How to Invest in Commodity Mutual Funds

Video Transcript

"Hello, my name is Roger Groh with Groh Asset Management. Thank you very much for spending a few moments with me this morning. Today we're here to talk about commodity mutual funds and how you can invest in them and really how you can benefit from having them as part of your portfolio. Historically commodities have gone up in price as inflation has gone up in price. So you have to time it a little bit. If you think that inflation is going to be picking up in the year 2010 or 2011, well maybe commodities begin to make sense at some point prior to that. On the other hand, if the economic data still provides evidence that there is deflationary pressure going on like there is today with commodity prices falling, maybe it's a good time to avoid them. OK, at some point commodities will come into play again. Now what is a commodity? Well it could be something as simple as oil which we all know long term is going to see an increase in demand and probably see an increase in price. In the case of metals, they tend to do well when the building business is expanding. The reason is as an example, in copper most wires have copper in them in order for electricity to flow through them. So as long as they're building buildings and you're putting in wire, copper does pretty well. On the other hand, if there's no growth in the building business and there's no growth in the homeowners business, it's tough. So you have to time the commodity business a little bit. Now where can you buy a commodity fund? You have to be very careful and discuss this at length with your trusted broker. Perhaps you can call Merrill Lynch or Goldman Sachs or White Pacific Securities or Charles Schwab or any of the other discount brokers. If you do call a discounter, be sure that ahead of time you've spoken with somebody else who's very knowledgeable about commodities and be sure you know what you're buying. Some commodity funds employ leverage which means your prices can go up higher faster, on the other hand they can go down quicker. Also, some commodity funds short prices which is fine as long as prices are falling, but it really hurts you if prices begin to go up. So know what you're buying, they're not your normal mutual fund. I'm Roger Groh and thank you very much for spending a few minutes with me about commodity mutual funds."