A follow up to my post –  Commodities

So this is a requested post I received via email. The original post is here where I talked about commodities etc. As with any finance advice I give on this blog these are my opinions, I am not a financial advisor. The person emailing me acknowledged this and the spirit of the email was more along the lines of “Well what are you doing then?” for a portfolio.

I told the person I would use my email reply and post it here as well so others can see. I am not going to list the specific funds I use, again this isn’t a financial advisors blog. I am a finance professional yes but I am not a certified financial planner so keep that in mind.

First, I am 52 years old. I have been investing since 1992. The majority of my assets reside in my 401K that I have rolled over from successive companies over the years. I am also debt free. Now this is important because while I invested for years, most of those years was at a lower than normal investment rate as I took that money and used it to pay off my mortgage. Approx. 35% of my net worth is the equity of my house. 50% is in retirement accounts, 10% is in a brokerage account that is designed to produce dividends the balance is cash.

So how does this break out exactly?

  1. I have 6 months of my current monthly expenses sitting in a money market account that gets .5% interest. This is an emergency fund.
  • 70% of my retirement accounts I use the “bogle” strat. I use index funds with low fee’s and loads. All of these are long term investments and have provided me with stellar returns. The fund names aren’t critical as long as they track correctly to the index:
    • 75% into an S&P Index fund
    • 20% International
    • 5% bonds

All of the funds in item 2 are investments I have held for several years in some mutual fund for or another.

  • 20% of my retirement is in 2 aggressive growth mutual funds. These focus on small cap funds and I monitor this grouping very closely. I “flip” this 20% often when I make good returns and then shop for new funds in this category.
  • 10% of my retirement is in a precious metals and commodities mutual fund. I have had the same one for years now it’s OK. This is a hedge really but I wanted to be in different parts of the market so I got one fund that invests in several commodities.
  • Brokerage account: this is all about passive income. I invest in singular stocks and mutual funds that have a long term track record of paying dividends. I keep reinvesting the dividends into more shares. The goal here is to build a big enough foot print to provide a good quarterly payout that I will use to supplement my income in retirement. I have many investments here which cumulatively add up to a good chunk of change. However singularly aren’t much.
  • Cash: I have another 3-6 months of expenses sitting in a debit/eft/checking account. This is what I call my “living” account. I want a coffee it comes out of here, gas, groceries. This is where my salary is deposited every month and I disperse from here to my other accounts.

So this isn’t very complex. Most of my wealth is tied into index funds and the equity of my house. The house equity of course isn’t liquid I am sitting on it but having bought the home decades ago the appreciation of the house has made it worth a nice chunk of change and paying it off early meant I saved on interest payments.

As I age this break out will change. When I am 62 I plan to collect Social Security and stop working for a salary. Ideally I will continue to work for health benefits, we’ll see. At that time, I will be shifting the break out and consolidating many of the asset classes into more capital preservation friendly vehicles that generate interest income. Ideally CD rates will be higher, and if they are I will look into them.

CD’s will never outperform the market but the extremely low risk is very attractive as I start to get into my 70’s and enact my legacy planning (for kids and grandkids). Keeping in mind the whole time I will still be living and spending and generating some income.

Anyway, as requested that’s where I am at on my investment portfolio. Thanks for coming by and supporting my blog I really appreciate it.

Commodities – Should you invest?

For the first time in a long time we have inflation to the point where it is materially affecting multiple financial sectors. Bonus tip: Anytime oil prices rise, it affects pricing on nearly all consumer products. We also have the artificial inflation of the stock market due to interest rates being kept at historic low levels for over a decade. On top of that you had the pandemic that decreased production and you had governments stimulate with increase payments to individuals. These two factors alone cause inflation, less products and more money = product price increases.

Now before I get to far into this let me give you the normal disclaimer. I am a finance professional with 30 years of experience. These are my opinions based on years of observation, any decisions you make pertaining to your personal financial choices should be done so with a great deal of research beyond my blog posts.

Disclaimer out of the way, what does all of the reality of the first paragraph mean? It means commodities will increase. Oil, Precious metals, specific produce items wheat as an example. Does this mean they are a good investment? Yes, and no, first the no. Buying them now would break the basic principal of investing and wealth building (buy low sell high), you would be buying at a high, don’t do that.

Yes, because a diversified portfolio is a good thing. If you had gold in your portfolio at the start of the pandemic (3.1.20 roughly) it was trading at 1497.00 US per ounce. 2 years later? 1944.00 US per ounce that’s nearly a 30% return. Oil, wheat, Silver you can go figure it out, they are mostly up. The point here is you are seeing these items increase because the market is changing. The war in Ukraine effects commodities, specifically Wheat as Ukraine is a huge Wheat producer but what happens when markets change (with the many factors listed in this narrative) commodities tend to rise.

There is no sure thing in investing, its always a rollercoaster.

Ideally what you want to do is use the current financial climate as notice on how to diversify your portfolios going forward. Gold as an example, will come down. Should you go heavy into gold when it does? No, you should consider SOME gold though. 2-5% of your portfolio is what I recommend to family & friends buying at a low (I use 3-5 year price averages myself). Wheat will be another one that spikes soon, keep an eye on that.

Overall, commodities are a useful buttress for lower stock values. If you weren’t in commodities prior watch the prices in 2022 it’s going to be a good year to gauge your comfort level with commodities. Just like stocks it’s a gamble, but sometimes when you gamble you win and had you bought Gold (as an example) years ago and stayed with it, you would have a spectacular sell opportunity now to make some great gains.

Always be diligent when investing and don’t close your mind off to any specific sector of the markets. A diverse portfolio that takes a long term view on investments is prudent. Commodities are a big driver in markets (look at oil prices), ignoring them as investments isn’t the smart play. Nor is using a large % of your investing resources and putting that into commodities. It’s a sell position now. Take your gains if you have them and remember the simple phrase “buy low sell high” should always be paramount.

Source for Gold comparison:

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