Where to Invest When the Stock Market Is Limping

By Dennis G. Murray

Introduction

Ready to jump ship on the stock market and put your money in a mattress?
Since 2000, the market's total return has been downright dismal: -1.6% a year, based on the Standard & Poor's 500, an index of the 500 largest US companies. Many investors wish they'd looked elsewhere instead of sticking blindly with stocks.
If you're among them, now is your chance to try to change things. With unemployment at around 10%, federal debt levels at record highs, and consumer confidence sputtering, chances are stocks won't yield anywhere near the double-digit returns that investors have taken for granted in former years. Sadly, many experts are predicting several more years of middling or negative returns.
Although you should still own some stocks -- for diversification and to avoid missing out on a rebound in the markets -- financial advisors recommend several nonstock categories of investments that might make sense for you, with the pluses and minuses of each.

Wheat, Sugar, and Hogs

Staples like corn, coffee, and soybeans come under the umbrella of "commodities," which are traded in the form of contracts on regulated exchanges. Without getting into too much detail, this essentially means that an investor, through a commodities broker, agrees to buy or sell a fixed amount of a commodity at a certain price in the future, betting that it'll go higher or lower over that time span. For example, a 1-cent change in the per-bushel price of 10,000 bushels of wheat can mean a $100 gain or loss in the value of what's known as a "futures contract."
Why now? Commodities can add a nice bit of diversification to a portfolio that's heavy on stocks and bonds. "Over long periods of time, certain commodities are a very good bet," says Steven Abernathy, chairman of The Abernathy Group in New York City. "China is industrializing, and it probably has 20-plus years to go. That means they'll be spending a lot on basic building commodities -- lumber, steel, cement, and the like."
A low-cost way to invest in commodities is through shares in iPath Dow Jones-AIG Commodity Index Total Return.It's an exchange-traded fund (ETF) that follows the Dow Jones-UBS Commodity Index, which is comprised of futures contracts on 19 major commodities, including gold, aluminum, cattle, cotton, and wheat. The ETF is up 7.5% since September 2009; the ticker symbol is DJP. The Website is: http://www.ipathetn.com/DJP-overview.jsp.
Cautions: Scammers have infiltrated the commodities business, with cold-call promises of quick and dirty profits with little or no risk. As the old saying goes, "If it sounds too good to be true, it probably is." If you have any doubts about a commodities-related solicitation, check with the National Futures Association, a self-regulatory organization, to see if the company or broker in question is registered to trade futures contracts. The Website is at: www.nfa.futures.org. Go to the Broker/Firm Information link. The site also offers a Webcast on the different types of scams that are most popular these days, plus tips on how to protect yourself. To learn more about investing in commodities, plus questions to ask anyone who is selling them, check out http://www.nasaa.org/investor_education/Investor_Alerts___Tips/