We live in economically tough times. It is easy to see this all around us today. The stock market is in a constant state of volatility and instability. The nation’s debt continues to rise, and jobs are scarce. Finding the right investment options for your portfolio that protect you from the volatility and instability of today’s markets can be difficult.
There is an often forgotten segment of the market that may provide a hedge against future inflation and instability in currency markets. This segment involves commodities. When most investors think of investing in commodities, they think of the movie “Trading Places,” which features chaotic scenes from the commodities pit trading floor. Most investors today don’t realize that you don’t have to be on the floor to invest in commodities and add commodity exposure to your portfolio.
ETFs, or exchange traded funds, allow the every-day investor to trade commodities like they are common stock. For example, if you are an investor that wants to add agriculture related commodity exposure to your retirement portfolio because of its inflation protection, there are several ETFs to choose from. You can invest in broad based agriculture ETFs that cover the entire sector (from wheat, corn, and rice, to livestock), or you can specifically target a wheat agriculture ETF.
There are a few different ways to add agriculture exposure to your portfolio. You could invest in an ETF of agriculture-rich economies, like the iShares MSCI Australia (EWA) and iShares MSCI Canada (EWC). You could invest in equity ETFs that own shares in companies that deal in agriculture, such as the Market Vectors Agribusiness (MOO) and PowerShares Global Agriculture (PAGG). A third way to add agriculture exposure to your portfolio is to invest in ETFs that own futures contracts in different agriculture related products, such as the PowerShares DB Agriculture (NYSEArca: DBA).
ETFs, unlike mutual funds, can be traded intraday just like common stock can. They have tax advantages, and also have low maintenance fees associated with them. Instead of settling on a mutual fund, look at the different commodity ETF options on the market. Agriculture, as stated above, has proven to be a good hedge against inflation.
If you are worried about your retirement portfolio not being able to keep up with future inflation, adding exposure to agriculture related commodities is a good cure for this problem. Be sure to do your research before investing in any stock or ETF.