The Everything-You-Need Portfolio: A Commodities Play

by: Skyler Greene

I've always been interested in "alternative" investment strategies, and no, I don't mean credit default swaps. Rather, I mean strategies designed for a different purpose than simply maximizing total return.

Many investors turn to precious metals like Gold (GLD) or Silver (SLV) to hold their purchasing power over time. However, as I've analyzed before, precious metals are notoriously volatile and can't be counted on to hold their value over the long term. This is especially evident when you view a chart of gold's actual purchasing power over the past few hundred years.

So what should you do?

Buy What You Need

Investors who want to preserve their purchasing power are essentially trying to guarantee that no matter what may happen in the future, they'll be able to afford necessities. What's the logical conclusion? Well, instead of owning a single asset (GOLD), investors should instead hold claims on all the "necessities." These include:

Food: Teucrium Trading offers single-commodity ETFs including a Corn Fund (CORN), a Wheat Fund (WEAT), a Sugar Fund (CANE), and a Soybean Fund (SOYB). Teucrium also offers the TAGS Fund (TAGS) which offers exposure to all of the above. An investor looking to preserve purchasing power insofar as food goes could buy one or more of these funds as a hedge against food prices. If food prices go down, great - you'll be able to afford food and you can continue holding the ETF. If food prices go sky high, you'll still be able to afford food because the value of the ETF will increase proportionately to food prices.

Energy: Teucrium also offers an oil (CRUD) and natural gas (NAGS) fund. There are other energy funds out there as well, like the US Oil Fund (USO). By purchasing a few years' supply of oil and natural gas, you can ensure that you will be able to purchase energy in the future.

Shelter: Having somewhere to live is obviously important. Thus, a broad real estate index like the Vanguard REIT ETF (VNQ) can serve to hedge against expensive rents. Over the long term, the ETF should model increasing real estate prices - so if prices go up, you'll still be able to afford the rent.


Holding futures contracts in commodities or holding physical real estate would also work, but holding the ETF is simpler for most investors. It is important to remember that due to expense ratios, some capital will be lost over time. Finally, all of these ETFs exist "on paper," so they won't satisfy some investors' requirements for "hard" or "real" assets.

Nevertheless, it seems to me that an investing strategy designed to protect purchasing power should actually protect purchasing power - something gold hasn't consistently done. On the other hand, holding onto a claim for the things you actually need - food, energy, and shelter - will preserve your purchasing power in the long-term better than holding a chunk of shiny metal.

Disclosure: I am long VNQ.