Commodities are physical goods such as gold, oil or wheat bought and sold on national exchanges. Many individual investors invest in commodities through funds and ETFs.
Upside: Commodities are seen as a hedge against inflation because you're investing in real physical goods with prices that generally rise along with inflation.
Downside: As anyone who jumped on the oil bandwagon too late in 2008 can tell you, the value of commodities can rise and fall very quickly, sometimes wiping out huge chunks of market value in days or even hours.
Though you may hear exhortations to buy gold from a broad range of pundits, Loeper cautions against it.
"Gold has had a 200-year real return of zero," says Loeper. "According to the World Gold Council, global supply has increased by several hundred tons in the last few years, while demand has dropped by 88 tons."Bottom line:
Approach commodities with extreme caution, and try not to get caught up in the gold rush
, Loeper says.
Combining lagging commercial demand with high fees, gold could be hazardous to your financial health, says Loeper.