Basically commodities are things that come out from the earth. Even things that are grown are labeled as commodities. Some of the common commodities are grains, minerals, metals, livestock, cotton, oils, sugar, coffee and cocoa. Some of the best commodities for mutual funds are crude oil, cattle, wheat and hog bellies.
The reason that commodity mutual funds are so popular is because they help an investor to diversify his portfolio. Commodity mutual funds offer excellent hedge against inflation and help you broaden your investment while reducing the risk factor. An investor has the option of investing in one commodity market but this exposes the investor to risks if the market moves downwards. On the other hand, commodity mutual funds spread out the investment in different commodity markets and reduce a person's risk while increasing his chances of making a profit.
Today, many investors feel that one of the best commodities for mutual funds are natural resources as there is a strong global demand for natural resources like iron ore, copper, oil and precious metals. In addition, many of these commodities are either in short supply or the infrastructure support is inadequate to meet the demand.
Another commodity that is expected to perform well is coal. This is because the demand for coal is increasing and of late coal prices have doubled. In fact, according to mutual fund managers the demand for coal is growing much faster than the demand for gasoline.
Armed with this knowledge, you now know which are the best commodities for mutual funds and you can now plan your investment portfolio wisely without taking unnecessary risks.
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