April 9, 2007, 6:54 pm

Diversification through commodities investing?

by: admin    Category: Investment, Market and Risk
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We keep hearing about the various prices of commodities… oil is surely the one we hear about most but we also hear many stories about other types of energy sources (such as natural gas for example) but also agriculture and many others. Truth is, commodities have been for a very long time an important part of the investment world. Reality has not changed, quite the contrary in fact. With emerging countries such as China and India growing so quickly in the past decade, they are buying an increasing share of the world’s natural ressources.

We have heard over and over about the story of oil but there are many others that are of interest. Corn for example has been a very interesting commodity to trade in the past few years partially because of the growing interest in ethanol oil. Even more traditional commodities such as wood have been going through many price changes.

One of the very interesting aspects of investing in commodities is that they are not correlated with market movements and so they can be a great way to diversify your return and risk from the stock and bonds movements.

Up to a few years ago, investing in commodities was not available to the ordinary investor but that has recently changed. Until recently, the way to trade them was to go on the futures markets, a way that is complex and difficult to really understand and be successful for various reasons but mainly because of the complexity involved and also because you often need more considerable amounts of money to get involved in such markets.

But with the recent surge of ETF’s (exchange traded funds), it is now as easy to buy an exposure in commodities as it is to buy any stock. Gold and oil, which are probably the two most common commodities can be easily purchased through Ishare etf’s (IAU, OIH) but it is also possible to buy a general exposure of commodities through ETF’s, something most investors should consider as a potential investment in their portfolio.

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