One of basic tenets of portfolio construction is following the principles of asset allocation. This is much more applicable and valid for do-it-yourself individual investors. In this context, at a minimum, I need to look at and at least consider evaluating all possible asset classes. While doing this, I also have to keep in mind that my portfolio is based on dividend growth philosophy. Among others, a commodity is also one asset class which I believe I should be investing. The next question is what should be my investing vehicle?

In recent years, commodity has been in news due to continuous increase in market price. This price increase was not restricted to any one particular commodity, but just manifested itself to all types of commodities. Commodities include agriculture products (grains, oil seeds, fertilizers, pesticides), bullion (gold, silver, platinum), Oil and related products (crude oil, natural gas), chemicals and petrochemicals (additives, fibers, yarns, paints, polymers), Metals (iron, steel, aluminum, zinc, etc). So you see it is indeed a very large domain. Now what does it really mean to trade or invest in commodities? It does not mean we buy or sell or invest in real physical commodity. Continue reading rest of this article…