"Now, Everyone Wants A Dishwasher."

We were discussing expanding our mutual fund portfolio (not hard, as it only contains ONE fund right now) with our step-father and mentioned adding in some international and European funds.

He agreed, cautioning to make sure we looked into funds with low expense ratios.

Then, he, a man who will proudly die never having been accused of being a smidge too politically correct, added,

Look into commodities. It’s an old story, but true. Some of these growing countries, these communist countries that were kept under oppressive regimes for so long and not allowed to participate in the market economy…. in the 1920′s, China had no middle class. And countries like India. Now everyone wants a dishwasher. That takes a lot of raw materials.

Interesting, we had never thought about it that way. Not that we’ve ever done much thinking about commodities. We do know at least international funds and commodities are hardly mutually exclusive. A nugget to save in the ol’ noggin’.

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  1. hubris says:

    Once I get a real job and have money to invest, that’s one of the first things I *will* be investing in. Companies come and go, with the newest fad or software, whatever. But the components that make up modern life? Those will most likely always be in demand. Rubber, plastic, metal, etc. will be making people money for a long time.

  2. Kurtz says:

    Don’t forget to diversify – a lot of people have lost their shirts in commodities trading. Do your homework and don’t believe the hype.

  3. Moosehawk says:

    For an economics class I took we were required to (logically) trade one commodity over a 2 month period and record how we traded it everyday and how much we made. I ended up scoring $150,000 or something around there on Natural Gas (too bad it was for real). But mostly, I gained a large amount of knowledge on how that particular commodity moves around.

  4. humphrmi says:

    @omerhi: It’s not all about demand or even growth of demand. Before you get a real job and have money to throw away^h^h^h^h^h^h^h^h^h^h invest, take an economics class. Tons of demand against equal tons of supply won’t make your investments earn any money.

  5. PragmaticProfessor says:

    A few comments on international investing.

    As the investments are usually priced in local currency, you have the additional risk of currency exchange rate fluctuations, which increases overall risk.

    Another thing to consider is that international is a pretty broad categorization. “European” international and some of the “Pacific” countries (Japan, South Korea) are much more mature markets than the truly emerging markets of other parts of South-East Asia, India, Africa, etc.

    Also, what your father-in-law said about low expenses is key. I own a blended international fund that has expense of only 0.3% per year and is a blend of 60% European, 25% Pacific and 15% emerging markets (from Vanguard, FWIW). The point is that with low-expense international mutual funds, you can get exposure to these markets broadly without paying a lot to do so.

  6. ccandy222 says:

    I worked as a Financial Adivsor for the past few years and this is exactly how people get in trouble. They listen to a “tip” from someone but don’t really know if it’s credible, and that person is never around in 5 years to tell you if it’s still a good investment. Whenever you invest internationally your taking currency risk, on top of any other investment risk. Professionals are everywhere that will give you investment advice based on your risk tolerance and time line. If your investing less than $150,000 you should look for someone that will charge a commission rather than a fee. This means that they will give you free advice on what you should do and if you decided to take action they get paid. If they don’t give you good advice, you don’t owe them anything. You can start by investing as little as $50/ month and get professional advice, they will get paid $1-$2/month or $12-24/year but will help you so you are one day a great invesment client.

  7. There are some commodities/commodities companies mutual funds out there that definitely fall in the “widows and orphans fund” category (that is, very conservative with a small but steady rate of return). I guess I hadn’t really thought about them as aggressive investments.

  8. protest says:

    one thing is for sure, in the past 18 months my international fund got me a 30% return on my money, while my other small cap/large cap stock funds got 10% so invest away if you’ve got some time to weather the bumps. i’m going to look into commodities, never really thought about them before.

  9. tcp100 says:

    While a good idea in theory, investing directly in commodities is very, very risky, if you don’t know the market.

    [www.msnbc.msn.com]

    The closest I’d do is something like PCL, which is a lumber company, but also a REIT. They sell their lumber to build houses, but also sell their land to hedge.

    Probably better also to just proxy through a good company, such as Alcoa (Aluminum) or something like Newmont Mining if you want to play gold – but gold, along with lots of other commodities, are surprisingly unpredictable, and many amateur investors get quickly burned.

    As @humphrmi said, lots of people start going into commodities not understanding the supply side of the equation, and only looking at demand. Also, things change seasonally and over even larger timespans – what’s an everyday material today (Asbestos, anybody?) could be completely out of favor in a few years.

  10. lore says:

    If investing in commodities themselves scares you a little, you could invest in the companies that directly process the raw materials into workable materials for companies to use.

  11. Wormfather says:

    Commodities tend to shite brightest when there’s unrest in the market. The rest of the time, it’s basic suply and demand and the only demand that tends to historicly be above supply are oil, copper and sex.

  12. stanfrombrooklyn says:

    I’m afraid making money in commodities is a little more difficult than just knowing that the Chinese are going to be using more copper.

  13. miborovsky says:

    Commodities is a zero sum game, so it’s much riskier than mutual funds. Don’t invest in it unless you have a lot of other investments.

    In other news, China had a robust and growing middle class in the 1920s. The commies only came to power around 1949.

  14. PhilK says:

    Unless you eat, breath, and live (heh, you do kind of :) commodities you’re likely to lose your shirt. There’s tons of money to be made there, but you’ve got to watch every world event, every inventory report, every conference call for the refining companies (for refined commodities like oil/gas). If you’re a semi-casual investor you’ll be much better off with sector ETFs or a nice emerging market ETF.

  15. jskahan says:

    The reason you want to invest in international funds is the very reason that you shouldn’t: they are the category of funds that has posted the highest returns over the last year. The top performing fund category one year usually under-performs the market going forward because 1) the gains in the category have already been made and 2) performance chasing investors flood the top performing funds with money, making the fund manager’s job much more difficult (he has to find more and more good stocks to invest in).

  16. anatak says:

    yeah, one to keep in the old noggin right next to: Find someone who actually knows something about commodities, has made money at it, and survived to tell about it. I’ve heard enough about people losing millions because soy bean futures were off 2 cents, thank you very much.

    Now, as someone who admittedly doesn’t know a ton about the commodities market, I can’t tell you when to get in or out. But typically, you buy low, sell high. Steel prices (among others) are already high at retail due to emerging markets. May go much higher. Who knows? Just doesn’t seem like the time to dive into that. As someone else eluded to, you may be better off with mutual funds specializing in industrial.

  17. fredmertz says:

    Whenever you get an investment tip that seems very simple and logical, you have to ask yourself, “Is it likely that any of the tens of thousand of people who dedicate their entire waking lives to making money on this type of investment have already thought of this?” The answer is probably yes, and the risk/reward is probably priced into the investment already.

    In this particular case, demand from developing nations has already driven commodity prices through the roof — oil, gold, platinum. Everything trading at highs.

  18. humphrmi says:

    Jeez, the more I think about this article, the stupider this advice becomes. “Commodities only go up!” Substitute “dot-com stocks” for “Commodities” and you have to ask yourself if anyone learned anything from 2001.

    The advice, and the thinking / logic behind it, are indicative of someone who clearly does not have a grasp of investment strategies or how they work.