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May 18, 2010 at 08:00 PM
Diversification
According to David Zuckerman, CFP, CIMA with Zuckerman Capital Management LLC in Los Angeles, one great reason to add exposure to commodities is that commodities are one of the only asset classes that have demonstrated a negative correlation with broad equity markets.
In other words, commodities provide investors significant diversification benefits to the overall portfolio.
Inflation
The debate over the likelihood of significantly higher inflation in the U.S. rages on.
Even if you’re not convinced that inflation will spike soon, there’s still an argument in favor of commodity funds as a long-term hedge.
Precious metals and commodities have outperformed U.S. equities over the last decade, notes John McAvoy, CFP with Waterstone Retirement Services in Canton, Mass., who believes this pattern is likely to continue until our debt crisis is dealt with. Until that time, it is possible that we will see gold go over $2,300 an ounce.
Why? In 1980, gold hit a high of about $880 an ounce, which on an inflation-adjusted basis is equal to about $2,300 an ounce.
Zuckerman points out that historically commodities have been one of the best places to be invested during periods of high inflation.
He believes and it is important for investors to obtain exposure to asset classes that can weather if inflationary pressures resume.
