What they don't tell you in those late-night TV commercials is that if you're going to buy gold coins, you better have an iron stomach. But there are steps you can take to minimize your risk.
Don't overdo it.
You shouldn't have more than 10 percent of your money invested in commodities or commodity-based exchange-traded funds. The more you own, the greater risk you're taking on.
If you're going to put a sizable amount of money into commodities, make sure you diversify and invest in more than one. As the drop in silver shows, you can lose a lot of money quickly if you're exclusively in one commodity.
Consider stocks, not ETFs.
The stocks of commodities producers can be far less volatile than exchange-traded funds that focus on a specific commodity.
Pan American Silver Corp., a silver producer, fell 6 percent in one week this month after hedge funds dumped silver.
But the iShares Silver Trust, one of the largest ETFs that owns silver, fell 26 percent. It directly tracks silver, so if silver prices rise or fall sharply, it does, too.
Find ways to hedge.
Investors can protect themselves by buying stocks that tend to gain or lose value in the opposite direction of raw materials. Airline stocks work as a hedge against oil, for example, because airlines benefit from falling prices, said Spencer Patton of hedge fund Steel Vine Investments LLC. When oil prices fell two weeks ago, the Amex Airline Index rose 4 percent.
Think about your time frame.
Oil prices likely will continue to go up in the next 10 years as demand increases, said Randy Warren of Warren Financial Service. But gold's price increases may slow in the next year or two. Knowing what the outlook is for the commodities you want to buy will help you weather the price swings — or know that it's time to sell. For the latest updates PRESS CTR + D or visit Stock Market news Today
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