Your Path to Precious Commodities

Most of the indices that underlie the funds have 10-year track records that lag stocks. Or if they don't lag, the outperformance is skewed because of huge up years such as the 47% one-year return for silver or the 89% one-year return for the industrial metals.

Another crucial aspect to grab onto here is that these funds will be volatile. Most of the funds are as volatile as or much more volatile than the S&P 500. So these are just as volatile as stocks but have a low correlation to them. This tells me that loading up on them may not be ideal for most folks.

While it may seem like I am negative on these funds, I do in fact think they are potentially great tools to introduce to a diversified portfolio. First of all, they zig when stocks zag most of the time. They also serve as a potential dollar hedge; commodities are priced in dollars, so if the dollar goes down, commodity prices tend to go up, all things being equal.

It is true that commodities were not a great place to invest during the secular bull market in stocks from 1982 to 1999, but in the last couple of years, commodities have done well. Many believe we are in the early stages of what could be a 15-year bull run in commodities. While that may or may not be true, what is true is that commodities are a legitimate asset class and that having some exposure makes for good diversification.