Sometimes we need to go undercover!
Like a good detective, each week I scour the globe trying to find good information and resources for you, my reader. Sometimes I go on a little covert mission. Other times I play the part of a good sleuth trying to piece together clues. This week I was thinking a lot about the role of commodities in a portfolio. I have been using a combination of gold, silver, and agricultural commodities to help my investors since 2002.
I wasn’t convinced that there were only three asset classes – stocks, bonds, and cash. I was fully convinced that alternative investments, such as commodities played an important role in a portfolio. So in 2002, after doing a ton of research, I dove in and started adding commodities into the asset allocation mix and have been pleasantly surprised with the amazing results!
This week I found some great information to show why you should own commodities in your portfolio. It comes from Roger Gibson, is the founder and chief investment officer of Gibson Capital Management, Ltd., a registered investment advisor providing money management services to high-net-worth individuals and institutional clients nationwide. If you look at the chart below you will see why commodities should be a part of nearly every portfolio. If you look at two indexes:
1. S&P 500 Index for U.S. stocks
2. S&P GSCI Commodity Index for commodities
Now if you placed your full dollar in the S&P 500 in 1971, this dollar would have grown to $32.07 by the end of 2009 – a pretty darn good return. Well, what if instead, you placed a dollar into commodities? There you would have done even better: Your dollar would have increased to $36.26. Wow!
Well here’s an interesting point: If you instead divided your dollar 50/50 and bought 50 cents worth of stocks and 50 cents worth of commodities and rebalanced annually, you would have nearly $52 from your $1 investment. It is amazing how the whole outperformed the components. Even better, it got a better return with less volatility. This my friends is why commodities belong in nearly every portfolio. If you’d like to explore how to add these investments into your allocation strategy, let’s set up a FREE discovery meeting and explore the possibilities!
Disclaimer: The S&P 500 Stock Index is a widely recognized capitalization – weighted index of 500 common stock prices in US companies. The S&P GSCI is a composite index of commodity sector returns representing an unleveraged, long-only investment in commodity futures that is broadly diversified across the spectrum of commodities. Diversification does not protect an investor from market risks and does not assure a profit.