S&P 500 ^GSPC 5,010.6 +0.87%
Nvidia NVDA $795.18 +4.35%
Tesla TSLA $142.05 -3.40%
Amazon AMZN $177.23 +1.49%
Alphabet GOOG $157.95 +1.43%
Apple AAPL $165.84 +0.51%
Microsoft MSFT $400.96 +0.46%
Meta META $481.73 +0.14%

This is one interesting take on portfolio diversification for me :)

Why and how to include commodities in your portfolio?

Commodities are key to the functioning of the world as we know it today. They serve as a source of raw materials and energy for industry and agriculture. Stability of commodity supply is essential to the global economy, and commodity prices affect the economy and people's daily lives. Commodity markets therefore keep the system going, a system that is with us and will always be with us. If, like most investors, you are trying to find appropriate ways to maximize your profits and minimize your risks, including commodities in your investment portfolio may be an option.

Commodities such as metals, energy, agricultural products and others bring interesting market characteristics to your portfolio relative to the behavior of other investment instruments. We will focus on the importance and characteristics of commodities that may find a place in your portfolio.

Commodities vs. global equities

Commodities and global equities differ in several ways. While global equities represent the world's largest companies, commodities represent physical raw materials. Stock prices are influenced by the performance of individual companies, macroeconomic factors, corporate performance and market expectations. In contrast, commodity prices are influenced by global supply, seasonal factors and demand for the commodity in question. They are also much more susceptible to geopolitical events and natural disasters. In addition, many commodities are negatively correlated to equities. There is potential in the difference, which, thanks to the opportunities of the modern world, every investor can exploit.

Commodities for the portfolio include

There are several reasons to combine the investment instruments mentioned above. By diversifying, we can increase or decrease the volatility of the portfolio. Commodities and equities tend to react differently to market events and factors. If the stock market experiences a downturn, commodity prices may increase to help offset declines in stock prices. In the event of unexpected events, such as the Ukrainian conflict, commodity prices can increase dramatically, and this can lead to attractive returns for investors who have not overlooked the commodity component.

Interestingly, in a number of equity/commodity combinations, portfolio performance increases, but on the other hand, maximum drawdown decreases. Thus, by diversifying, the investor eliminates risk, reduces the maximum drawdown of the portfolio and, in addition, increases the return on his investment.

Which commodities to invest in and how to invest

The most popular commodities for investment include gold, silver, oil, natural gas and many others. However, before investing, it is important to choose an appropriate investment instrument such as futures contracts, ETFs or shares of companies operating in the commodities sector. For less experienced investors or investors with a low risk profile, it is preferable to include one of the actively managed funds where portfolio managers actively allocate capital according to their specific investment strategy, thereby protecting the investor's capital.

The choice of instrument must take into account the investment horizon, where the longer it is, the higher the volatility the investor accepts, and of course the composition of commodities must be appropriately linked to the stocks represented in the portfolio. If you do not know the characteristics of the commodities you want to invest in and are unable to calculate the potential future impact on your capital according to the parameters, it is more than necessary to consult an expert on the subject.

(Not) Investing in physical bullion

The most used instrument within commodities is gold, which has earned its respect and admiration as a time-tested store of value. However, there are several important pieces of information that are being withheld or taken out of context by gold dealers when it comes to diversifying a portfolio with bullion. The first stumbling block is the amount of margin, which ranges from 2% to 20%, depending on the company and the amount the investor is buying. The price of gold itself has underperformed the SPX index while having higher volatility, which at first glance may interpret it as an inefficient investment tool.

However, even a gold coin has two sides. It is a great way to hedge against currency risk, and it can also be a suitable alternative if the investor already has a comprehensive range of other investments, making it an interesting addition. In the investment world, the rule is that nothing should be overdone and its purchase should be consulted with an independent expert, but not a salesperson as is the case in most cases.


We have been introduced to the world of commodities and the opportunities that their market behaviour offers us. Our world revolves mainly around them. When they were scarce in the past, ancient civilizations fell into oblivion over time. So, if you still don't include commodities in your portfolio, this article can be a springboard for their inclusion.

Outperformance and lower drawdown are just the tip of the iceberg of what sensible asset allocation can bring us. Remember, however, that you must have the necessary knowledge of the functionality of commodity price behavior and incorporate it with respect to other portfolio components before investing.

If gold drops to $1800 I'll buy a few percent through ETFs to add to my portfolio.

Interesting... I want to get a few pieces of gold and silver just so I can finally have an "investment" that I can actually touch :)