Arch Financial Planning Limited MoneyTalk
April 2007
|
Arch Financial Planning Limited MoneyTalk |
|
|
||
|
||
April 2007 |
||
|
||
|
||
|
||
Investing in Commodities by Arthur Childs, Chartered Financial Planner Traditional asset allocation models for investors have a balance of equities (ie stocks and shares), bonds (ie fixed interest investments) and cash, depending on the risk profile of the investor. In order to reduce risk in their investment portfolios investors are increasingly looking for other asset classes to provide greater diversification. One such asset class now available to private investors is that of natural resources, usually referred to as commodities. Commodities are real assets, and have little correlation with bond and equity indices, which makes them an attractive asset class in a portfolio. Commodities have already provided exceptional returns during the last five years; witness the JPM Natural Resources Fund and the Merrill Lynch Gold & General Fund which have returned 33.6% pa and 24.6% pa compound respectively over this period. However, even though the performance of commodities generally over the last five years has been so good, there is still a strong case for continuing to invest in the commodities sector. Going into its fifth year and still going strong, there are those who believe the current cycle has the potential of developing into an extended commodities boom, or ‘super cycle’. A super cycle is a prolonged (decade or more) trend rise in real commodity prices driven by the urbanisation and industrialisation of a major economy. "For at least the next 50 to 75 years, prices for many natural resources are headed up." Professor Kenneth S Rogoff, Professor of Economics, Harvard University; Economic Counsellor and Director of Research, International Monetary Fund 2001 to 2003. Whether the current cycle turns out to be a super cycle we can only wait and see. However, we are not in the business of trying to predict short term market moves. Our concern is to assist those who invest with us to achieve their long term objectives. In this respect, we believe that it would be prudent for investors to include an element of commodities in their long term investment portfolios. How that is best achieved will depend on each investor’s requirements. For further information on investing in commodities see an updated section of our website www.arch-fp.co.uk/commodities.php. You will also be able to print off a pdf version of this section of the website if you wish. Please note that this information does not constitute personal advice and should not be treated as a substitute for specific advice based on your circumstances. If you are in any doubt as to whether an investment in commodities is suitable for you, then you should discuss the matter with a suitably qualified independent financial adviser such as ourselves. If you would like to discuss how best to include an investment in commodities into your investment portfolio, please ask your usual Arch adviser, telephone 0845 3700 661 or email enquiries@arch-fp.co.uk. |
|