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Cotter On Investing: Taking the bull out of the markets: practical advice and tips from an experienced investor by John Cotter

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Chapter 11: Commodities

The fifth asset class

In the world of asset allocation commodities are now generally regarded as the fifth asset class, after cash, bonds, shares and property. Therefore, a fully diversified portfolio should have some exposure to them.

The logic that supports this view is relatively straightforward:

  1. Portfolio diversification – not only do commodities offer exposure to different areas of the economy, as an asset class they have historically shown little correlation to equities and bonds. Therefore, their inclusion in a portfolio can often decrease the overall portfolio risk through diversification.
  2. Inflation protection – unlike bonds, commodities are real assets and will therefore tend to retain their value ...

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