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Hot Commodities?

May 5, 2011

From precious metals to petroleum, commodities have been a hot…well…commodity lately. Touted by some as an antidote to marketplace volatility, prized by those who worry about the dollar being devalued as the world currency, and perceived by many investors as a more tangible investment than other financial instruments, commodities have been rewarding investors with strong performance over the last several months. But, like any other investment, commodities carry a risk: they go up and they go down. Silver corrected down 30% in the first two weeks of May, demonstrating how true that statement is.

From an investment standpoint, I have some concerns. I worry that the strong performance of commodities, exemplified by the spike in energy prices, might represent somewhat of a commodity bubble. Since the government began the second round of quantitative easing, everything from crude oil and coal to gold and corn has gone up significantly. But when we see that, in contrast, the U.S. Dollar is down more than 10% during that same time period, you start to wonder. There’s additional worry that the influx of additional monies has prompted commodity speculators to artificially drive up commodity prices. From the standpoint of the average investor, just remember that investing in commodities is not without risk–which is rarely what you are looking for as you approach retirement. In my mind, it makes sense to take a more conservative approach; to look to reduce your exposure and stick to things like dividend paying stocks for assets you leave in the market.

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This material has been prepared for informational and educational purposes only. It is not intended to provide, and should not be relied upon for, accounting, legal, tax or investment advice. Please consult with a professional specializing in these areas regarding the applicability of this information to your situation.

Andrew Wood, Dan Simon and Alison Slezak are Investment Advisor Representatives. Advisory services are offered through CoreCap Advisors, LLC., a Registered Investment Advisor. CoreCap Advisors, LLC and Daniel A. White & Associates, LLC are separate & unaffiliated entities. 

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