Is There a Safety Net in Commodities?

If you think commodities are a safe haven in a down market, think again.

   

Video Transcript 

Commodities can have a great role in your portfolio, however, they don’t seem to be providing a lot of downside protection for the stock component of your portfolio.

As I show you in the chart in the video of the movement of the S&P 500 versus the Deutsche Bank Commodity Tracking Index (NYSE:DBC), you can see that when stocks have been moving lower, commodities have also been moving lower. When stocks have been moving higher, commodities have also been moving higher. This is a positive correlation between these two asset groups.

Now, there have been some times – and I show you some examples on the chart in the video – where commodities had a slightly different trajectory than stocks but, basically, they’ve been moving along almost in lock-step with each other as they go back and forth and back and forth.

So, that tells us that commodities as a whole [will generally mirror the broader market's movement]. Now, DBC invests in a wide array of commodities, from agricultural commodities, to energy-based commodities to precious metals. It’s got it all in this fund, so you may find a little more diversification if you were to specialize in one commodity, say, oil or gold or some other commodity rather than all of them together.

Investor Place advisors John Jagerson and S. Wade Hansen are co-founders of LearningMarkets.com, as well as the co-editors of SlingShot Trader, a trading service designed to help you make options profits by trading the news.  Get in on the next trade and get 1 free month today by clicking here.


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