funds (ETFs): ETFs are an increasingly popular investment because they’re managed funds that offer the convenience of trading like stocks. In recent years, a plethora of ETFs has appeared to track everything from crude oil and gold to diversified commodity indexes. Find out how to benefit from these vehicles in Chapter 12.
✔ Mutual funds: If you’ve previously invested in mutual funds and are comfortable with them, look into adding a mutual fund that gives you exposure to the commodities markets. A number of funds are available that invest solely in commodities. I examine these commodity mutual funds in Chapter 12.
If you have a pet or a child, sometimes you hire a pet sitter or babysitter to look out after your loved ones. Before you hire this individual, you interview candidates, check their references, and examine their previous experience. When you’re satisfied with the top candidate’s competency, only then do you entrust that person with the responsibility of looking after your cat, daughter, or both. The same thing applies when you’re shopping for a money manager, or money sitter. If you already have a money manager you trust and are happy with, stick with him. If you’re looking for a new investment professional to look after your investments, you need to investigate him as thoroughly as possible. In Chapter 14, I examine the selection criteria to use when shopping for a money manager.
The most direct way of investing in certain commodities is to actually buy them outright. Precious metals such as gold, silver, and platinum are a great example of this. As the price of gold and silver has skyrocketed recently, you may have seen ads on TV or in newspapers from companies offering to buy your gold or silver jewelry. As gold and silver prices increase in the futures markets, they also cause prices in the spot markets to rise (and vice versa). You can cash in on this trend by buying coins, bullion, or even jewelry. I present this unique investment strategy in Chapter 7.
Checking Out What’s on the Menu
I cover 32 commodities in the book. Here’s a listing of all the commodities you can expect to encounter while going through these pages. (Although the book is modular in nature, I list the commodities here in order of their appearance in the text.)
Energy has always been indispensable for human survival and also makes for a great investment. Energy, whether fossil fuels or renewable energy sources, has attracted a lot of attention from investors as they seek to profit from the world’s seemingly unquenchable thirst for energy. I present in this book all the major forms of energy, from crude oil and coal to electricity and solar power, and show you how to profit in this arena.
✔ Crude oil: Crude oil is the undisputed heavyweight champion in the commodities world. More barrels of crude oil are traded every single day (87 million and growing) than any other commodity. Accounting for 40 percent of total global energy consumption, coal provides some terrific investment opportunities.
✔ Natural gas: Natural gas, the gaseous fossil fuel, is often overshadowed by crude oil. Nevertheless, it’s a major commodity in its own right, used for everything from cooking food to heating houses during the winter. I also take a look at the prospects of liquefied natural gas (LNG).
✔ Coal: Coal accounts for more than 20 percent of total world energy consumption. In the United States, the largest energy market, 50 percent of electricity is generated through coal. Because of abundant supply, coal is making a resurgence.
✔ Uranium/nuclear power: Because of improved environmental standards within the industry, nuclear power use is on the rise. I show you how to develop an investment strategy to capitalize on this trend.
✔ Electricity: Electricity is a necessity of modern life, and the companies responsible for generating this special commodity have some unique characteristics. I examine how to start trading this electrifying commodity.
✔ Solar power: For a number of reasons that range from environmental to geopolitical, demand for renewable energy sources such as solar power is increasing.
✔ Wind power: Wind power is getting a lot of attention from investors as a viable alternative source of energy.
✔ Ethanol: Ethanol, which is produced primarily from corn or sugar, is an increasingly popular fuel additive that offers investment potential.
Metallurgy has been essential to human development since the beginning of time. Societies that have mastered the production of metals have been able to thrive and survive. Similarly, investors who have incorporated metals into their portfolios have been able to generate significant returns. I cover all the major metals, from gold and platinum to nickel and zinc.
✔ Gold: Gold is perhaps the most coveted resource on the planet. For centuries, people have been attracted to its quasi-indestructibility and have used it as a store of value. Gold is a good asset for hedging against inflation and also for asset preservation during times of global turmoil.
✔ Silver: Silver, like gold, is another precious metal that has monetary applications. The British currency, the pound sterling, is still named after this metal. Silver also has applications in industry (such as electrical wiring) that places it in a unique position of being coveted for both its precious metal status and its industrial uses.
✔ Platinum: Platinum, the rich man’s gold, is one of the most valuable metals in the world, used for everything from jewelry to the manufacture of catalytic converters.
✔ Steel: Steel, which is created by alloying iron and other materials, is the most widely used metal in the world. Used to build everything from cars to buildings, it’s a metal endowed with unique characteristics and offers good investment potential.
✔ Aluminum: Perhaps no other metal has the versatility of aluminum; it’s lightweight yet surprisingly robust. These unique characteristics mean that it’s a metal worth adding to your portfolio, especially because it’s the second most widely used metal (right behind steel).
✔ Copper: Copper, the third most widely used metal, is the metal of choice for industrial uses. Because it’s a great conductor of heat and electricity, its applications in industry are wide and deep, making this base metal a very attractive investment.
✔ Palladium: Palladium is part of the platinum group of metals, and almost half of the palladium that’s mined goes toward building automobile catalytic converters. As the number of cars with these emission-reducing devices increases, the demand for palladium will increase as well, making this an attractive investment.
✔ Nickel: Nickel is a ferrous metal that’s in high demand because of its
