How to Start Investing in Agricultural Commodities

You can invest in agricultural commodities such as corn.

Keeping a small percentage of your portfolio invested in commodities is an excellent way to both diversify your investments and improve your returns. Follow these simple steps to start investing in agricultural commodities.

Things You'll Need

• Computer with internet access
• Brokerage account with options trading

Instructions

1. To begin, decide on the percentage of your investment portfolio that you would like to allocate to agricultural commodities. A range of 5 to 10 percent in all commodities is a prudent allocation. In other words, if your portfolio is worth $100,000, then an allocation of $5,000 to $10,000 might be appropriate for you.

2. Next, determine if you want to invest in a commodity index, available in the form of an exchange-traded fund (ETF), that includes coffee, corn, wheat, soybeans, sugar, rice, cotton, cattle and hogs, or if you want to try your hand at individual futures trading. An ETF carries much less risk and is far simpler to invest in.

3. Finally, pick your investment vehicle. Commodity future options are available for trade on many different agricultural products. Some more experienced investors try their hand at commodities trading as a way to generate returns. But the intricacies and risk involved make trading a poor choice for beginning investors. Another alternative commodity investment is to buy and hold an ETF such as the PowerShares DB Agriculture, symbol DBA. This ETF offers the investor holdings in a variety of different agricultural products and a reasonable expense ratio.

Tips & Warnings

• Consult a financial advisor or stock broker for professional advice.

• Never invest more than you can afford to lose.

References

• "USA Today": Can you profit in agriculture?