that would prevent a major collapse [see also 50 Ways To Invest In Agriculture].
Stamps
Stamps aren’t quite as shiny as gold and they certainly can’t compare to guns in terms of utility. Nonetheless, this palm-sized investment is a worthy consideration for those looking to tap into the vast universe of profitable collectibles. Although stamps appear to be perhaps the most fragile product on this list, they are not much different from other hard assets; stamps derive their worth from a shared psychological belief that they are in fact valuable. Simply put, stamps are a non-productive, collectible asset, much like gold bars and silver coins.
In fact, recent studies show that returns on collective stamps could rival precious metals over a long enough timeline. Research shows that over the period 1900-2008, stamps have generated a nominal annualized return of 7%. This is a rather remarkable feat that few collectibles can attest to. Historical evidence also suggest that stamps feature a return pattern that bears a close resemblance to the yellow metal; stamps are a worthy hedge against rising prices, and much like gold, they can also serve as a partial hedge against unexpected inflation [see also The Ten Commandments of Commodity Investing].
Antique Guns
No, these aren’t for your own protection from some kind of catastrophic global phenomenon. Instead, antique guns present themselves as a viable investment. Purchases of guns, both commercial and collectibles ones, have been steadily on the rise, even surging in recent years as fears of tightening gun-control laws have intensified. While semiautomatic weapons are quite uncommon across most portfolios, these products have steadily appreciated in value over the years, a feat that few asset classes can brag about. Just like every other commodity, the price of guns is influenced by supply, demand, as well as speculation.
The collectible firearms market is also steaming with activity. Scared by the volatility in the stock market after the recent crash, a growing number of investors have turned to classic firearms as a means of preserving their capital. For instance, valuations for handcrafted English shotguns have climbed by around 3%-5% per year, making this a rather safe bet by equity market standards. After all, guns are an investment which you can enjoy (responsibly), and thus the potential for capital appreciation makes them all the more attractive.
Don’t forget to subscribe to our free daily commodity investing newsletter and follow us on Twitter @CommodityHQ.
Disclosure: No positions at time of writing.
[...] Jared Cummans: The threat of a massive economic meltdown has had investors talking ever since the 2008 recession. Each person has their own plan for how they would survive another stock market crash, and what they would do to keep their heads above water.(…)Read the rest of The Commodities Survival Kit Guide: Gold, Silver, Timber, Farmland, Stamps, & Antique Guns (SLV, GLD) [...]
[...] and look at the last commodity on the list. This is an investment we can all get excited about. http://commodityhq.com/2012/the-ultimate-commodities-survival-kit-five-must-haves/__________________Scott [...]
[...] Major equity indexes traded sideways for most of the session on Wall Street, ending up in mixed territory as the closing bell rang. Profit-taking pressures emerged as the latest FOMC minutes revealed that top Fed officials are leaning towards another round of bond buying. Highlights from the report include the following statement, “Many members judged that additional monetary accommodation would likely be warranted fairly soon unless incoming information pointed to a substantial and sustainable strengthening in the pace of the economic recovery.” Although the economic landscape has surely improved in recent months, the Fed is clearly still cautious about taking off the “training wheels” so to speak [see also The Ultimate Commodities Survival Kit: 5 Must-Haves]. [...]
[...] Equity indexes have endured an eventful week as major benchmarks backed away from historical resistance levels as investors reacted to the latest FOMC minutes on Wednesday. Surprisingly, hints of an additional round of quantitative easing from the Fed sparked a round of profit-taking, throwing a wrench in the bull’s slow-and-steady climb over the past few weeks. Amidst another low-volume week on Wall Street, several ETF issuers have filled the pipeline with over a dozen exciting products to come [see also The Ultimate Commodity Survival Kit: 5 Must-Haves]. [...]
[...] Yesterday, investors had mounting doubts about the prospect of more stimulus. Today however, was a quite different story. Apparently the Fed minutes released on Wednesday were not enough to convince Wall Street that the central bank is indeed ready to take further action to boost the rather anemic economic recovery. However, a letter from Bernanke to U.S. Rep. Darrell Issa (R., Calif.) seemingly did the trick to convince investors the Fed isn’t taking this matter lightly. In the letter, which was publicly released today, Bernanke vehemently defended the central banks’s actions, and emphasized that there is scope for the Fed to take further stimulus measures. Adding to investors’ sense of new-found euphoria, the Europe’s central bankers kicked it into high gear as they continued to hammer out the details on measures meant to save the debt-ridden region [see also The Ultimate Commodity Survival Kit: 5 Must-Haves]. [...]
[...] Once again, Wall Street finds itself walking on eggshells, unwilling and unable to jump in full force into the markets. Last week, the Federal Reserve released the minutes from the last FOMC meeting, sending yet another strong signal that it is preparing to take action to boost the nation’s lackluster recovery. The issue that many have, however, is that the central bank seems reluctant in taking off the “training wheels” so to speak. By placing conditions on whether or not the Fed will jump in to boost the economy, investors will, understandably, continue to have mounting doubts about the prospect of more stimulus. Meanwhile, Europe’s central bankers are reportedly making headway in their debt debacle, as the ECB continues to hammer out the details on measures meant to bolster the region’s rather anemic economic growth. This week, investors will see a number of economic reports from around the globe, which will hopefully restore some confidence in the markets. Below, we outline three ETFs that should see a fair amount of activity during the week ahead [see also The Ultimate Commodity Survival Kit: 5 Must-Haves]. [...]
[...] first time that a politician made an empty promise. But that does not mean that investors cannot prepare themselves. If the Republican party wins the election, adding to your gold collection could be a potentially [...]
[...] Equity markets continued to chug along sideways as low trading volumes permeated Wall Street for another session, showcasing investors’ uncertainty ahead of Fed Chairman Bernanke’s speech at Jackson Hole this Friday. The Nasdaq managed to pull ahead of the Dow Jones Industrial Average and the S&P 500 Index for another day as mixed economic news prompted a bullish reaction out of the technology sector. Worse-than-expected consumer confidence data collided with encouraging Case-Shiller home prices, pushing Treasuries and volatility slightly higher while gold inched lower [see also The Ultimate Commodities Survival Kit]. [...]
[...] DBC: This ETF invests in a diversified basket of commodities, including crude oil, gold, aluminum, corn, and wheat. Since investors tend to view many of these commodities as stores of value in bear markets, they can experience healthy returns during downturns [see also The Ultimate Commodities Survival Kit: Five Must-Haves]. [...]
[...] them with more favorable returns. In periods of economic uncertainty, there are a number of “safe haven” asset classes that investors flock to when things get rocky. Most choose to limit their [...]
[...] The iShares Silver Trust (SLV) was one of the best performers, gaining 2.18% on the day. Demand for precious metals grew as investors expressed their concerns over the gridlock in Europe which continues to eat away at confidence in the debt burdened currency bloc. Following today’s rally, SLV has gained and impressive 25% from a year-to-date perspective [see also The Ultimate Commodities Survival Kit]. [...]
[...] by gold, silver is one of the world’s best-known commodities. The precious metal is used as a safe haven investment as well as a play on larger macroeconomic trends, as silver has a significant role in the [...]