Don't Get Swept Up in Commodity Rally

I recently stumbled across a headline proclaiming that commodities had logged their biggest gains since 1990. All of this excitement has brought out the extrapolators.

They're the ones who predicted oil would hit $200 a barrel after reaching $147 last summer. When crude sank to $35, these people said it would drop to $25. When gold flirted with $1,000 an ounce, they said prices would top $1,200. It's easy to get carried away.

If you're a long-term investor who has an average tolerance for volatility and believes in asset allocation, you should have a stake in commodities. While some investors put 20% of their portfolios in gold, I think a smaller weighting of 5% to $6% makes more sense. That's because a lot can go wrong with commodities and they might not follow the patterns you expect. ...