One Word: Soybeans
Most folks don't bother with the confusing world of commodities. Perhaps it's time you did.
By Michael V. Copeland

(Business 2.0) – News of surging demand for copper in Asia isn't exactly the kind of cocktail-party nugget that makes you rush to call your broker. But maybe it should. While we all know that oil and gas prices have been soaring because of the turmoil in the Middle East, only serious commodities-watchers know that the prices of soybeans and metals are also on the rise, helping push the Goldman Sachs Commodity Index up 17 percent this year.

Booming nations like China and India are driving the market for everything from coal and corn to copper and steel. China's $6.5 trillion economy is expected to expand at a 7.5 percent clip next year, while India, with a GDP of $3 trillion, is looking at a 10 percent increase. Worldwide demand for oil is projected to rise 8 percent in 2005, and analysts expect growth in demand for aluminum, copper, and coal near double-digit levels for years to come.

So how do you dabble in these markets? "Carefully," says Morningstar analyst Dan McNeela. Rather than locking up soybean contracts in hopes that Kikkoman will come knocking, your best bet is to invest in a commodities fund, such as Oppenheimer Real Asset, which as of late September was up 29 percent for the year, or Pimco Commodity Real Return Strategy, which returned 16 percent. Even then, McNeela recommends investing no more than 10 percent of your portfolio in this arena, pointing out that commodity prices—and hence commodity funds—are notoriously volatile. Goldman's index plunged 36 percent, for instance, when the Asian financial crisis hit in 1998. In other words, as China goes, so might your portfolio. — MICHAEL V. COPELAND