Commodities: An Essential Addition To Every Portfolio?

| April 1, 2013 | 0 Comments

If you’re like me, you’re always looking for the best ways to grow -and most importantly, protect- your hard earned money.

What are your investment alternatives?

Well, you have numerous options… stocks, bonds, commodities, real estate, CDs, and not to mention- your trusty old savings account or money market fund.

Of course, where you put your money is known amongst financial professionals as ‘asset allocation’.  But nowadays, with all the uncertainty in the global economy, many investors are simply allocating their cash into the safest place they can find… a savings account.

If you have a large portion of your savings sitting in cash, you probably think you’re choosing a very safe asset allocation.

But that couldn’t be further from the truth…

Why?

You may not realize it but you’re actually having your money stolen from right beneath your nose.  Negative real interest rates are slowly robbing you blind.

What’s that?

It’s simply the difference between real interest rates (near 0%) and the rate of inflation, which is officially at 2%.  Of course, many financial experts agree that without government tinkering, actual inflation numbers are far higher- somewhere in the range of 5-8%.

How did interest rates get this low?

The US Federal Reserve embarked on one of the greatest financial experiments of all time in 2008.   Maybe you remember, that’s when the Fed instituted the first round of quantitative easing (QE) to combat the effects of the financial crisis.

As you may know, QE is when a central bank prints billions of dollars out of thin air in order to purchase long-term government bonds or mortgage-backed securities.  Doing so brings interest rates down, allowing banks to lend money to consumers and businesses more freely- thus stimulating the economy.

Since 2008, the Fed has juiced the economy with three rounds of QE.  But more importantly, the third round (instituted in late 2012) is open ended.  In other words, there isn’t a specific target date to wind down this operation.

Why’s that a big deal?

Take a look…

What you see above is the balance sheet for the US Federal Reserve Bank.  Clearly, the assets accumulated by the Fed took a gigantic leap starting in 2008 (red circle).  And with QE3 having no end date, the blue line in the chart is set to go dramatically higher.

I could go on for hours about that chart…

But all you really need to know is this.  What you see above will eventually have a seriously negative impact on the US Dollar.  Many financial experts agree that in the not so distant future, the US Dollar’s role as the world’s reserve currency will be challenged due to out of control printing.

And that’s precisely why you need to have a certain percentage of your asset allocation towards commodities. 

Why?

Commodities are real.  They represent real work and energy.  They can’t be printed out of thin air like the US Dollar and other major currencies.  Combined with the appropriate allocation of equities and bonds, commodities are an appropriate addition to every investor’s portfolio.

Of course, they’re also used in every aspect of our lives…

Corn, wheat, precious and industrial metals, oil, etc.- they’re all part of your everyday routine.  Turning on the morning news, eating breakfast, driving to work… you get the picture.  It all comes from commodities.

The bottom line?

When the dollar makes its eventual decline, investors will rush into tangible things.  That’s why getting to know the commodity markets now, and the best ways to profit from them, will have a huge impact on your future financial situation.

And that’s precisely what we’ll be uncovering here at Commodity Trading Research- the best way, and most advantageous times to invest in specific commodities.

I look forward to uncovering the best commodity profit opportunities the markets have to offer- with you!

Until Next Time,

Justin Bennett

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Category: Commodity Trading

About the Author ()

Justin Bennett is the editor of Commodity ETF Alert, an investment advisory focused on profiting from the ebb and flow of important commodities via ETFs. The commodity veteran and options specialist is also a regular contributor to the Dynamic Wealth Report. Every week, Justin shares his thoughts with our readers on a variety of commodity-related topics. Justin is also a frequent contributor to Commodity Trading Research’s free daily e-letter. And he’s the editor of another highly successful and popular investment advisory, the Options Profit Pipeline.