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Financial Opinion and Insights

Do Commodities Make Sense for You?

Jim Lorenzen, CFP®, AIF®

Jim Lorenzen, CFP®, AIF®

There’s a question every financial advisor hears virtually every day; and it starts with the words, “What do you think of…..”

How that question ends, of course, depends on what’s happening in the economy right now.   You see, what’s happening NOW is regarded as more important than something that happened last week, even if what happened last week has a 90% chance of repeating and what’s happening right now has only a 10% chance.  It doesn’t matter.  If it’s NOW, it’s more important.  That’s called ‘recency bias’, and most investors suffer from it.

Today, of course, there’s fear.  Fear of the government, fear of the dollar (same thing), fear of the global economy, fear of inflation, etc., etc., etc.  So, people begin asking about gold.  The more sophisticated investors don’t limit the question:  They ask about commodities in general.

What do I think of them?  I like them.  I also like stocks, bonds, real estate, and cash.  It’s like a diet:  I like almost all foods (except liver and sushi).  While I like seafood and chicken dishes, I do enjoy an occasional steak; but, my diet is balanced.

Commodities can be good for many portfolios – talk to your advisor first.  As you can see from this Morningstar chart, commodities were the top performers during seven of the last twenty years when inflation was increasing.  As you can also see, those years would have been hard to predict.   Talk to your advisor and see if/how they may fit into your plan.  If you don’t have a plan, that’s your first place to start.  Don’t have an advisor?  You know where I am.

 

Commodities and Inflation

 

Jim Lorenzen is a Certified Financial Planner® and an Accredited Investment Fiduciary® in his 20th year of private practice as Founding Principal of The Independent Financial Group, a fee-only registered investment advisor with clients located in New York, Florida, and California.   IFG provides investment and fiduciary consulting to retirement plan sponsors and selected individual investors. Plan sponsors can sign-up for Retirement Plan Insights here.  IFG does not sell products, earn commissions, or accept any third-party compensation or incentives of any description.  Nothing contained in this material is intended to constitute legal, tax, securities, or investment advice, nor an opinion regarding the appropriateness of any investment to the individual reader.  The general information provided should not be acted upon without obtaining specific legal, tax, and investment advice from an appropriate licensed professional.

 

Written by Jim Lorenzen, CFP®, AIF®

September 28, 2011 at 8:05 am