Commodities

In a previous post I talked about how there are many different investment opportunities out there. I talked about how there are hundreds and thousands of different investment brochures and pamphlets. They are all different colours and shapes and sizes. This of course can be very overwhelming if you are not used to this kind of literature.

What you have to remember is that there is only basically six asset classes in which you can invest your money. I would like to talk about one of those asset classes today, that is the commodities class.

Commodities are your basic food or raw materials. Of the top of my head i can think of cotton, gold, pork bellies (still don't know what that means) and of course oil. If you have seen the movie starring Dan Akroyd and Eddie Murphy called Trading Places you may think frozen concentrated orange juice is a commodity but I'm pretty sure it is not traded anywhere although I stand to be corrected.

Commodities can be divided into seven categories:

1. grains and feeds (barley, bran, corn)
2. foods (butter, cheddar cheese, cocoa, eggs, sugar)
3. fats and oils (coconut oil, lard, palm oil)
4. fibres and textiles (cotton, wool)
5. Metals (aluminum, copper, steal)
6. miscellaneous (rubber)
7. precious metals (gold, silver)

By all means think about having commodities as part of your portfolio but don't make that the focus or put 100% of it in commodities you could be heading for disaster. Commodities are great for 10% of your total portfolio.