Commodities: Fab Four And A Motley Crew
One possibility is to buy stock in a commodity company, or one that has something to do with the production of a commodity. Here, you are not as prone to the volatility that is often associated with commodities, but you are not just trading the commodity, you’re trading the balance sheet and the management structure of that particular company, and that also has risk.
Exchange traded funds that are index funds that can be traded through brokerage accounts like stocks. ETFs are one of the easier ways to get involved, but you have to be careful because some of them are not set up well at all, says Gary.
“For example, they’ll buy December corn, and then before it becomes deliverable in November they will roll that to March. Well, March is always a higher price than December because of the cost of carrying the corn, storing the corn and insurance, and so on. They are forever buying a higher price.”
“You can get ETFs through most brokers, but they are generally for a relatively sophisticated investor,” says Matthew Samelson, principal at Woodbine Associates.
A commodity future is an agreement to buy or sell a given commodity at specific price on a specific delivery date. It is advantageous because it is a pure play on price behavior, and because you can access them 24 hours a day.
“When used with appropriate risk management strategies like stops or options, an individual investor not only has the opportunity to catch upside but protect yourself against the downside,” says Klopfenstein. The bad news with futures is that you can get yourself in to trouble with leverage.
Like other mutual funds, commodity funds give investors the option of adding diversified commodities to their portfolio and limit the risk associated with the commodities market. A lot of them you can invest as little as five or ten thousand dollars in so it doesn’t take a lot of money to invest in those.
Oppenheimer, PIMCO, Goldman Sachs and Deutsche Bank, for example, all offer commodity mutual funds. If you don’t want to talk to you broker ten times a day, you might be better off with a commodity fund.
The bottom line—find what works for you. And, if you’re serious about putting commodities in your life, with the expected rally in the market, there is no time like the present.