Including Commodities in Your Self-Directed Retirement Plan
Published on August 6, 2015
As you know, self-direction means being able to include many more types of assets in your retirement plan. Of course, you may self-direct your stock, bond, mutual fund, or Treasury bill investments (do your homework before sending instructions to your plan administrator); but for investors who understand various commodities markets, you can also include these alternative assets in your self-directed retirement plan.
What Are Commodities?
Commodities are raw materials that are mined, grown and used in construction and manufacturing, and they are traded on different types of markets. Investors may own the physical commodity itself or shares in its resource producers (or a combination of both). Including commodities in your self-directed retirement portfolio is a great way to diversify your holdings if you truly understand these types of assets and have the risk tolerance needed to be a commodities investor.
Commodities that you can invest in break out into a few categories:
- Agricultural/consumer – if it is farmed, harvested and later consumed by the public, it might be an investable commodity. Think coffee, sugar, tea, wheat, soybean, cotton, corn and cocoa.
- Energy – natural gas, heating oil, light crude oil and unleaded gas.
- Metals – we have written before about including investment-grade precious metals in a self-directed retirement plan. There are guidelines around the types of metals you may invest in through self-direction (gold, silver, platinum, palladium in bullion bars, some coins). See this post for more information.
- Meat and livestock – hogs and cattle are typical; however, you might include shares in an alpaca farm as something different.
The agricultural commodities markets were relatively strong in June, according to data compiled by CNN Money (http://money.cnn.com/data/commodities/). In the agriculture/consumer sector, wheat, corn, cocoa, cotton, coffee and soybeans showed strong gains. In the energy sector, natural gas showed strong gains that month.