High net worth investors shifting focus from cash to commodities for 2012
By Scott Kyle
According to survey results covered in a recent edition of Bloomberg Businessweek and conducted by the Institute for Private Investors, high net worth investors are planning to reduce cash holdings in the coming year in favor of allocations to commodities and private companies. In today’s market, such a move makes it possible for investors to reap the benefits of commodities investments without incurring significant costs; and as executive director of IPI Mindy Rosenthal explains, it also marks the renewed popularity of owning physical assets. In Rosenthal’s words, investors are “going back to the old school way of making money” – and with the help of an expert financial advisor, affluent individuals can enjoy the best of both the old and new worlds by putting a smart, contemporary spin on the traditional commodities market.
Based on the IPI survey, which polled members with over $30 million in investable assets, approximately 48 percent of investors plan to increase commodities investments over the course of 2012. In addition, 55 percent will up their investments in private companies, while 45 percent will boost real-estate holdings. Nearly 36 percent, in contrast, stated an intention to reduce cash holdings; and according to the IPI, this may be due to the sense that a volatile market will lead to buying opportunities for smart investors. A combination of urban growth and improved living standards in some emerging markets has increased investor interest in both commodities and real estate: and unlike in years past, where physical ownership of these assets was required for profit, today’s market makes it possible for investors to hold publicly-traded commodity and real estate stocks and securities – allowing them to profit from strong prices without the high start-up costs of purchasing full physical holdings on their own.
Bridging the gap: maximize commodities investments with money management expertise
While the financial industry has taken some much-deserved heat for its questionable behavior over the last few years, there are some areas in which it has successfully opened up new opportunities for investors. A prime example has been the creation of various financial products that give investors both large and small unprecedented access to asset classes previously reserved for the ultra rich. The advent of vehicles such as Exchange Traded Funds (ETFs), which trade like stocks on major exchanges, has opened up a whole new world for investors looking to profit on very specific and unique opportunities. Let’s say you believe that infrastructure-related companies in Brazil will prosper in the coming years: now, there is an ETF for that. Or perhaps you’re confident that the former Soviet Union will get its act together and emerge as an economic powerhouse in the future? No longer do you have to brush up on your Russian and hop on a plane to Moscow in order to make an investment. With a few clicks of your mouse you can own many of the large publicly traded Russian companies and benefit from their future growth in areas like oil where Russian firms have a major presence.
Since ETFs trade just like stocks, investors also have the benefit of liquidity – a critical advantage in case you decide your initial thesis was wrong and choose to sell. With ETFs, you can do so as easily as when you made the purchase, and in a few seconds you are out of the investment. Similarly, with commodity-related ETFs that exist for virtually all the major world commodities, you can purchase an ETF that rises with the price of gold, silver, etc, all without the hassle of storing the physical commodity or paying large markups that typically exist when buying the actual goods.
As with all investing, there are inherent risks that you need to fully understand before making a purchase; so do your homework or work with a professional who has deep experience in making such investments. When approached in an intelligent and prudent way, the world can be your investment oyster; and at Coastwise Capital Group, we’re here to provide expert guidance and customized service along the way. To learn more or schedule a consultation with an experienced San Diego money management professional, visit us online: www.coastwisegroup.com.
The information in this article is strictly for educational and illustrative purposes and is not an attempt to furnish personalized investment advice or services.
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