There are several asset classes you can choose for your portfolio: Cash, stocks, bonds, real estate, commodities and currencies to name just a few broad categories. The key idea here is that different asset classes have different levels of risk and return, and the way you mix them in your portfolio will play a key role in determining your overall risk and return.
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Commodities and Inflation: Investors are always concerned by rapidly rising prices, known as inflation, which may reduce the buying power of their portfolios. To protect themselves against this risk, they invest in commodities, which tend to be closely correlated to inflation.
Inflation Protection: In other words, commodities tend to increase in value if inflation increases, which protects the buying power of your portfolio, and reduces your overall risk.
Here are a few Exchange Traded Funds (ETFs) that track the performance of commodities. PowerShares DB Commodity Index Tracking (DBC): DBC tracks the performance of the Deutsche Bank Liquid Commodity index, tracking commodities like light, sweet crude oil, heating oil, aluminum, gold, corn and wheat.SPDR Gold Shares (GLD): The fund tracks the performance of gold, less the trustee's expenses. Originally listed on the New York Stock Exchange in November of 2004, SPDR Gold Shares has been one of the fastest growing ETFs in the United States. Other gold funds include iShares COMEX Gold Trust (IAU). Also have a look at iShares Silver Trust (SLV), which tracks the performance of silver. iShares Dow Jones US Energy (IYE): IYE aims to replicate the performance of the Dow Jones U.S. Oil & Gas index. Other oil- and gas-related funds to consider are Oil Services HOLDRs (OIH), Vanguard Energy ETF (VDE), Energy Select Sector SPDR (XLE), and United States Natural Gas (UNG).