Consider Commodities for Diversification

Physician's Money Digest, September 2006, Volume 13, Issue 9

In today's investment environment,it is no longer sufficient to buy intoa specific stock or mutual fund andforget about it for a few months. To beconsidered a savvy investor, you needto understand the different types ofinvestments available. The bubble burstof tech stocks in 2000 was the beginningof a secular bear market. For thenext 15 years, we should see stocksmaking higher highs and lower lows.Therefore, most opportunities for investmentslie within the commoditiesmarkets, which are also known as alternativeinvestments. These commoditiesmarkets are currently experiencinga secular bull market, making higherhighs and higher lows.

It is surprising that those who considerthemselves savvy investors refuseto diversify their investments into commodities.Their first response is always,"commodities are way too riskyfor me." This attitude begins to changewhen they are asked if they knowabout the risk in commodities fromfirsthand experience, or if they learnedabout the risk through word-of-mouth.On any given day, there is agreater possibility for Microsoft to goout of business than for crude oil orcorn to go out of business, but mostinvestors tend to ignore this fact.

Commodities may be in a secular bullmarket, but it doesn't mean that you cango buy a bushel of corn and expect tobecome the next Jim Rogers overnight.It takes research and analysis to makeeven the slightest investment decision.One option for beginning your involvementin the commodities market is startinga managed futures account.

The term "managed futures" describesan industry made up of professionalmoney managers known as commoditytrading advisors (CTAs). TheseCTAs manage client assets on a discretionarybasis using global futures marketsas an investment medium. CTAstake positions based on expected profitpotential. Investment management professionalshave been using managedfutures for more than 20 years. Morerecently, institutional investors, such ascorporate and public pension funds,endowments and trusts, and banks, havemade managed futures part of a well-diversifiedportfolio. The growing use ofmanaged futures by investors can beattributed to the increased institutionaluse of the futures markets for risk-managementprograms. Additionally, investorswant greater diversity in theirportfolios. They seek to increase portfolioexposure to international investmentsand nonfinancial sectors, an objectivethat is easily accomplished through theuse of global futures markets.

Jose Serrano is a managing partner ofDynasty Financial Group, LLC, one ofWashington DC's premier alternative investmentcompanies, specializing in managedfutures and other advanced investmentstrategies for institutional and retail clients. He welcomesquestions or comments at 202-904-2453. For more informationvisit, www.dynastyfinancial.com.