In
order to be properly diversified a total portfolio should
include not only an equities (stock) portfolio but also debt
instruments (commercial paper, municipal bonds, notes,
mortgages, etc.), real estate (income producing commercial
and/or residential properties), certain insurances (such as
annuities), and a conservative, well diversified commodities
portfolio.
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Commodities are the instruments in which companies and
corporations deal. For example, United Airlines’ profits
are contingent upon (among other things) oil prices; General
Mills – wheat and corn; Coke and Pepsi – sugar and corn syrup;
Home Depot – Lumber. All of these corporations are also
dependent upon currency exchange rates and interest rates.
Each of these commodities, and many others, serve as the
underlying assets and liabilities of the majority of the world’s
publicly traded corporations. Additionally, interest rates
directly impact lending rates, borrowing rates, and real estate
prices. Subsequently, a well constructed commodities
portfolio can serve as an effective hedge to your stock, bond,
real estate, and insurances portfolios.
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