How To Diversify With Commodities

Are you having sleepless nights worried over the current economy? Are you looking for a way to add diversification to your current portfolio? If so, then this is the post for you! Your portfolio may be missing exposure to the commodities sector. You may not know it but commodities have a place in the portfolio of every investor. They can offer a hedge against inflation and provide diversification from traditional stocks and bonds.

Here are 5 ways to add some commodities exposure to your portfolio.

Gold

Gold and other precious metals are in great demand during times of economic uncertainty. Lots of investors rush out and buy physical gold from companies like Goldline. Should you do the same? Forget about buying gold coins and bullion from gold collectors. Dealers will sell you these gold products but with huge markups. Besides buying physical gold sounds great but is highly illiquid. You may be forced to sell your gold bullion to a pawnbroker or coin shop that pays you well below the spot price. The best thing to do is to buy precious metal ETF’s like the GLD which tracks the spot price of gold daily.

Silver

While gold gets all of the hype, there are other precious metals that can help add diversification to your portfolio. One of these metals is silver. Silver has been trading upwards just like gold over the last 20 months. The good thing about buying silver is that it is much cheaper than buying gold. Investors looking for exposure to silver can buy a reputable silver ETF like the iShares Silver Trust ETF (SLV).

Oil

Just 2 years ago we were all worried about the price of oil. Oil was close to hitting $150 a barrel and analysts were predicting oil would hit $200 a barrel in no time. Fast forward two years and all the oil chatter has ended. Oil is down near $75 a barrel and no one is worried about oil prices rising. Investors are getting a great chance to invest in the oil market. Oil exchange traded funds are one way to gain exposure to the oil market but oil stocks are even better right now. Since the BP oil spill, companies like Exxon (XOM) are trading at just 9 times earnings and paying a nice 3% dividend.

Alternative energy

The United States government is trying a number of different alternatives to reduce our dependency on foreign oil. While this may be a few years away, investors have a chance to get in on the ground floor. Trying to pick the alternative energy winner is like trying to find a needle in a haystack. It could be coal, solar, wind power, ethanol or anything. The safest bet is to buy an alternative energy ETF that covers each of those areas. ETF’s like the iShares Global Clean Enery ETF (ICLN) and the PowerShares WilderHill Clean Energy (PBW) will give you exposure to all clean energy sources.

Agriculture

As the population increases, global demand for food is expected to only rise over the next decade. How can you take advantage of this rising trend? You can invest in companies that plant, harvest, and manufacture agricultural products. The agribusiness sector is big business. Look for ETF’s like the Market Vectors Agribusiness ETF (MOO) which invests in small and large agribusiness companies. This ETF will give you exposure to great companies like Potash, Mosaic, and Agrium.