Alternatives: Commodities
Commodities are physical products, such as precious metals and agricultural products.
Commodities tend to rise in price with inflation. Therefore, they can provide inflation protection in a portfolio.
Here are three ways to gain exposure to commodities.
You could buy the physical commodity directly. This is rare because transportation and storage is expensive and cumbersome.
It’s more common to buy shares of companies in the business of exploration, production, and processing of commodities.
A pure, yet simple, way to gain exposure to commodities is through an index fund or exchange traded fund based on the price of one or more commodity.
While many seek enhanced returns from commodities, most allocate a small % for the purpose of diversification.
If two investments are negatively correlated, then they move opposite to one another and thus reduce the risk of overall volatility.
Because of the relatively low correlation between alternatives and traditional investments, adding them helps investors reduce risk.
