So What are Commodities and should I invest?

One of the characteristics of a commodity product is that its price is determined as a function of its market. Well-established physical commodities have actively traded cash and derivative markets. Generally, these are basic resources such as oil, coffee, grains, soybeans, copper, gold, silver, tin,aluminum, and many others.

Many feel that investments in these products will be greatly rewarded with the investment stimulus bill that is going through congress. And since the economy seems to be investing "green" many commodities are now tied to these new investment products.

Commodity investing tends to be riskier than traditional stocks and bonds since they are often based on futures contracts, or options. These financial instruments tend to be very highly leveraged, so you can make a lot, or lose a lot of money very quickly. Lately, though, mutual funds and ETFs have created commodity-based investments that trade just like any other fund. They still tend to be risky, though, as the underlying investments themselves may be levered.

Many advisors use commodities as a part of an asset allocation program, since they can often move in opposite direction of the market (SP, Dow, etc.) Investors still need to be careful though, and work closely with their financial planner to determine if these investments belong in their portfolios.