Comments on: Commodities: How to Invest in Commodities and Why

By: Paul

Paul — Sat, 14 Feb 2009 07:28:17 +0000

You must realize that commodities are a natural hedge against inflation and unfortunately for commodity traders we have been in a deflationary market environment the past few months. However, I think it’s a necessary addition to your asset allocation due to it’s low correlation with equities and I suspect we will see a period of increased inflation over the next few years. Once credit conditions improve we’re likely to see the kind of inflation we saw in the late 70′s under Volker.

From a technical analysis perspective commodities are probably not at their bottom just yet but for the long term investor it’s probably a great time to buy low which is always the best time to buy. Just remember to take your profits by rebalancing your portfolio on quarterly basis because you never know how this Fed is going to act.

By: Pinyo

Pinyo — Wed, 14 Jan 2009 18:57:23 +0000

@Start-up — No, I haven’t yet — I am still trying to clean up some credit card debt and max out my 2008 Roth. Once I have money to invest, I’ll probably start off with GSG or DJP, unless I can find something less expensive.

By: Matt SF

Matt SF — Wed, 14 Jan 2009 18:22:41 +0000

If I could throw out a decent idea… there are hydrocarbon based trusts/MLPs that are paying high yield dividends in the 8-20% range. Not to mention, if oil goes back up (which it probably will), you also get the equity appreciation.

The risk is fairly high compared to a full fledged index fund, but if you buy on the huge pullbacks in oil, and set your stop loss orders, you should be OK.

PBT and NGT are good examples if anyone is curious.

By: Start-Up

Start-Up — Wed, 14 Jan 2009 17:42:48 +0000

Pinyo,

Have you jumped into the commodities sector yet? If so, where did you choose to invest? If not, I hope you blog about the experience and end result.

By: Kenny G

Kenny G — Wed, 07 Jan 2009 08:53:09 +0000

Commodities investing requires a lot of skills. So, if you don’t want to through your money away, you must study carefully first. Thanks for your post! It really makes sense for all beginners .

By: Kevin

Kevin — Tue, 30 Dec 2008 07:02:11 +0000

I was actually thinking of getting into some oil stocks (dividends + play on oil) or possibly an oil ETF. I can’t believe oil will remain where it is over the long run as it is a finite resource.

By: Pinyo

Pinyo — Wed, 24 Dec 2008 17:21:48 +0000

@Craig – Commodities is extremely volatile even compared to this year stock market. Just take a look at the two charts above. Do you see that in both cases commodities price went up higher than the S&P500 and dropped well below the S&P 500? That’s volatility.

By: Pinyo

Pinyo — Wed, 24 Dec 2008 17:09:28 +0000

@Craig – I think this is a terrific time to buy oil. In any case, investing in commodities is not like investing in U.S. large cap stocks; and in my opinion should not replace it. Personally, I am planning to add about 5% position in commodities either via an index fund or ETF (but I still have to do some more reasearch). Also, I am not planning to buy specific commodities, but looking for something that track the overall commodities market.

By: Craig

Craig — Wed, 24 Dec 2008 16:25:22 +0000

@pinyo That’s a good point. I guess nothing is real safe, especially these days.

By: Craig

Craig — Wed, 24 Dec 2008 16:12:08 +0000

@pinyo that never hit me to buy in oil right now. You have to imagine within 5 years the prices will be over $3.00 again. Tracking overall commodities market would make sense in a more long term strategy. For me, I am brand new to this and investing in general, trying to learn the basics. Seems like even buying individual commodities is less of a risk than individual stocks right now.