4 of 5

Write now Article Tools

Page 2 of 2

companies. With mining companies it is possible to get exposure to a number of different metals with one company. Gold and silver are often found together. Some base metals are also found along with gold and silver in the same mine.

As for energy plays, there are many companies that deal in energy, oil, gas, coal, uranium, etc. Or you can invest in lumber companies but not lumber directly.

One play that might make money because of its support of commodities would be shipping. Much of our food and energy must to be shipped to market. Purchasing a shipping company may be a good indirect commodities play.

Creating a portfolio of various commodities through buying stocks can be quite a challenge and requires a lot of diligent research. That's where mutual funds and ETFs come in.

Through mutual funds and ETFs, it is possible to create an instant diversification in commodities investing. The broadest possible commodities investment would be one that mimics one of the commodities indexes. For example, there is the Standard & Poors Goldman Sachs Commodity Index (GSCI) and the Dow Jones AIG Commodity Index (DJAIG). These indexes actually follow commodities futures.

One fund that follows the GSCI is the Oppenheimer Real Asset Fund (QRACX). A fund that mimics the DJAIG is the PIMCO Commodity Real Return Strategy Fund (PCRAX). If you are interested in either of these funds, you will need to see what kind of minimum investment is required.

From these broadly based index funds, we move to funds that represent more narrow sectors. You will need to do your own research, but you can find funds that represent different aspects of the energy sector. You can find funds that represent mining, both precious and industrial metals. You will find funds for just about any commodities sector.

In periodically picking their top 10 funds, Motley Fool has come up with an interesting observation worth noting for any fund you might be interested in buying. The most successful funds actually charged lower-than-average expenses! Also, they tended to have longer-tenured managers. On the most recent list of the top 10 mutual funds, eight out of 10 were commodities funds.

When it comes to ETFs, things get a little different. The main difference between mutual funds and ETFs is the way that they are bought and sold. Most mutual funds require a minimum investment. Although funds can be bought and sold, it isn't quite as easy as buying and selling ETFs.

ETFs can be bought and sold just like a stock. There is no minimum and no fees. You simply pay your regular broker fee as you would for any stock. Otherwise, ETFs have funds that mimic the commodities indexes as well as funds that are more specialized and follow a single commodities sector.

What's interesting about ETFs compared to mutual funds, is that ETFs can follow a single commodity. For example, there are funds that follow the price of gold or the price of silver. Obviously these single commodity ETFs represent more risk with a higher possible upside and a higher possible downside.

I can't tell you the best way for you to buy commodities. I can tell you that buying commodities is a good idea right now. Energy prices and food prices are not going to go down for quite some time. Precious and base metals are also going to go up. Base metals will go up because of the ongoing building in Brazil, Russia India, and China (BRIC). Precious metals are going to go up because of the slow demise of the US dollar.

The commodities bull is good for at least another five years. If you can afford to get in, do it now.

Learn more about this author, Bob Trowbridge.
Click here to send this author comments or questions.

• << previous page
• 1
• 2

Add your voice

Know something about How to buy commodities?
We want to hear your view. Write now!