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Commodities
Commodities are one of three main vehicles in the futures market. Commodities are literally the groundwork of our lives, the resources that come from the earth to fuel our cars, our bodies and our economies. The main categories include:
Category |
Type of Commodity |
Grain and oilseed
|
Corn, oats, wheat, rice, soybeans |
| Livestock |
Cattle, hogs, pork bellies |
| Food and fiber |
Lumber, cocoa, coffee, sugar, cotton, orange juice, rubber, wool |
| Metals |
Copper, gold, silver, aluminum, tin |
| Energy |
Crude oil, heating oil, natural gas, gasoline |
On their own, commodities and commodities futures are risky, but within a diversified portfolio they may help manage risk and may enhance performance. Because of potential volatility, close monitoring, as frequently as daily, is required.
Benefits |
Risks |
Generally, noncorrelated to
stocks and bonds
|
Strongly influenced by supply
and demand |
| Tax benefits¹ (Short-term profits in commodities
are treated as 60% long-term
and 40% short-term. Stocks, on the other
hand, are taxed as 100% short-term) |
Increased volatility due to overconcentration
in one commodity; commodity
values are influenced by global, political,
economic and other factors |
| Potential hedge against a bear market,
inflation or a downturn in the economy |
Potential loss of more than the original
investment (due to buying on margin) |
| Tangible assets—unlike stocks and bonds |
|
| Broader diversification² beyond traditional
stocks and bonds |
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Purchasing Commodities
Commodities can be purchased through futures markets, giving investors access to commodities anywhere in the world. In the United States, the three largest exchanges that offer trading in commodities are the Chicago Mercantile Exchange, the Chicago Board of Trade and the New York Mercantile Exchange. While individuals can trade commodities on their own, it is an extremely demanding task that requires expertise and constant monitoring of influences on commodities—for example, weather conditions and geopolitical developments. Other ways to participate in commodity investing include:
- Open a managed futures account with a financial advisor
- Join a commodity trading pool, by which your investment is combined with those of other pool participants and traded as a single account through a brokerage house
- Invest in a closed-end partnership fund that trades in commodities indices
- Invest in a commodities mutual fund
 
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¹ This information does not constitute tax advice. Please consult your tax advisor and/or state and local tax offices for more complete information.
² Diversification neither assures a profit nor eliminates the risk of experiencing investment losses.
This educational piece is not intended to be comprehensive. Before investing in managed futures, be sure to discuss them with your financial advisor to make sure they are appropriate for your time horizon, risk tolerance and objectives. Investors should be aware that there are risks, special costs and requirements associated with financial futures and that they may not be appropriate for all investors. When owning futures, investors should consider the impact and risk of maintaining a margin account. Margin is defined as borrowing money from a broker/dealer to purchase securities. It is sometimes called “buying on margin.” Should an adverse price movement affect your securities, a margin call will be issued, which demands additional investment to cover the loss. Failure to meet a margin call can result in losing more than your original investment. Futures should be regarded as short-term trading vehicles and should be regarded as inappropriate for anyone who is unable or unwilling on short notice to access other financial assets in order to meet margin calls on open futures positions.
The information provided here is intended to be general in nature and should not be construed as investment advice or a recommendation of any specific security or strategy.
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©2010 Rydex Distributors, Inc. All Rights Reserved.
 Not FDIC Insured No Bank Guarantee May Lose Value
For more complete information regarding the funds click here for a prospectus. Investors should consider the investment objectives, risks, charges and expenses of a fund carefully before investing. The fund’s prospectus contains this and other information about the fund. Read the prospectus carefully before you invest or send money.
The funds are distributed by Rydex Distributors, Inc. (RDI). Security Global InvestorsSM is the investment advisory arm of Security Benefit Corporation (Security Benefit). Security Global Investors consists of Security Global Investors, LLC, Security Investors, LLC and Rydex Investments. Rydex Investments is the primary business name for PADCO Advisors, Inc. and PADCO Advisors II, Inc. SGI and RDI are affiliates and are subsidiaries of Security Benefit.
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