Commodities Investment Strategies

commodities Investment Strategies Tailored for Your Portfolio

Find Out If Commodities Can Enhance Your Investment Portfolio

A broad range of raw materials are traded as commodities on a globe-spanning market that offers a number of potential investment opportunities. Some of the most straightforward commodities include oil and natural gas, metals, grains and other foodstuffs.

Commodities are somewhat unique in their relative fungibility as a tradable quantity of a defined good. Some commodities offer an alluring combination of predictability, risk and reward. For example, the global economy will always require oil, but global conflicts, the economic health of nations and regions, unpredictable events and supply can alter the market value of oil.

For example, the early months of the COVID-19 pandemic caused a rapid decrease in demand in a way that was virtually unpredictable. This had knock-on effects on production and distribution that eventually led to delays in ramping up production as the economy reopened. These types of events, along with decisions of multinational organizations like OPEC, can have massive repercussions for the price of oil as a commodity.

Effectively holding and trading commodities like oil requires a close reading of markets as well as the diverse array of economic and policy factors that could influence the commodity’s current or future value. Despite the risk, commodities offer a unique diversification opportunity as well as a possible hedge against inflation for some portfolios.

The financial advisors and investment managers at Fullerton Financial Planning have experience in the market dynamics that influence commodities. We have the experience to incorporate commodities into a diversified investment strategy in accordance with the investor’s long-term goals and risk tolerance preferences.

The Role Commodities Can Play in Investment Strategies

Inflation Hedge

The cost of goods and services typically track inflation, and the commodities on which those goods and services rely will usually rise alongside those costs. This type of inflation hedge can be valuable in protecting the purchasing power of your investments, especially in times of market volatility or high inflation.
Diversification

Commodities offer a path to enhanced portfolio diversification, potentially offering an extra risk reduction solution to your investment strategy. Although commodity prices can be influenced by the national and global economy, they are also independent of stocks and bonds, with prices that don’t always run parallel to the same trends. Holding or trading commodities might help smooth out portfolio returns during periods of market volatility.
Growth Potential

An informed, well-researched commodity investment strategy executed by investment professionals experienced in the trade of these assets may lead to significant portfolio growth if managed wisely. This is particularly true in times of regional or global economic growth, as expanding economies lead to increased demand for goods like oil, metals and agricultural products.

How Fullerton Financial Planning Helps Phoenix Investors Approach Commodities

Strategic Allocation

Our investment and portfolio management recommendations are based on an in-depth evaluation of your overall financial situation and investment goals. The inclusion of commodities or exposure to commodities via other investments may be just one way to enhance portfolio diversification and risk tolerance in accordance with your investment horizon.

Direct and Indirect Investment Strategies

While direct investment in physical commodities is one of the most straightforward ways to diversify a portfolio with commodities, there are alternative investment strategies that might be better aligned with current market conditions or your investment strategy.

For example, purchasing commodity futures, commodity ETFs or mutual funds or stocks of companies that produce or process commodities can give you exposure to these markets without a direct investment in physical commodities.

Which option is right for a portfolio can depend on a number of factors. Our financial advisors can explain these strategies and how they can potentially enhance your investments.

Active Management and Monitoring

The management of commodity investments will vary depending on the type of investment and the commodities in which you invest. All investments require monitoring, but some commodity investments benefit from an active, hands-on approach to management and adjustments in accordance with global events, market changes and economic indicators.