My friend Mike asked me a few weeks ago to contribute his blog with my thoughts on commodities, especially the precious metals since I truly believe investors can benefit from some exposure to commodities as an asset class in a well diversified portfolio.
There have been many studies and research projects about how some allocation to commodities will increase your return and lower your risk over the long term. How much depends on one's risk and comfort level. 5-10% may be more than enough for most, while most aggressive investors will be comfortable with 40-50%. Such ETFs as GLD, SLV, CEF, GDX and others have made it relatively easy for an individual to get exposure. Sure, you can buy a resources mutual fund (but why pay the managers above average fees) or individual mining companies directly (but why worry about operational risk, management risk, currency risk, geopolitical risk, environmental risk) when you can get exposure to the asset class through ETFs.
When I first started trading metals in the mid 1990s, I had to buy gold coins at the local dealer, but now the with the ease of owning commodity ETFs along with the diversification they offer, any investor would be foolish not to own commodity-related ETFs.
If you are new to investing, start by accumulating on a pullback and build a position over time (but be wary of your commission costs) and rebalance at least yearly, if not quarterly, depending on your risk tolerance. This world is too global and offers too much opportunity not to have some exposure.
Amaury
Contributing Author, ETF Updater
http://etfupdater.com
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