With all the uncertainty in the financial markets, people are wondering where they should invest?
\”Should I just keep my money in the bank earning 1/2% interest?\”
\”Should I put my money in safer US Treasury Bonds?\”
\”Should I buy gold, because I hear it\’s a \”Safe Haven?\”
\”Should I Just keep my money in my mattress and wait until the financial Armageddon is over?\”
Seriously, its a question that many people have been wondering. There is not a simple answer.
It really depends are your current financial situation,income,net assets, risk tolerance, ect.
I would recommend to have a balanced investment portfolio with all asset classes, stocks,bonds,cash, and commodities.
Commodities? you ask. \”Aren\’t commodities very risky? Yes they can be, but
Adding commodities to a diversified investment portfolio, via professional money managers or commodity trading advisors (CTAs) may decrease portfolio volatility risk.
What are Managed Futures?
Many individual and institutional investors search for alternative investment opportunities when there is a lackluster outlook for U.S. equity markets. As investors seek to diversify into different asset classes, most notably hedge funds, many are turning to managed futures as a solution.
Defining Managed Futures.
The term \”Managed Futures\” refers to a 30-year-old industry made up of professional money managers who are known as \”Commodity Trading Advisors\” (CTAs). CTAs are required to register with the U.S.government\’s Commodity Futures Trading Commission (CFTC) before they can offer themselves to the public as money managers. CTAs are also required to go through an FBI deep background check, and provide rigorous disclosure documents (and independent audits of financial statements every year), which are reviewed by the National Futures Association (NFA), a self-regulatory watchdog organization.
CTAs generally manage their clients\’ assets using a proprietary trading system, or a discretionary method, that may involve going long or short in futures contracts in areas such as metals (gold, silver), grains (soybeans, corn, wheat), equity indexes (S&P futures, Dow futures, NASDAQ 100 futures), soft commodities (cotton, cocoa, coffee, sugar) as well as foreign currency and U.S government bond futures. In the past several years, money invested in managed futures has more than doubled and is estimated to continue to grow in the coming years if hedge fund returns flatten and stocks underperform.
Benefits of Managed Futures
1. Reduced Portfolio Volatility Risk – The primary benefit of adding a managed futures component to a diversified investment portfolio is that it may decrease portfolio volatility risk. This risk-reduction contribution to the portfolio is possible because of the low to slightly negative correlation of managed futures with equities and bonds. One of the key tenets of Modern Portfolio Theory, as developed by the Nobel Prize economist Dr. Harry M. Markowitz, is that more efficient investment portfolios can be created by diversifying among asset categories with low to negative correlations.
2. Potential for Enhanced Portfolio Returns – While managed futures can decrease portfolio volatility risk, they can also simultaneously enhance overall portfolio performance. Adding managed futures to a traditional portfolio can help to improve overall investment quality. This is substantiated by an extensive bank of academic research, beginning with the landmark study of Dr. John Lintner of Harvard University, in which he wrote that \”The combined portfolios of stocks (or stocks and bonds) after including judicious investments…in leveraged managed futures accounts show substantially less risk at every possible level of expected return than portfolios of stocks (or stocks and bonds) alone.\” (Lintner, John, \”The Potential Role of Managed Commodity Financial Futures Accounts (and/or Funds) in Portfolios of Stocks and Bonds,\” Annual Conference of Financial Analysts Federation, May 1983)
3. Ability to Take Advantage of Any Economic Environment – Managed futures trading advisors can take advantage of price trends. They can buy futures positions in anticipation of a rising market or sell futures positions if they anticipate a falling market. For example, during periods of hyperinflation, hard commodities such as gold, silver, oil, grains, and livestock tend to do well, as do the major world currencies. During deflationary times, futures provide an opportunity to profit by selling into a declining market with the expectation of buying, or closing out the position, at a lower price. Trading advisors can even use strategies employing options on futures contracts that allow for profit potential in flat or neutral markets. However, profits are not guaranteed, and there is risk of substantial loss.
4. Ease of Global Diversification – The establishment of global futures exchanges and the accompanying increase in actively traded contract offerings has allowed trading advisors to diversify their portfolios by geography as well as by product. For example, managed futures accounts can participate in at least 150 different markets worldwide, including stock indexes, financial instruments, agricultural products, precious and nonferrous metals, currencies, and energy products. Trading advisors thus have ample opportunity for profit potential and risk reduction among a broad array of non-correlated markets
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DISCLAIMER:The risk of loss in trading commodity futures and options can be substantial. Before trading, you should carefully consider your financial position to determine if futures trading is appropriate. When trading futures and/or options, it is possible to lose more than the full value of your account. All funds committed should be risk capital. Past performance is not necessarily indicative of future results. If you access and use this website, you accept and agree to be bound by, and comply with, the legal terms of use that must be accessed and read by clicking on the link \”Disclaimer\”. You should access and read the Disclaimer before using this website. Changes may be made to the Disclaimer at any time without notice. Accordingly, you also agree to review the Disclaimer regularly and your continued access or use of the website means that you agree to any changes to the Disclaimer.