Wikinvest Wire

Money Magazine recommends commodities

Wednesday, March 25, 2009

The current issue of Money Magazine is quite shocking. I've railed against what they've been writing for years now about conventional investment advice and, from the looks of the latest issue, you'd think they saw Jim Cramer on the Daily Show and figured they'd better get out ahead of the curve.

As the cover story is not yet on line - The 7 New Rules of Financial Security - there's something else in the April issue that is online that is well worth sharing, the equally shocking recommendation to buy commodities in this report by senior writer Janice Revell.

In fact, a case can be made for commodity-based investments now. But just as important, you should know you really don't have to go there. Chances are, you have exposure to commodity prices in your portfolio already. For those with the stomach for a roller coaster ride, though, an investment of 5% or so of assets in a commodity-based mutual fund could give your portfolio extra pop.

What's more, because commodities don't usually move in sync with stocks and bonds - the past few months notwithstanding - they are good diversifiers. They may lower your overall portfolio risk in the long run.
Old habits die hard...

There are probably a lot fewer individuals looking for "extra pop" in their portfolio today than a year ago, but still these old phrases get trotted out.

Recommending commodities as a mostly non-correlated asset class, however, is a very big first step for the nation's most popular personal finance magazine.

For that they should be commended.

More good advice is forthcoming about ETNs (Exchange Traded Notes) - I've never really liked them much, even before the credit crisis.
Your best strategy: Avoid the "exchange-traded notes" that track futures. They look a lot like exchange-traded funds, but they are backed only by the credit of the issuer. That's not a risk you need these days. The better play: Harbor Commodity Real Return Strategy (HACMX), which uses financial contracts to track the Dow JonesAIG commodity futures index. It too is a complex investment, involving derivatives, leverage, and inflation-protected bonds. If you prefer to just keep things simple - hey, life is short - stick to the stocks.
Alas, they are still a bit stuck in their "stocks only" thinking, but they do recommend a new commodity fund that happens to be run by Pimco (same as PCRCX or PCRDX).

Why they picked a fund that is only six months old when there are about 70 others to choose from, many of these offerings having been around for years now, is a mystery.

This is, however, a big step toward mainstream investors including commodities as an important part of their asset allocation strategy, something I've recommended for many years now.

Full Disclosure: Long PCRCX at time of writing.


norcal steve said...

Uh oh...time to sell all your commodities. It must be the top if Money is recommending it :)

Chuck Ponzi said...

Norcal Steve,

Well... there's probably something left in it. When TIME or US News does so, then flee.


me said...

In the Financial Times today it said commodities were up because of production cuts not increased demand.

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