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Commodity Investing For Your Portfolio
By Randy Zakowski
Even though throughout the last thirty or so years, the
Commodity Research Bureau (CRB) has been in a downtrend and the
S&P 500 as been in an uptrend many people continue to invest in
commodities. Before we look at why and how they are becoming
successful investors, let us look at what the CRB is. The
Commodity Research Bureau is something similar to the Dow Jones.
It mathematically combines the prices of commodities to
determine just how the commodities are moving. The equation is
performed by averaging out the prices of wheat, gold, coffee,
oil, and other such items.
One of the reasons that investors are doing so well, is that
when you look at the indices you are not getting the whole
picture. When you are looking at the general trends, you are not
seeing the daily price movements in detail. This is what many
investors use when they are looking to trade for profits. What
matters at the end of the day, is how much you paid and how much
you got when selling, not the prices that you see.
Trading strategies throughout the years have incorporated the
role of commodities. Stock prices and commodities often move in
very different directions. Therefore, many people incorporate
commodities into a large part of
hedging strategies.
Another reason might be just how investors view the different
strategies and how the market should and does work. For example,
some people believe with historical and substantial support,
that if you are following a crowd you cannot hope to make money.
People believe that before you can profit in investing, you must
be doing exactly the opposite of what others are doing. Data
proves that this is good train of thought and many people are
taking advantage of it.
Furthermore, when thinking in terms of a hedging strategy, a
smart investor will have a well-diversified portfolio. Which
means they will have a little bit of everything within their
portfolio, this includes commodities, cash, bonds, and stocks.
Thanks to inflation, these things work in the exact opposite of
each other. As an example, if bond are moving down, commodities
are moving up at the same time. This helps in hedging strategies
and giving you control over profits and risks.
Over the last few yeas, commodities have started to trend up.
This has been observed by many investors causing a rise in
commodities investments. Oil and are perfect examples of
this observation. About thirty years ago, the prices
peaked, after which it started on a steady downfall and
continued this way until about 2003. Since then, it has been
moving up and has increased by about forty percent.
Some people will tell you that the price will continue to
grow as time moves on. This may be true a true speculation,
however, you can never really tell. When it comes to inflation
and the views that the Federal Reserve have taken, it could very
possible be a true speculation.
However, one thing you can rely upon is other commodities such
as coffee, gold, oil, and wheat. The world will continue to use
them regularly. At the same time, some of these commodities
cannot be replenished, which means that the more people use
them, the less availability there will be. This includes oil and
gold. Neither can be recovered.
As the demand continues to rise for both oil and gold, we will
find that the supplies dwindle fast and leaving us to worry
about high prices as investors and consumers. There are some
other forms of commodity investments such as Exchange Traded
Funds (ETF's) and mutual funds. What is great about these kinds
of commodities, is that they generally tend to trend in the same
directions as stocks and bonds, instead of the opposite way, as
with some other commodities.
Randy Zakowski is a successful webmaster and publisher. He
provides more information about Commodity Trading at his
website: http://www.aprildays.net/commodities/
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