If you want to understand where oil prices are headed, you have to start with the basics: Supply and demand still rule this business.

For all the headlines, all the politics and all the short-term noise, the energy market eventually comes back to one thing: How much oil the world needs vs how much oil the world can bring to market.

Right now, that balance is a lot tighter than many people want to admit. The U.S. Energy Information Administration's (EIA) March 2026 outlook still shows U.S. crude production averaging 13.6 million barrels per day this year and 13.8 million barrels per day in 2027.

That is strong production, but the same outlook also makes it clear that prices remain highly sensitive to disruptions tied to the Middle East and the Strait of Hormuz.

That is why I keep coming back to the same point: Prices today look lower than they probably should if you were pricing this market strictly on physical risk.

We have had war in a critical energy region, threats to major shipping routes, emergency stock releases and governments doing everything they can to keep consumers from feeling the full force of supply disruption.

Emergency barrels only buy time

Those kinds of moves can soften prices in the short run. But let's be honest, emergency barrels are not the same thing as durable new production. They buy time. They do not solve the long-term supply problem.

Reuters has reported that Japan has already asked the International Energy Agency (IEA) to consider another coordinated release of oil stockpiles, on top of a previously agreed 400-million-barrel release earlier in March.

So, are prices artificially lower right now? I would say they are being restrained. That is different from saying the market is broken.

It means prices are being held back by intervention, softer economic expectations and the hope that disruptions will ease before inventories tighten too much.

At the same time, U.S. production remains strong enough to keep a lid on just how far prices can run in the near term. That combination helps explain why the market has not gone even higher.

Demand is not going anywhere

But none of that changes the bigger story. Demand is not going anywhere. We may not see peak oil demand for a long time. The world still runs on oil and gas, and that is not changing any time soon.

Emerging markets are growing. Populations are expanding. Industrial activity still depends on hydrocarbons. Transportation, petrochemicals, aviation, shipping, manufacturing, AI and power generation all continue to require enormous amounts of energy.

Even when growth slows, the base level of demand remains massive. The IEA estimates that global oil demand is running at about 104 million to 105 million barrels per day.

That is the part of the conversation too many people miss. You can talk about energy transition all day long, but the reality is that oil demand has remained far more resilient than many forecasts suggested.

Demand may shift. It may grow faster in some regions than others. It may pause during economic slowdowns. But the idea that oil demand is about to disappear, or that peak demand is right around the corner, is not what the market is showing us.

What if Middle East supply becomes unreliable?

Now, one of the biggest questions in this market is what happens when major import-dependent countries in Asia can no longer count on steady Middle East supply. That is where this story becomes even more important.

The Strait of Hormuz is not some side route. The EIA says roughly 20 million barrels per day moved through Hormuz in 2024, equal to about 20% of global petroleum liquids consumption. That means any serious disruption there immediately pressures countries such as India, China, Japan and others that rely heavily on imported crude.

And we are already seeing signs of that shift. There are reports that India, the world's third-largest oil importer, previously relied on the Middle East for more than 40% of its oil, but is now offsetting shortfalls with supplies from more than 41 sources, especially from the Western Hemisphere, while also leaning on a temporary U.S. waiver to increase Russian imports.

Japan has moved to release stockpiles and asked for additional coordinated reserve action.

Thailand, Vietnam, the Philippines, Indonesia and Sri Lanka are lining up for Russian crude as normal trade flows are disrupted.

In other words, the scramble for reliable barrels is already underway.

A hunt for secure, deliverable barrels

A prolonged disruption could push prices much higher and force buyers to compete aggressively for replacement supply. Barclays reportedly said that if the Strait of Hormuz disruption is prolonged, the market could lose 13 million to 14 million barrels per day of supply.

That is the type of shock that can reprice oil very quickly and make buyers in Asia willing to pay up for secure, deliverable barrels.

That creates a stronger long-term argument for U.S. oil. Countries that feel they cannot depend on Middle East barrels during geopolitical shocks will increasingly value supply coming from places they view as more dependable.

That does not mean every displaced barrel automatically shifts to the U.S., but it does mean U.S. crude becomes more strategically important when reliability matters as much as price.

India's move toward more diversified sourcing and Western Hemisphere barrels is one example of that logic already showing up in the real world.

The next question everybody asks is whether U.S. production can cover a shortage like this. The honest answer is: Not fully.

Yes, the U.S. is producing a lot of oil, and that production matters. But if the world is consuming roughly 104 million to 105 million barrels per day, and a prolonged Hormuz event removes 13 million to 14 million barrels per day from the market, the U.S. cannot simply replace all of that overnight.

It can help cushion the blow. It can provide needed incremental barrels. But it is not a one-for-one substitute for a major Middle East outage.

No magic solution

There is another reality investors need to understand. Higher prices do not instantly translate into unlimited new U.S. supply. The latest Dallas Fed energy survey reports that many oil executives are still hesitant to materially expand drilling because of volatility and uncertainty, even with prices well above profitability thresholds. That means the U.S. remains a critical stabilizer, but not a magic solution.

The next question everybody asks is: What happens to prices after the war is over?

The honest answer is that prices probably will come down from panic levels, but they will not necessarily collapse. If shipping lanes reopen, infrastructure risk eases and some of the geopolitical premium comes out of the market, oil should pull back.

The EIA's March 2026 outlook says WTI should average about $73.61 per barrel this year and about $60.81 in 2027. In other words, peace would likely remove some fear premium, but it would not erase the underlying global need for reliable supply.

We still need more, dependable production

And that gets to the bigger issue: The world still needs more dependable production than many people are willing to admit. Even if demand growth moderates, global consumption remains enormous.

That means the market can stay tighter than expected, especially when supply is vulnerable to underinvestment, geopolitics and operational disruptions.

Now, are today's prices in line with President Joe Biden-era prices? It depends on whether you are talking about crude oil or what drivers pay at the pump.

On crude, today's environment is comparable to higher-price periods we saw earlier in this decade.

On March 30, it was reported that Brent rose above $110 per barrel and WTI climbed above $105 as investors reacted to fears of prolonged disruption around the Strait of Hormuz. That tells you the market still responds very quickly when physical supply is at risk.

A different story

On gasoline, the story looks different. Earlier this year, U.S. regular gasoline averaged $2.81 per gallon in January and $2.91 in February. But the national weekly average then moved sharply higher, reaching $3.50 on March 9, $3.72 on March 16 and $3.96 on March 23.

Even so, the broader context matters: Regular gasoline averaged about $3.94 in 2022, $3.51 in 2023, $3.30 in 2024 and $3.10 in 2025. So, while drivers are feeling more pressure now than they were at the start of this year, the pump is still telling a different story than crude over the full Biden-era comparison.

My view is simple. The market is still underestimating how fragile supply really is, and it may also be underestimating how durable demand remains.

Yes, prices may ease when the war ends. But unless the world suddenly finds a lot more dependable production, I do not believe lower prices will be permanent. We can release reserves. We can talk down the market. We can hope demand growth cools for some time. But in the end, supply and demand always get the last word.

That is why I believe energy investors need to stay focused on fundamentals, not just headlines. Because when the noise clears, the same truth remains. Demand is still here, peak demand may be much further away than people think, and if supply stays constrained, prices eventually will move higher.

And if the world's largest importers come away from this crisis believing Middle East supply is less dependable than they once assumed, that only strengthens the strategic case for U.S. energy in the years ahead.

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• How Oil and Gas Investing Can Stabilize Returns and Shield Against Market Volatility: Tips From a Financial Pro

This article was written by and presents the views of our contributing adviser, not the Kiplinger editorial staff. You can check adviser records with the SEC or with FINRA.

Gold hasn't been this hot since prospectors rushed to California with picks and shovels to seek a fortune. Convinced that the runup will continue, investors have flocked to buy gold, which has never been easier.

You can buy gold bars at Costco or add exchange-traded funds that invest in physical gold to your retirement portfolio. And if you have gold jewelry or coins you no longer want, a “We Buy Cash for Gold” retailer will pay you a healthy sum for your shiny objects.

But whether you're buying or selling gold, it's important to understand how you'll be taxed on your profits. The IRS classifies gold — along with other precious metals — as a collectible, which means it's taxed at a higher rate than stocks, bonds and real estate.

The price of gold in U.S. dollars over the past 10 years

The top long-term tax rate for collectibles is 28%, versus 20% for long-term capital gains on securities. If you're subject to the 3.1% surtax on net investment income, which applies to taxpayers who have investment income and modified adjusted gross income of more than $200,000 ($250,000 for married filers who file jointly), you could pay up to 31.8% on your long-term gains.

As is the case with other investments, short-term gains on gold are taxed at your ordinary income tax rate.

Rates on ETFs backed by precious metals vs mining companies

The higher rate isn't limited to gold bars and other physical assets. Long-term gains from exchange-traded funds that are backed by physical gold are also subject to the tax rate for collectibles, says Marianela Collado, a financial planner in Fort Lauderdale, Fla.

This often comes as a surprise to investors who assume their profits are taxed at the same rate as those from other ETFs, she says.

However, if you invest in a gold mining company or fund that invests in mining concerns, you'll pay the capital gains rate that applies to securities, says Mark Stancato, a planner in Decatur, Ga.

There are strategies you can use to soften the tax hit on your gold investments. Gold prices have been extremely volatile in recent months, and you can use that to your advantage.

If you bought a gold ETF during a recent runup and have since seen the price decline, you could sell shares and use the loss to offset some of your gains.

While investors who bought gold several years ago may not have any losses, “for people who got in more recently, volatility presents a great option for some tax loss harvesting,” says Mike Casey, a planner in McLean, Va.

Just be aware of the wash sale rule, Collado notes. If you sell an ETF (or other investment) at a loss and buy it back within 30 days before or after the sale, the loss isn't deductible.

Tax on sales of jewelry and other keepsakes

If you took advantage of the runup in gold prices to sell jewelry, gold coins or other items, the top 28% rate on collectibles applies to those profits, too.

Dealers are required to report sales of gold bars and coins to the IRS on Form 1099-B if certain conditions related to purity and quantity are met.

Even if the dealer doesn't file a 1099-B, the IRS expects you to report the sale on your tax return and pay taxes on the difference between the amount you paid for the items — known as the basis — and the amount you received in the sale.

If you received a gold item as a gift, the basis is the amount the donor paid for it; for inherited collectibles, the basis is the fair market value of the item on the date of the donor's death. Tracking down the basis is critical because otherwise, the entire amount of proceeds from the sale is considered taxable.

Dealers typically gauge the purity of items they buy and pay sellers the meltdown value, minus their own discount. But before you consign your grandfather's cufflinks to the furnace, make sure their intrinsic value doesn't exceed their scrap price, which could be the case if you own a vintage piece that was created by a sought-after designer. A jewelry appraiser can help you determine whether the item is worth more than the sum of its golden parts.

Note: This item first appeared in Kiplinger Retirement Report, our popular monthly periodical that covers key concerns of affluent older Americans who are retired or preparing for retirement. Subscribe for retirement advice that’s right on the money.

Read More

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• Should I Sell My Old Silverware and Gold Jewelry Now That Prices Are So High, or Should I Hand Them Down?
• Decluttering and Selling Your Stuff? What You Need to Know About Taxes

Investors drawn to gold for its reputation as a safe-haven asset may understandably be disappointed lately.

As the conflict in Iran escalates and surging energy prices stoke fears of inflation, it feels like this should be the yellow metal's time to shine.

Instead, gold has recently fallen over 10% from its all-time high earlier this year. The VanEck Gold Miners ETF (GDX) is down nearly twice that much.

If precious metals are a part of your long-term strategy, now isn't the time to abandon your allocation. However, some fine-tuning may be in order.

To understand how to go about doing that, we need to look at why gold is being pressured today and what the economic backdrop may look like in the near future.

What's getting the attention instead?

Rather than gold, it has been the U.S. dollar that has been the safe-haven asset of choice. As the value of the dollar increases, it of course requires fewer dollars to buy other assets, including gold.

Inflationary fears are fueling this dynamic. Roughly 20% of the world's crude oil and petroleum product shipments typically pass through the Strait of Hormuz. The north coast of the strait lies alongside Iran, and shipments have essentially stopped.

This has caused energy prices to spike and has the potential to put inflationary pressure on countless other goods and services.

This concern might seem counterintuitive — isn't gold considered a hedge against inflation? Over the long term, yes.

But for now, the market expects that looming inflation will keep short-term interest rates reasonably attractive. Bets for Federal Reserve rate cuts in 2026 have been slashed significantly. In fact, the Fed kept its rate unchanged at its recent meeting.

Traders are pricing in a single quarter-point rate cut this year, down from expectations of two to three cuts at the end of February.

Higher rates make gold less attractive

Pocketing a 4% supposedly risk-free return for longer than expected is tempting. It harkens back to the "T-bill and chill" strategy that was all the rage a few years ago. Of course, the higher-for-longer rates make the non-yielding yellow metal less attractive.

What happens with gold (and many other assets) going forward largely depends on the timing of a resolution to the conflict, or at least the reopening of the strait.

At Stansberry Asset Management, we'll continue to monitor the situation closely. Our views may change as circumstances change. That's the beauty of an active strategy — we can be nimble and change course if needed.

But at this time, we don't believe this conflict warrants a wholesale change to the long-term investment strategies of most investors.

That doesn't mean you can't be opportunistic. We're looking for situations where near-term concerns are creating attractive opportunities to own businesses we love for the long term. Gold is an area where we're finding such opportunities.

You might consider gold royalty companies

Kiplinger readers may recall that I highlighted the attractiveness of gold royalty companies last year. In short, these businesses provide financing to gold mining companies for their exploration and production projects.

In return, they get a specified return tied to the gold production of the mining operation they helped finance.

One of the benefits of gold royalty companies is that they benefit from a rise in gold price, as the miners do, but they are largely removed from many of the headaches that mining operators face. And, put simply, rising energy prices are a big headache.

Mining is an energy-intensive business. Massive-haul trucks, along with other mining equipment, burn huge amounts of diesel fuel. Processing uses up a ton of electricity (which is often generated from natural gas), as does ventilation in the case of underground mines.

Generally speaking, energy makes up 20% to 30% of operating costs for major miners. For juniors, it can be 30% to 40% or more, depending on ore grades (how much processing is needed), if they are operating in remote locations with little infrastructure and several other factors.

Business as usual

We don't need to get too into the weeds — the point is that when energy costs go up, the miners eat the cost, which makes them less profitable. Meanwhile, the royalty companies just get paid on what is pulled out of the ground.

Now, at some point, operating costs can become so high that it isn't worth the effort to pull gold out of the ground. That's when royalty companies could come under pressure. And that's part of the beauty of today's set-up — we are miles away from that being a reality.

The all-in sustaining cost (AISC) is a metric the gold mining industry uses to attempt to answer the question of how much it costs to produce an ounce of gold. The number will vary from one operator to the next and depends on many factors, but a ballpark AISC number today is about $1,500 per ounce. Even after the recent pullback, gold is worth around $5,000 per ounce.

There is still plenty of incentive for miners to pull the shiny metal out of the ground. If energy costs stay elevated, it may be a less profitable endeavor for them. For royalty companies, it will be business as usual.

If gold remains part of your long-term allocation — and we believe it should — then how you own it matters just as much as whether you own it at all.

In an environment in which energy costs are rising and margins for miners are under pressure, royalty companies offer a cleaner way to maintain exposure to gold without taking on those operational risks.

You still participate in the upside if gold moves higher. You're just less exposed to the headaches that come with pulling it out of the ground.

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This article was written by and presents the views of our contributing adviser, not the Kiplinger editorial staff. You can check adviser records with the SEC or with FINRA.

Each week, in our Ask the Editor series, Joy Taylor, The Kiplinger Tax Letter editor, answers questions on topics submitted by readers. This week she's looking at five questions on how to file a tax return for someone who died. (Get a free issue of The Kiplinger Tax Letter or subscribe.)

1. Filing a joint return with a deceased spouse

Question: My husband died last year. Can I file a joint 2025 Form 1040 even though he's no longer with us?

Joy Taylor: When someone is deceased, the decedent's personal representative is generally required to file any final tax returns for the deceased person. That includes federal income tax returns that the decedent would have been required to file for the year of his or her death. A personal representative can be an executor, administrator, or anyone else who oversees the decedent’s property.

Since you were married in 2025, you would mark “married filing jointly” for the filing status and write your deceased spouse’s name and your name and address. If filing by paper, write “deceased” at the top of the 1040. If using tax preparation software, the software will automatically do this for you.

If there is a court-appointed representative, that person must also sign the 1040. If not, you would sign and write “filing as surviving spouse” in the decedent’s signature box.

If the return shows a refund due, there’s nothing you need to do to receive the refund.

2. Filing a return for a deceased sibling

Question: My brother died last year. He was not married. I am the executor of his estate. How do I file his final 2025 federal tax return?

Joy Taylor: Since your brother wasn't married, here are the rules for filing a tax return for an unmarried decedent. Mark his filing status as single or head of household. Write his name on the name line and your name and address in the remaining name and address field (since you are the executor of your brother's estate).

If filing a paper return, put “deceased” at the top of the Form 1040 and your brother's name and date of death. Tax preparation software will do this once you let it know the filer is deceased.

If you are a court-appointed or court-certified personal representative, then you should sign the return. As executor of your brother's estate, you would sign as the personal representative.

If your brother is due a refund, you may have to complete and attach Form 1310 to the return. This rule doesn't apply if you are a court-appointed or court-certified personal representative. Instead, you would have to attach to the return a copy of the court document showing the appointment.

3. Filing status after loss of a spouse

Question: My wife of 48 years died last September. When she was alive, we always filed joint returns. But now I want to file a separate return for 2025. Can I do this?

Joy Taylor: Yes. You, as the surviving spouse, can file your deceased wife's final return either as married filing joint or married filing separate. If you file a 2025 joint return with your deceased spouse, you would follow the instructions set forth in the answer to question 1 above. If you file a separate return for yourself for 2025, be sure to also file your deceased wife's separate 2025 return.

4. Filing a return for a widow with young kids

Question: My husband died suddenly last year. We have three young children under the age of 18. I know that I can file a joint tax return for 2025. But what about for 2026? What filing status should I use on my 2026 tax return?

Joy Taylor: You are correct that you can file a joint federal tax return for 2025. You would follow the instructions set forth in the answer to question 1.

For your 2026 return, it might benefit you to use the qualifying widow filing status. This lets surviving spouses with dependent children use the income tax brackets and standard deductions for joint filers for two years after the decedent’s death.

This means that if you remain unmarried, you can use the qualifying widow status on your 2026 and 2027 federal tax returns.

5. Other resources to find help

Question: A good friend of mine passed away last year. Are there any IRS resources I can turn to in figuring out how to file her final 2025 tax return?

Answer: Yes. The IRS has an online tool to help you file a deceased person's tax return. It's an interactive tax assistant. You will need to enter some basic information, and it will give you an answer. The tool is called "How do I file a deceased person's tax return?"

Note that the IRS's interactive tax assistant will also help answer questions on nearly 60 other topics, including who qualifies as a dependent, filing an amended return and much more. Go to www.irs.gov/help/ita to access the IRS tax assistant and to see a list of topics.

Additionally, you can find helpful information in IRS Publication 559, Survivors, Executors, and Administrators, and in the instructions to Form 1040.

About Ask the Editor, Tax Edition

Subscribers of The Kiplinger Tax Letter, The Kiplinger Letter and The Kiplinger Retirement Report can ask Joy questions about tax topics. You'll find full details of how to submit questions in each publication. Subscribe to The Kiplinger Tax Letter, The Kiplinger Letter or The Kiplinger Retirement Report.

We have already received many questions from readers on topics related to tax changes in the One Big Beautiful Bill, retirement accounts and more. We will continue to answer these in future Ask the Editor roundups. So keep those questions coming!

Not all questions submitted will be published, and some may be condensed and/or combined with other similar questions and answers, as required editorially. The answers provided by our editors and experts, in this Q&A series, are for general informational purposes only. While we take reasonable precautions to ensure we provide accurate answers to your questions, this information does not and is not intended to, constitute independent financial, legal, or tax advice. You should not act, or refrain from acting, based on any information provided in this feature. You should consult with a financial or tax advisor regarding any questions you may have in relation to the matters discussed in this article.

More Reader Questions Answered

• All Ask the Editor Q&As
• Ask the Editor: Tax Breaks for Caregivers
• Ask the Editor: QCDs and Tax-Planning
• Ask the Editor: Tax Questions on Roth IRA Conversions
• Ask the Editor: What Medical Expenses are Deductible?
• Ask the Editor: Questions on Inherited IRAs
• Ask the Editor: Questions on the New Senior Deduction

Economic uncertainty and market volatility fueled a surge in gold demand in 2025. According to the World Gold Council, global gold demand surpassed 5,000 tons for the first time as investors sought ways to diversify portfolios and protect their wealth.

But the sharp rise in gold’s popularity has also created new opportunities for criminals. Law enforcement agencies are warning about a growing gold bar scam that exploits investor fears and economic uncertainty. International fraud rings are using call centers and courier networks to impersonate federal officials and pressure victims into handing over gold.

Recent investigations show these schemes have caused tens of millions of dollars in losses worldwide. As scammers grow more sophisticated, awareness and education remain key to helping consumers avoid becoming victims.

How the gold bar scam typically works

Victims typically receive unsolicited contact claiming there is an urgent issue that requires immediate action. The scammer may say the victim’s bank account, Social Security number or computer has been compromised, or claim the victim is connected to criminal activity or theft.

Scammers often impersonate federal agencies, such as the FBI, Treasury, FTC or Social Security Administration. In some cases, they may pose as representatives from a technology company or financial institution, claiming they can help resolve the problem.

They pressure victims to act quickly and keep the situation confidential. Targets are instructed to withdraw money, purchase gold bars from a legitimate dealer and then hand over the gold or cash to a courier who is part of the scheme, often under the pretense of safekeeping.

These scams rely heavily on fear and urgency to override rational decision-making. When victims feel frightened or rushed to resolve a supposed threat, they are more likely to overlook warning signs they might otherwise recognize.

Who is most often targeted

Older Americans are disproportionately affected by gold bar scams, and victims are often financially stable or at or near retirement age. Scammers frequently assume older adults have substantial savings or retirement funds that can be used to purchase gold bars.

Some victims may also feel embarrassed about being targeted, which can make them less likely to report the crime, according to the National Council on Aging.

Scammers often exploit trust in government and authority figures by impersonating officials and presenting themselves as helpers. They rely on sophisticated scripts and multi-step schemes that can make the fraud difficult for victims to recognize.

Why gold is attractive to criminals

Gold is not only attractive to investors during economic uncertainty, it is also appealing to criminals. Gold is highly portable and, once transferred, can be difficult to trace. Scammers can quickly melt or resell gold, while electronic transfers or large amounts of cash are often easier for authorities to track.

When scammers convince victims to pay with gold, the payment is typically less reversible than a bank transfer or credit card transaction, increasing the likelihood that the scam will succeed. Criminals are also increasingly combining gold with cryptocurrency and wire transfers, since these payment methods are fast and difficult to trace.

Warning signs consumers should never ignore

If you ever receive communication pressuring you to quickly resolve an issue, stop and carefully review the situation.

These are warning signs you should never ignore, no matter how urgent the individual contacting you says the matter is:

• Claiming your money is unsafe in your bank: Scammers may say your bank account has been compromised and insist you withdraw your money immediately to protect it.
• Requesting you move money to a secure government account: You may be told to transfer a large amount of money to a supposed government account for safekeeping.
• Instructing you to buy precious metals: Scammers may direct you to withdraw cash and use it to purchase precious metals, such as gold bars, from a legitimate retailer.
• Demanding secrecy: Scammers often claim it is critical that you keep the situation confidential. They may threaten arrest or legal consequences if you speak with family members, financial institutions or law enforcement.
• Requesting delivery of valuables: After persuading you to buy gold, scammers may instruct you to hand over the valuables or meet with a courier who will take them for safekeeping.

What to do if you’re contacted or targeted

If you are contacted or believe you are being targeted, hang up immediately and stop all communication with the suspected scammer. Then contact law enforcement or your financial institution as soon as possible.

Always verify contact information independently before reaching out. Use official websites or trusted sources to find phone numbers and email addresses, and never rely on contact details provided by the caller.

You should also report suspected scams to the FBI or the FBI Internet Crime Complaint Center. Provide as much detail as possible, including the caller’s phone number, the date and time of contact and what the scammer asked you to do.

Before making any financial decisions, consider speaking with a family member or trusted financial adviser. Scammers often rely on fear and urgency to pressure victims into acting quickly. A trusted second opinion can help you identify warning signs you may overlook when feeling stressed or rushed.

The broader rise of impersonation and investment scams

Government and technology impersonation scams are among the fastest-growing types of fraud. According to the Federal Trade Commission, adults age 60 and older reported losing millions of dollars in 2024 to scammers posing as government agencies and businesses.

Among older adults who lost more than $100,000 in these schemes, total losses reached $445 million in 2024, compared with $55 million in 2020.

These scams are becoming more widespread and are expanding beyond digital theft to include physical assets, such as gold bars. Awareness remains one of the most effective ways to protect yourself from becoming a victim.

Never assume that unsolicited communication is legitimate, and always watch for red flags and warning signs. Most importantly, avoid making rushed financial decisions under pressure. Instead, contact the government agency or business directly using verified contact information to confirm whether the communication is valid.

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Gold is having a moment, and so is Costco. The precious metal rallied at the beginning of the year, as the classic "safe haven" asset gained in popularity amid economic and geopolitical uncertainty. Despite a temporary dip, multiple analysts expect gold prices to surge to $6,000 or more per ounce by the end of this year.

With price forecasts like that, Costco's glittering 1-ounce gold bars have been selling out consistently online. Curious investors and everyday members alike are clamoring for access. Costco now offers 24-karat gold, silver and platinum options through its website (and occasionally in warehouses).

Some shoppers are picking up bullion the same way they stock up on paper towels and bottled water.

But what makes Costco’s gold bars even more intriguing isn’t just the price or the brand. It’s the potential to earn up to 4% in rewards through Costco’s membership and credit card programs.

For savvy shoppers, this bonus can help soften the blow of premiums over spot price, which is especially valuable in today’s fluctuating gold market. Here’s how Costco’s bullion program works, how to stack your rewards strategically and when it might (or might not) make sense for investors.

How Costco's bullion program works

Costco sells 1-ounce, 24-karat gold bars online and occasionally in select warehouses. Offerings often include bars from respected refiners such as PAMP Suisse and Rand Refinery, both featuring assay cards for authenticity. The bars are non-refundable and subject to purchase limits (typically two bars per membership).

Prices update in real-time based on the spot market and demand, and since gold purchases can’t be returned, this isn't a decision to take lightly.

Yet that hasn’t deterred customers: Costco CFO Richard Galanti noted that the retailer is selling “several hundred million dollars” in gold monthly, and the bars usually sell out within hours.

Costco’s current bullion offerings also include options for investing in silver and platinum coins, but gold remains the headliner.

Understanding the rewards and membership tier angle

What truly sets Costco’s bullion program apart isn’t just the access to physical gold. It’s the layered reward strategy. Here's how it works:

• Executive Membership (annual fee: $120) gives members 2% cash back annually on eligible purchases, up to $1,000.
• Costco Anywhere Visa® Card by Citi offers up to 2% cash back on Costco.com purchases (plus more on categories like gas and travel).

When combined, members using both the Executive Membership and Costco Anywhere Visa can earn up to 4% back on their gold purchase.

For example, a gold bar priced at $4,000 with a 4% combined reward yields $160 in cash back, lowering your effective cost to $3,840. If Costco’s gold was priced at just 2% over spot, the rewards could essentially eliminate the premium altogether.

It’s worth running your own numbers with Costco’s bullion rewards calculator to estimate how much you might earn based on your membership and payment method.

Pricing dynamics and investor benefits

Costco’s pricing tends to be fairly competitive in the physical bullion space at usually just 1% to 2% above the spot price, which is lower than many traditional dealers. However, the exact premium varies depending on market volatility, supply and brand.

For investors, the appeal is twofold. First, you gain physical ownership of bullion. You’re holding a tangible asset rather than paper or indirect exposure. Second, you benefit from Costco’s strong brand reputation, which means bar authenticity and packaging are handled by a trusted retailer, helping reduce concerns many first‑time bullion buyers face.

Third, compared to many online bullion sellers, Costco’s premium is relatively modest, which means your effective cost (especially when paired with reward incentives) may be more attractive.

Risks, downsides and what to watch

Despite the appeal, there are several risks and caveats to consider:

• Premiums fluctuate: While Costco often has lower premiums than competitors, it’s not always the cheapest option.
• Storage and security: Owning physical gold means you’ll need a safe or other secure storage. Insurance may be necessary too.
• Limited resale liquidity: Unlike gold ETFs, physical bars may be harder to sell quickly and might fetch below spot value due to dealer margins.
• Non-refundable: Once you buy a gold bar from Costco, there’s no returning it, even if the price drops tomorrow.

How to get the best deal if you go this route

If you decide to buy Costco gold, plan ahead so you capture the rewards and avoid surprises. Upgrade to an Executive Costco Membership before you buy so the 2% annual reward will apply. The upgrade timing matters because that rebate is applied to qualifying purchases made while you hold Executive status.

Pair that membership with the Costco Anywhere Visa® Card by Citi for Costco.com purchases to stack card cash back on top of the 2% Executive benefit. Always run the numbers first (Costco’s bullion rewards calculator is a helpful tool) and compare the after‑rebate cost with other reputable dealers.

Inventory and pricing move fast, so monitor Costco’s bullion listings early in the morning when new inventory often appears, and be prepared to complete checkout quickly: bars frequently sell out within hours.

Remember that Costco’s gold is nonrefundable and subject to purchase limits, so confirm the SKU, refiner and assay card before you pay, and keep all documentation in case you sell later.

Also factor in storage, insurance and potential shipping costs; home safes, bank safe deposit boxes and third-party insured vaults all carry different price and accessibility tradeoffs.

When it makes sense and when it doesn’t

A Costco gold buy might make sense if:

• You’re already an Executive Member or plan to upgrade.
• You have the Costco Anywhere Visa or another cash-back credit card.
• You prefer owning physical gold and are okay with storage logistics.
• You’re holding mid-to-long term and want to reduce your cost with rewards.
• You value Costco’s brand trust and straightforward buying process.

It may not make sense if:

• You’re seeking short-term gains or plan to actively trade gold.
• You’d rather invest via ETFs or gold IRAs for better liquidity and convenience.
• You’re uncomfortable with the idea of storing physical bullion.
• You want exposure to gold without paying any premium over spot.

When a Costco gold buy makes sense

In the right context, Costco’s bullion program offers an attractive option for retail investors. The combo of physical gold, competitive pricing and up to 4% in rewards makes the purchase more financially savvy than it might initially seem.

But gold is still a commodity with market risks, and rewards don’t negate those risks. They just help lower your entry cost. Before buying gold, compare options, run the math using Costco’s rewards calculator, and ensure your gold-buying goals align with the realities of owning physical metal.

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Most kitchens are well-stocked with pantry staples, the foundation of all recipes. But every good chef knows that the best meals feature a variety of flavors, including some spice. Technique is important: Too much or too little of any single ingredient can make a big difference.

The same approach applies to portfolios. Earlier this year, many U.S. investors learned that their mix was off after foreign stocks significantly outpaced U.S. shares … just as the S&P 500 stumbled badly. It quickly became clear that many investors were underexposed to foreign markets and overexposed to the United States.

In a June survey, Schwab Asset Management found that moderate-risk individual investors held just 10% of their portfolios in foreign shares; U.S. stocks, by contrast, made up 61%. In short, investor portfolios weren't diversified.

It was a comeuppance long in the making. For nearly 15 years, U.S. stocks have been the place to be. Why bother to diversify — break up your investments across a variety of stocks, bonds and other assets — when the S&P 500 is beating everything?

"It can be easy to forget the benefits of diversification in a very sharp upward-moving market," says Andrew Altfest, a certified financial planner with Altfest Personal Wealth Management in New York City.

But over time, you'll find that a mix of investments can smooth your returns, strengthen your resolve as an investor, dampen risk in your portfolio and keep you exposed to whichever corner of the market is working at the moment — no crystal ball necessary.

In a truly diversified portfolio, some investments will be in favor while others are on the outs. "You will never own only winners, but you won't get stuck with only the laggards, either," says Jeff DeMaso, editor of The Independent Vanguard Adviser.

A smoother ride

A diversified portfolio can deliver less-volatile returns, which may help you stay the course during turbulent times — and arguably, that's half the battle in achieving your investment goals.

Moderate-allocation funds, also called balanced funds because they stabilize a 60% allocation of assets to stocks with a 40% stake in bonds, have been about one-third less volatile than an all-stock portfolio over the past 10 years.

"When the stock market sells off, investors tend to sell and move into cash. The problem there is, they've divested. So, we always say, stay invested and diversify," says Alessio de Longis, senior portfolio manager and head of asset allocation at Invesco Solutions.

Indeed, diversification isn't a strategy you turn on during rough markets and switch off in roaring bull markets. "It's something you should always have in your portfolio,” says Kristy Akullian, head of iShares investment strategy for the Americas at BlackRock.

Diversification can help ward against risk, too, of which there's no shortage these days. U.S. stocks are trading at high valuations. The economy looks to be slowing. Inflation remains sticky. And uncertainty lingers about the impact of new government policies and geopolitical risks. All of these challenges are chipping away at investor confidence.

Some advisers zero in on risks as a guiding principle for diversifying their clients' portfolios. Worried about a decline in the dollar? Add non-dollar assets — foreign stocks or bonds — to your portfolio. Concerned about an inflationary shock? Fold in a stake in commodities or real estate. A recession? Insert a slug of high-quality bonds or beef up on cash.

"Since I think all of these are potential sources of risk to the stock market, I put a lot of these diversified eggs into my clients' portfolio baskets," says Paul Winter, a certified financial planner at Five Seasons Financial Planning in Salt Lake City, Utah.

Another reason to diversify is that it's impossible to predict which investment will outperform in any given year — so it pays to own a mix of several. "The point of diversification is that you don't know what is going to happen," says Thomas Martin, of Globalt Investments, an Atlanta-based investment firm, but you can be prepared just the same.

The fact is, market leadership can shift dramatically from year to year. Though large-company stocks have topped the charts in many years recently, the winning asset class in any given year is often anybody's guess.

According to the Callan Periodic Table of Investment Returns, a colorful depiction of how asset returns can vary from year to year, small-cap stocks fared best in 2020. In 2018 and 2022, cash prevailed. And emerging markets stocks were the best-performing asset class in 2017; the next calendar year, they were the worst.

While there are rules of thumb to follow, a well-diversified portfolio is "very much an art, not a science," says Winter. For example, you want to own multiple kinds of assets, but that does not mean you own everything in equal measure. "Depending on your overall allocation, you might not need to go super-deep on every category," says Roger Young, a CFP at T. Rowe Price.

The good news: This is a great time to diversify. If, like many American investors, your portfolio is heavily weighted toward U.S. stocks, it's not too late to lighten the load and find opportunities in less-expensive pockets of the market.

"U.S. stocks are near their all-time highs, and that's a lot better time to diversify than, say, back in March 2009," the market's nadir during the Global Financial Crisis, says Winter.

Stocks, bonds and alternative assets are the main elements of a diversified portfolio. But you'll want to make sure you're diversified within those types of investments, too.

In this article, we'll walk you through the ingredients of a good diversification plan, with some timely moves to make now and tips on how to maintain your portfolio. Prices, returns and other data are as of August 31.

Stocks

Stocks can be risky but also rewarding. Over the past 10 years, the S&P 500, which represents more than 80% of the total U.S. stock market, has returned a whopping 15% a year.

But the stock market doesn't move as a monolith — and within your stock holdings, you should assemble a broad mix, considering a number of factors.

Company size

The market can favor companies of a particular size — sometimes for years — depending on economic factors, industry innovations or even just market sentiment.

Over the past decade, thanks to globalization, large companies have ruled, ranking as the top-performing asset class in five of the past 10 years and among the top three performers in eight of the past 10, according to the Callan table.

"The big just got bigger," says Jake Schurmeier, a portfolio manager at Harbor Capital. That makes exchange-traded funds (ETFs) that invest in small and midsize companies, such as the iShares Core S&P Mid-Cap (IJH) and the iShares Core S&P Small-Cap (IJR) — members of the Kip ETF 20, our favorite exchange-traded funds — good diversifiers for the large-cap S&P 500.

Some strategists see an opportunity in midsize-company stocks, especially these days. The middle tier of the U.S. stock market "is uniquely positioned to capitalize on growing demand for American-made goods and infrastructure solutions in a reshoring and energy-independent economic landscape," says Dina Ting, head of global index portfolio management at Franklin Templeton.

Plus, on a price-to-earnings basis, mid-cap stocks now trade at an atypical discount to large caps.

Concentration

Large-company stocks' recent run has included the meteoric rise of tech stocks in general and anything related to artificial intelligence (AI) in particular.

A group that includes Nvidia (NVDA), Microsoft (MSFT) and Apple (AAPL), known as the Magnificent Seven, accounts for one-third of the value of the S&P 500 Index. Thus, what might look like a diversified collection of U.S. stocks is in reality an outsize bet on a dazzling few.

A simple way to mitigate such overconcentration is the Invesco S&P 500 Equal Weight ETF (RSP). In this fund, every company gets an equal share of assets. So, while Nvidia accounts for 8% of the traditional market-cap-weighted index, it makes up just 0.24% of the Equal Weight fund.

Investment style

Professional investors typically hew to a certain methodology. These approaches break down into two broad styles: value and growth. Value managers favor stocks that trade at a discount to various metrics; growth managers prefer companies that are growing faster than average.

The two styles wax and wane at different times, and the cycles tend to last for long stretches. Value won the period from the start of 2000 to 2009. But since then, growth has dominated, though it's worth noting that value stocks held up better during the most recent bear market from January to October 2022.

Because it's difficult to predict when one style is going to outperform the other, even in a bear market, it's important to maintain a toehold in both growth and value strategies.

Chances are, however, that you've got plenty of exposure to growth stocks these days. Consider adding a value-driven fund such as Dodge & Cox Stock (DODGX), a mutual fund that has outpaced the S&P 500 over the past five years, or Capital Group Dividend Value (CGDV), an ETF that has beaten the S&P 500 over the past three years.

Both are actively managed, but index-fund lovers could look at the Vanguard S&P 500 Value ETF (VOOV). The ETF holds its own among a peer group of value-oriented large-company stock funds.

Geography

You need both U.S. and non-U.S. stocks in your portfolio, although many years of U.S. out-performance made that idea unpalatable. That changed in 2025: After lagging the U.S. stock market for nine of the past 11 calendar years, the MSCI EAFE Index, a popular international-stock benchmark, is up nearly 23% so far this year, beating the S&P 500 by more than 12 percentage points.

Most strategists agree that U.S. investors need to boost their exposure to international stocks. The timing is good. A weakening dollar tends to magnify gains in foreign shares (because they translate into more dollars stateside). And foreign stocks are still cheap relative to U.S. stocks on a price-to-earnings basis, even after a strong run so far this year.

Foreign stocks include those in both developed and emerging markets. You can zoom in on a region — Europe, Asia, Latin America, say — or a single country, such as Japan, India, Germany or China. And of course, at every level, you can focus on company size or value or growth approaches.

Start with the Vanguard Total International Stock ETF (VXUS). It's an inexpensive way to get instant exposure to nearly every foreign stock in developed and emerging markets. Morningstar analyst Zachary Evens calls it "wall-to-wall foreign-stock exposure." The fund has gained 23% since the start of the year.

Add an emerging-markets index fund. The iShares Core MSCI Emerging Markets ETF (IEMG) tracks an index of 20-odd developing markets. "A weaker dollar is good for EM stocks," says Richard Cook, a portfolio manager of Cook & Bynum fund. A recent rebound in Chinese stocks — 27% of the index — has helped the fund return 18% over the past 12 months.

Baron Emerging Markets (BEXFX) — a member of the Kiplinger 25, our favorite no-load mutual funds — is actively managed, growth focused, and has gained 19% over the same period.

These days, many strategists, including T. Rowe Price's Charles Shriver, see opportunity in small, foreign companies. They typically trade at a premium to their larger brethren, but not now. And "small-cap international stocks will benefit from domestic economic growth in home countries and are less sensitive to tariffs," he says.

We have our eyes on the Avantis International Small Cap Equity ETF (AVDS) and the Dimensional International Small Cap Value ETF (DISV). The Avantis fund invests in a mix of growth and value small companies, with a focus on valuation and profitability. Over the past 12 months, it has gained 23%. The Dimensional exchange-traded fund focuses on bargain-priced small stocks in developed countries and has returned 25% over the past 12 months.

Bonds

Bonds provide ballast to the stock side of any portfolio, generally speaking, because when stocks fall, bond values tend to rise. That didn't happen in 2022, when a precipitous rise in interest rates pushed both stocks and bonds down (bond prices and yields move in opposite directions). The S&P 500 fell 18%, and the Bloomberg U.S. Aggregate Bond index sank 13%.

It was the worst year ever for bonds, but a few fixed-income sectors held up better. Bank-loan funds, for instance, lost 2% on average; short-term bond funds dipped just 5%. Ergo, in 2022, a diversified bond portfolio would have outperformed the Agg index.

Broadly speaking, there are four major bond sectors: government, corporate, securitized debt (bundled IOUs such as mortgages or auto loans, say, that are sold as a single security), and municipal bonds, which pay income that's exempt from federal and sometimes state taxes.

A diversified bond portfolio will include a mix of sectors. The Agg index, for instance, is diversified as far as sectors go: Government bonds make up just less than half of the index, corporate and securitized debt combined are another 50%, and the rest sits in cash and muni IOUs. But there are more layers of bond diversification to consider.

Credit quality

Credit ratings reflect a borrower's financial ability to repay debts. The higher the rating, the more creditworthy the issuer is, and vice versa. That's why investment-grade bonds, rated between triple-A and triple-B, are considered high quality — there's little risk of default. Debt rated between double-B and triple-C is often called junk or high yield — there's a higher risk of default, and therefore yields are higher to attract investors.

Bond portfolios should hold mostly high-quality debt at their core. The Vanguard Total Bond Market ETF (BND) and the iShares Core U.S. Aggregate Bond ETF (AGG) are the biggest index-based high-quality bond ETFs. But we prefer active strategies, such as Baird Aggregate Bond (BAGSX) and Dodge & Cox Income (DODIX). Both mutual funds are members of the Kiplinger 25.

Then consider adding lower-quality debt, which can boost the overall yield of a bond portfolio. In late August, for instance, U.S. high-yield corporate debt yielded 6.7%, and bank loans, issued by companies with low credit ratings, yielded 8.6%.

Our favorite high-yield corporate fund, Vanguard High-Yield Corporate (VWEHX), favors higher-quality, double-B junk bonds. But with economic uncertainty ahead, we're partial these days to short-term high-yield bond funds such as the Pimco 0-5 Year High Yield Corporate Bond Index ETF (HYS). Its short-term focus can help dampen default risk, a concern if the economy slows.

Duration and maturity

Investors often confuse duration, a measure of a bond's sensitivity to interest rate moves, with maturity, the length of time a bond will pay interest before it repays the principal. They're not the same, but they are connected.

Maturity plays a part in the calculation of duration. The longer the maturity, the longer the duration and the more sensitive a security is to interest rate shifts.

The typical long-term government bond fund, for example, has an average maturity of 20 years and a 16-year duration. That implies if rates were to rise by one percentage point, the net asset value of long-term government funds would decline 16%, and vice versa. Short-term government bonds have an average maturity of three years and a duration of 2.6 years.

Generally, low-duration bonds are a defensive bet when interest rates are rising, and high-duration bonds stand to benefit most when rates fall. These days, however, even though cuts in short-term rates are on the docket, a fall in long-term rates isn’t guaranteed, says Akullian, the iShares strategist. That's why she favors intermediate-maturity bonds for now.

The iShares 3-7 Year Treasury Bond ETF (IEI) sports a 4.3-year duration. Since the start of the year, it has returned more than 5%. The actively managed Vanguard Intermediate-Term Bond ETF (BIV) favors bonds with maturities of five to 10 years and has a duration of 6.1 years. Its portfolio holds government and corporate debt of medium maturities. So far this year, it has gained 6.4%.

Finally, the Fidelity Investment Grade Securities ETF (FSEC) holds mostly triple-A-rated securitized debt and has a duration of 5.5 years. Its return so far this year is 5.3%.

Geography

For much of the 2010s, foreign bonds sported negative yields. "That's a hard sell," says Schurmeier, the Harbor Capital portfolio manager. But now, foreign bonds offer positive yields, as well as a potential return boost from a weakening dollar. The Vanguard Total International Bond ETF (BNDX) holds high-quality, foreign corporate and government bonds.

Emerging-markets debt offers fatter yields, but these IOUs tend to be more volatile, too, so buyer beware. Our favorite emerging-markets bond fund, Vanguard Emerging Markets Bond (VEMBX), invests in dollar-denominated debt, which becomes easier for developing countries to repay as the dollar weakens.

Alternatives

This catch-all category includes nontraditional strategies that seek to hedge stock and bond market returns, or at least to generate returns that don't move in lockstep with them.

Alternative strategies might focus on gold, commodities, cryptocurrencies, or the debt or equity of private companies. They might employ techniques to limit losses in a downturn but crimp bull market gains. Others balance bets on undervalued stocks by short-selling overpriced names.

"Many alternative strategies weren't even a thing 10 years ago, but they are today," says Winter, the Salt Lake City CFP.

Consider carving out a small slice from the bond side of your portfolio to devote to alternative assets — no more than 5% to 10% of your overall portfolio, says de Longis. One approach to choosing an alternative strategy is to figure out what kind of risk you're trying to hedge against, such as those listed below, and invest accordingly.

Inflation

To hedge inflation, for instance, beyond the protection the stock side of your portfolio may offer, consider commodities. These funds proved their mettle in 2022, returning 16%, on average.

The First Trust Global Tactical Commodity Strategy Fund (FTGC) has outperformed its peers in four of the past five calendar years, with below-average volatility. Neuberger Berman Commodity Strategy ETF (NBCM) boasts above-average returns with below-average volatility, and its expense ratio is below average, too.

Instability

To ward against uncertainty, consider gold. "Gold is a safety net for chaos," says Schurmeier. Trade-war fears have fueled 29% gains in the iShares Gold Trust Micro (IAUM) and the SPDR Gold MiniShares Trust (GLDM, $68, 0.10%) so far this year.

Volatility

To smooth out your returns, consider one of a new breed of ETFs called defined-outcome funds.

One we're eying is the Innovator Defined Wealth Shield ETF (BALT). Using options, the fund provides a 20% buffer on losses in the S&P 500 every three months in exchange for a cap on gains. You can hold the ETF indefinitely. The 20% buffer and cap on gains resets quarterly, in January, April, July and October. The cap set in early July was 2.2% after expenses. Over the past three years, Defined Wealth Shield has returned 7% annualized with less volatility than the Agg index.

Bear in mind that diversified portfolios, in contrast to Tolstoy's happy families, are not all alike. As always, everything depends on your time horizon and your risk tolerance.

"If you're relatively young and are primarily invested in stocks, you might want to make sure your diversification is robust on the stock side, but on the bond side, your small piece in bonds could be a straightforward U.S. investment-grade type of bond fund portfolio," says T. Rowe Price's Young. Similarly, those who are nearing retirement or already retired will want to pay special attention to some inflation hedges.

Over time, your portfolio will need some fine-tuning. Some tweaks are related to age or life stage, says Christine Benz, director of personal finance and retirement planning for Morningstar.

At age 50, for instance, you'll want to de-risk your portfolio a bit around the edges. Tilt toward high-quality, large-company stocks over small-cap fare, for instance. Or favor dividend payers. By your late fifties or early sixties, start shoring up your portfolio with safer assets. On the bond side, for instance, lean into high-quality short and intermediate-term bonds and build up your cash position.

Other adjustments may be tactical, such as investing more in large and midsize companies than in small firms if a recession looms, or favoring short-term bonds over long-maturity debt when interest rates are climbing. Keep the tactical moves to no more than five to 10 percentage points up or down from your overall portfolio targets, says Invesco's de Longis. Any bigger, and you risk derailing your asset-allocation plan.

Finally, review your portfolio asset mix and rebalance, if necessary, once a year. "The more diversified your portfolio, the greater the potential benefits of rebalancing," says Winter. Just don't go overboard. Think of your portfolio like a bar of soap, suggests Benz: "The more you touch it, the smaller it's going to get."

Note: This item first appeared in Kiplinger Personal Finance Magazine, a monthly, trustworthy source of advice and guidance. Subscribe to help you make more money and keep more of the money you make here.

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• Should You Buy Gold as It Tops $4,000? Here's What the Experts Say

Gold has been one of the hottest trades of 2025. The precious metal is up more than 50% for the year to date, and on October 7, it surpassed the psychologically significant $4,000 mark for the first time.

This rally has come as investors have poured billions into gold exchange-traded funds. According to the World Gold Council, U.S.-listed gold ETFs saw inflows of $32.7 billion through late September, while inflows into global gold ETFs topped $57 billion.

This has global assets for gold exchange-traded funds nearing half a trillion dollars, "a milestone that would highlight their role in one of the most dramatic rallies in the metal's history," writes Sumit Roy, senior ETF analyst for ETF.com.

"Gold's run toward $4,000 has been driven by a perfect storm — falling real yields, a softening dollar, relentless central bank buying, and global unease that never seems to fade," says Dean Lyulkin, founder of registered investment adviser The Dean's List and CEO of Cardiff, a California-based small business lender.

Amid this red-hot run, many investors might be wondering if it's too late to buy gold … or if now's the right time to strike.

Does gold have more room to run?

That depends, says Lyulkin, on whether "the four horsemen" — falling real yields, global central bank purchases, a weakening U.S. dollar and macro uncertainty — "have real staying power."

He calls the cooler greenback a "real but temporary" tailwind for dollar-denominated gold, but adds that "the U.S. still runs the world's deepest markets and remains the reserve currency of choice."

Roukaya Ibrahim, chief strategist of Commodity & Energy Strategy at BCA Research, says gold's outperformance "likely hinges on whether inflows into gold ETFs continue to accelerate. In the past decade, gold's performance relative to the S&P 500 moved in step with changes in gold ETF holdings."

Douglas Beath, global investment strategist, and Mason Mendez, investment strategy analyst at Wells Fargo Investment Institute, recently raised their year-end gold targets for both 2025 and 2026 based on their expectations for lower interest rates.

"Fed easing combined with still elevated inflation indicates lower short-term real rates, which historically has been bullish for gold prices," the strategists say. "In addition, we lowered our 2025 and 2026 year-end targets for the U.S. dollar, another positive factor for gold prices."

Should investors buy gold?

"Hold some gold, but don't chase it," says Lyulkin. "The easy money's been made. Gold did its job protecting portfolios when the world looked uncertain; it doesn't need to be your growth engine now."

In the long term, investors should remember that gold has underperformed the broader market.

"From 1984 through 2024, the S&P 500, with dividends reinvested, returned an annualized 11.6% before inflation. Adjusted for inflation, the market's annualized total return came to 8.6%," writes Kiplinger contributor Dan Burrows in his feature "Is Investing In Gold Worth It? How Gold Prices Have Changed."

Gold, over that same time frame, generated an annualized return of 4.3% before inflation — and a measly 1.5% when adjusted for inflation.

"It's insurance, not alpha," says Lyulkin. He recommends that investors allocate 5% to 10% of their portfolios to the precious metal.

As for when to buy, Adam Turnquist, chief technical strategist for LPL Financial, recommends "adding exposure on weakness, given the degree of overbought conditions."

Investors looking to gain exposure to gold have several options. If you want to purchase physical bullion, you can buy gold bars at Costco.

But, as Kiplinger contributor Tony Dong notes in his feature "The Cheapest Gold ETFs to Buy Now," once you buy a gold bar or coin, you now have to decide where to store it.

"A safe deposit box at a bank comes with annual fees and counterparty risk. Self-storage in a home safe can work but adds personal security risk," Dong writes.

Selling it comes with its own set of hassles. As such, gold ETFs provide "the simplest and most accessible option" for investors to add gold exposure to a portfolio.

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• How Digital Platforms Are Changing the Way You Invest in Gold

When the stock market seas get choppy, investors often flock to gold. The "safe-haven" asset is seen as a reliable store of value during times of market turbulence.

Chuck Czajka, founder of Macro Money Concepts, calls it "wealth insurance" because of its ability to hedge against "inflation and economic uncertainty like we are currently experiencing."

Today, you have three primary ways to invest in gold: the traditional route through physical bullion, the stock market route through gold stocks or funds, or the hybrid approach using digital gold investment platforms. Each approach has its benefits and drawbacks that can affect which is best for you.

Investing in physical gold: Traditional security with logistical challenges

Owning physical gold — whether it's a U.S. Mint-issued American Gold Eagle coin or a hefty bar — is the classic way to invest. It’s tangible, and for some, that's the ultimate security, but this security can come at a cost.

"Often, when investing in physical gold, purchase price premiums and sell-back spreads — which occur when a gold purchaser pays below market price — can significantly reduce final return," says Scott Hefty, co-founder of Serae Wealth. "These costs can be in addition to custodial holding fees, a service that is required when investing in physical gold inside a qualified retirement account."

You'll likely need substantial capital to cover the cost of a single coin or bar. You also need to find a secure storage solution, like a home safe, bank safe deposit box or gold storage service. Each method incurs additional costs or security risks.

When you're ready to liquidate, selling physical cold can be a hassle, too. You need to find a reputable dealer and may end up selling for a price below the current market price.

The stock market route: Trading stability for convenience

Investors looking to avoid the liquidity and storage challenges of physical gold ownership may turn to the stock market for relief. Gold ETFs, mutual funds or mining stocks make it possible to add the precious metal to your portfolio without ever touching a single piece of bullion.

"Gold-backed ETFs can be a way to efficiently create diversification within an overall investment account, allowing you to use gold’s non-correlated nature to bring more balanced returns," Hefty says. "They typically have much lower ongoing expense and transaction costs compared to their physical counterpart" and "provide the security of large institutional management."

All you need to invest in gold funds or stocks is a brokerage account. Best of all, selling involves a click of a button. Assuming there is a counterparty to your trade, this can be a far more liquid approach than buying physical gold.

That counterparty risk can be a significant drawback. If no one is willing to buy what you have to sell, you may be stuck with the asset or forced to accept a lower price. You also don't own the physical metal when you invest this way, and the value may be impacted by broader market events.

Digital gold investment platforms: Where physical ownership meets digital convenience

As often occurs, modernization has developed a Goldilocks alternative to the previous two options. Digital gold platforms allow you to own a claim to physical gold that is securely stored in a professional, third-party vault.

Your ownership is represented either by a digital token on a blockchain or by a share of a commingled gold pool. This makes it possible to invest whatever dollar amount suits you.

These platforms also solve the liquidity issue of traditional physical gold ownership. Many allow 24 hours a day, seven days a week access, so you can monitor, buy, and sell at your convenience. You can sell your share for cash or possibly have the physical metal shipped to you.

This convenience isn't free, however. Digital gold platforms charge a fee for their service to cover storage and transaction costs. These fees vary, but may be less than the expense ratio on a gold ETF or mutual fund, or finding your own storage solution.

There may also be a fee at the time of sale. For example, you may pay 0.3% of the redemption value at the time of sale.

Trust is paramount here, as well. Your investment is only as secure as the platform through which you invest and its chosen storage partner.

What to watch for: A head-to-head comparison

There are key elements to watch for when buying gold as an investment, regardless of the method you use. Here’s what to look for when evaluating each approach:

Ultimately, the best way to invest in gold depends on your personal goals and risk tolerance. If you want a tangible asset you can hold, physical bullion is for you.

If you want the convenience and familiarity of the stock market, gold funds or mining stocks are a solid route. If you want a physical asset with digital conveniences, consider a digital gold investment platform.

Regardless of the investment method you choose, be aware that while gold does tend to perform better during market uncertainty, it is not always a smooth ride. "Gold can be extremely volatile and can often experience periods of double-digit declines like the stock market," Hefty says.

It's best to keep your allocation to no more than 5% to 10%, according to Czajka and Hefty.

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Once upon a time, if you wanted to invest in gold, you'd need to find a reputable dealer, verify the authenticity of the product, arrange payment and then secure transportation and storage of the physical bouillon all on your own.

For many, the result was the most expensive headache you'd ever endured. The time-consuming process made investing in gold feel like a luxury reserved for the ultra-wealthy or most dedicated of hobbyists.

Today, digital platforms are rewriting the gold investing story. You can buy gold while handing logistical headaches over to someone else. This modernization has not only streamlined the investing process but also democratized access, enhanced transparency, and fundamentally transformed gold from a cumbersome physical asset into a liquid, digital one.

Democratizing access: Gold for everyone

One of the biggest barriers to buying gold used to be the sheer cost of the endeavor. Traditionally, investing in gold would require significant upfront capital to cover the full cost of a coin or bar. Prices could be thousands of dollars. This high entry point prevented many would-be investors from adding the precious metal to their portfolios.

Digital platforms are dismantling this barrier and making gold as accessible as a low-cost ETF. Through them, you can start investing at nearly any amount using fractional ounces.

You own an interest in the metals held by the platform’s custodian through "pooled metal positions." This model is essentially the physical asset version of fractional share investing for stocks, where you can buy a piece of an asset that would otherwise be too expensive to own.

This reduced cost to invest means almost anyone can add gold to their portfolio. Some companies are even offering credit cards that invest points earned directly into digital gold. So, all you need to do is buy a cup of coffee to start investing in gold.

The age of convenience: Buy, sell, track 24/7

Alongside lower financial hurdles to investing, digital platforms are streamlining the entire gold investing process. Gone are the days of needing to navigate suppliers, authenticators, and transportation and storage providers. You can now buy and sell gold online around the clock with a few clicks of your mouse or taps on your smartphone.

Desktop sites and mobile apps for gold investing allow you to effectively keep your gold portfolio in your pocket. You can track your gold's value and trade from any place at any time. This has turned a notoriously illiquid asset into one with access even ETF investors would envy.

Digital platforms provide a blend of direct ownership and digital convenience that not even gold ETFs can achieve. Since you own the asset directly, you can always redeem your gold instead of selling it online, and have the physical metal delivered to your address.

A clearer view: Transparency and trust

Trust is paramount in any financial transaction, especially when dealing in physical goods you may never see in person. Digital platforms are enhancing industry trust through heightened levels of transparency.

These platforms may back every unit of digital gold investment with an equivalent amount of the physical metal. This is audited by a third party, and many services provide public reports that verify their inventory against all outstanding customer holdings.

Other platforms are taking this a step further by leveraging blockchain technology through gold tokenization. Each digital token represents a specific weight of physical gold, and every transaction is recorded on the blockchain to create a transparent and immutable, auditable trail.

The ultimate lockbox: Cost-effective and simplified storage

When you own physical gold, the question becomes where to keep it. You're responsible for finding a secure storage location, be it a home safe or insured vault, and covering the associated storage and transportation costs. With digital gold platforms, this is all handled for you.

Many platforms partner with trusted, third-party storage companies where your gold is stored in high-security vaults. You may have your choice of domestic and international custodians, including top names in the industry like Brinks and APMEX.

The storage fees are typically bundled with insurance and auditing services in a single annual fee. This is often calculated as a percentage of your gold's value, much like the expense ratio you'd pay on an ETF.

What's more, that price may be even lower than the expense ratio you'll find on many gold ETFs, although minimums may apply. For small balances, this approach is often considerably less expensive than managing private storage.

Not a perfect picture: Understanding the risks

While digital gold investing has much to offer, it’s important to acknowledge the risks before investing. The primary risk with digital gold is counterparty risk. You're counting on the platform and its custodian to maintain security and honor your claim to the gold you own if and when you want to sell or redeem. This makes performing your due diligence before investing essential.

To help you identify trusted partners in the industry, look for platforms that:

• Use reputable, third-party depositories.
• Provide regular, independent audits of their holdings.
• Offer clear and transparent fee structures, including the transaction costs and those applied to storage, transportation and redemption.
• Have strong cybersecurity measures, including multi-factor authentication.

By choosing a reputable and well-regulated provider, you can minimize the biggest risks while taking full advantage of the revolution that digital platforms are bringing to gold investing.

The best platforms pair gold’s time-tested value with modern tech’s speed and transparency. The result is a simpler, more appealing option for a new generation of gold investors.

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If there’s one word to describe investment markets today, it’s “uncertain.” And if there’s one asset that people turn to in times of uncertainty, it’s gold. No wonder the shiny metal has spent most of 2025 hitting all-time highs.

But not all gold investments are the same. And if you’re not aware of a relatively obscure but strong-performing corner of the gold investment universe, it could be costing you.

Investors tend to approach investing in gold in one of two ways. One is by owning bullion like gold coins or bars.

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Whether you take direct possession of the metal yourself or hold securities that represent bullion, this type of investment involves the ownership of physical gold. The stuff that’s been dug out of the ground, refined, poured and likely stamped with a weight, purity and, in the case of bars, a serial number.

The price of bullion consists of the spot gold price plus the gold premium. Why is there a premium? Because there are extra costs associated with acquiring physical gold, like distribution and dealer markups.

Why invest in gold miners?

Then there are gold miners. Instead of buying the end product, you’re investing in the companies that dig this valuable stuff out of the ground.

The gold mining business can be a headache. Exploration is risky. Machinery is expensive. Workers go on strike. Local governments can be challenging to work with.

So why expose yourself to the risks these companies face? Operating leverage. When the price of gold is high, mining companies typically see their revenue, earnings and profitability rise.

After all, it costs them the same amount to recover the gold whether prices are up or down. Any increase in price is practically pure profit that drops straight to the bottom line.

Because of this phenomenon, gold mining stocks can potentially outperform the physical metal by a wide margin during a gold bull market.

How should you invest in gold?

A lot of it boils down to your preferences. We’re not going to tell you there is a single best way for everyone — that doesn’t exist.

In fact, we want to encourage you to think beyond bullion and miners. There’s another way to invest in gold. It provides leveraged upside like the miners, but without most of the headaches.

And it’s performed better than both physical gold and gold miners over the past several years. We’re referring to a unique group of businesses called gold royalty companies.

When you hear the word “royalty,” you might think of the royalties a musician receives when someone buys their album, or an actor’s cut when their movie plays on TV.

Gold royalty companies are similar, only their payment comes from taking a portion of the gold production from a specific mine. This is their return for providing financing to mining companies for their exploration and production projects.

In that sense, gold royalty companies act like venture capitalists.

Three favorite characteristics of gold royalty companies

What’s so great about gold royalty companies? Plenty. But here are our three favorite characteristics:

They’re diversified. Even the largest gold miners in the world typically have fewer than a dozen active mining operations going at any given time. Contrast that with gold royalty companies, who often have royalties on hundreds of mining assets.

One of the largest, Franco-Nevada Corporation (FNV), has 118 cash-flowing assets and an additional 314 in various stages of exploration. This diversification reduces risk and provides a pipeline for future sources of revenue.

They’re sturdy. Like gold miners, royalty companies benefit when the price of gold goes up. But unlike miners, the royalty business is immune from many of the headaches that come with operating a mine.

Remember, owning a royalty means getting paid a portion of the production of the mine. Production — not profits. Labor and machinery costs going up? Not the royalty company’s problem. Local government needs a kickback for the miner to get their concession renewed? Not the royalty company’s problem.

They’re profitable. At the end of the day, these are companies that operate extremely lean — typically with just a few dozen employees and minimal overhead — and that means keeping a lot of their revenue as profit.

Think net profit margins in the 40%-plus neighborhood. That compares favorably to just about any company you could think of, including some of the most profitable companies in the world, like Apple (AAPL), Alphabet (GOOGL), Microsoft (MSFT) and Meta Platforms (META).

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With traits like these, it’s no wonder royalty companies have been spectacular performers. You can see for yourself in the table below, which compares the “Big Three” royalty companies to ETFs focused on gold miners (GDX) and gold bullion (GLD). We chose to start the analysis at the beginning of 2008 because Franco-Nevada went public late in the prior year.

Does this mean that you should invest only in royalty companies for your gold exposure? We don’t believe so. For one thing, while we remain optimistic when it comes to royalty companies, it is far from certain that this level of outperformance will continue.

Also, there are times when miners do better and times when physical gold does best. And, of course, there are times when royalty companies shine brightest.

Owning them in combination, like we do in our gold strategy at Stansberry Asset Management (SAM), reduces volatility. We’re able to add or reduce exposure depending on the opportunities available, while avoiding the risk of going all in on any one category.

Still, we’d encourage you to keep gold royalty companies in mind as a valuable tool in your gold investing toolkit.

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This article was written by and presents the views of our contributing adviser, not the Kiplinger editorial staff. You can check adviser records with the SEC or with FINRA.

When it comes to inflation, the U.S. has been living in a fool’s paradise. Inflation — that is, the rise in the general level of prices — has been a fact of economic life, averaging 3.3% annually since 1914. But from 2009 to 2020, the consumer price index rose just 2.1% a year. We got used to inflation one-third lower than the historical norm, which is why post-COVID prices have been such a shock.

The best way to drive inflation out of the system is to hike short-term interest rates. Rates had been sitting close to zero from 2009 to 2022, with the exception of a brief period around 2018. Then the Federal Reserve started to increase rates relentlessly — to more than 5% in just two and a half years. The antidote worked, up to a point. Inflation dropped from 8% in 2022 to 4.1% in 2023 and to 2.9% last year. But the Fed’s target is 2%, and it’s having a tough time getting there.

“American inflation looks increasingly worrying,” said a headline in The Economist in February. President Trump was elected, in part, to stop prices from rising so much, and he has been trying. With Elon Musk, he has cut government employment and programs, but prices don’t react quickly to fiscal changes unless they’re so extreme as to cause a recession — an almost certain way to end inflation with a cure as bad as the disease. The president also wants to drive down energy costs by increasing domestic oil drilling, but oil prices are determined by global forces.

Consumers are concerned, and if they start to think that inflation is rising, they will drive up prices by buying goods ahead of further anticipated increases. The most recent University of Michigan Survey of Consumers found that expectations for inflation over the next year jumped from 3.3% in the previous month’s survey to 4.3% — the highest reading since November 2023 and the second consecutive month of unusually large increases. A big reason is the threat of higher tariffs, which would raise the cost of goods that Americans buy — not just imported goods, but U.S.-made products as well.

Stocks to buy when inflation is rising

So, the fool’s paradise may be ending. Inflation of 3% may not sound like much, but it means that the dollar loses half its value in 24 years; at 4%, it happens in just 18 years. In such a scary environment, is there a way to protect your investments?

The surprise answer is to buy stocks. Consider the worst period of inflation in U.S. history, 1977–81, when the CPI rose at an annualized average rate of 10%. The S&P 500 stock index returned an annualized 8% — a bit below the norm but much higher than returns on long-term U.S. Treasuries, which fell by an average of 1% a year, including interest payments and price declines.

The reason stocks do better is that businesses can counter their own higher costs by raising prices. With inflation averaging about 5% between 2022 and 2024 and the Fed aggressively boosting interest rates, the S&P 500 has produced an annualized return of about 9%.

In an article I wrote in this magazine 19 years ago, with inflation rising, I recommended stocks of companies that appeared to have the power to raise their prices without much resistance. One example was Coca-Cola (KO, $71), which has risen from its price back then of $22 a share while paying a dividend that has jumped by two-thirds (the yield is now 2.9%). I still like Coke; no one can make Coke but Coke. (Securities I like are in bold; prices are as of February 28.)

Other stocks in this category are technology businesses that sell distinctive services by subscription — charging small amounts each month for cloud storage, for example. Apple (AAPL, $242) and Alphabet (GOOGL, $170) are excellent choices.

A non-tech stock that raises prices with impunity is Public Storage (PSA, $304), a real estate investment trust that provides a more mundane kind of storage — for cartons and furniture you don’t want to keep at home. Once you have stored your earthly possessions with Public Storage, moving them to escape a 5% price increase is annoying and onerous. The stock has returned an annualized 11.7% for the past five years.

Another category for inflationary times includes stocks that earn a fairly consistent proportion of a growing pie. Unfortunately, these franchise companies — such as advertising agencies, insurance firms, realtors and ticket sellers — are undergoing upheavals now. Still, there are stocks I like. One is Live Nation Entertainment (LYV, $143), the giant concert producer. Another is Chubb (CB, $285), an insurance company specializing in high-income clients.

How to invest in commodities

Prices of commodities typically rise in inflationary times, but buying leveraged futures contracts comes with severe risks: Transaction fees are high, and a sharp dip can wipe out all of your capital. Also, I have a bias against putting money into things (lumber, pork bellies, gold) rather than people and ideas.

Instead, invest in commodities through natural-resource funds that let you take advantage of human ingenuity as well as the prices of goods rising with inflation. An attractive choice is Vanguard Materials (VAW, $197), with an expense ratio of just 0.09%. The exchange-traded fund’s portfolio is headed by Linde (LIN, $467), a U.K.-based company that sells industrial gases, such as nitrogen and helium, and has a market capitalization (price times shares outstanding) of $221 billion. The stock has doubled in less than five years.

Also consider iShares North American Natural Resources (IGE, $44), an ETF whose portfolio leans heavily toward oil and gas stocks, such as EOG Resources (EOG, $127), but also owns such intriguing companies as CRH (CRH, $103), an Ireland-based producer of building materials such as granite and sandstone.

What about Treasury inflation-protected securities?

What about TIPS, or Treasury inflation-protected securities, which pay a guaranteed real rate of interest plus an inflation kicker that rises with monthly changes in the CPI? At an auction in February, 30-year TIPS were sold carrying a real rate of about 2.4%, the highest since 2001. If inflation averages 3% until maturity, your annual return will exceed 5%.

But TIPS markets are remarkably volatile. In a time of above-average inflation, I would stay away from bonds and bond funds — except those with very short-term holdings. The problem is that when interest rates rise with inflation, the bonds you bought at a lower fixed rate lose their value.

Better to stick with stocks, even though you’ll have to be content with lower returns than in times of stable prices. In fact, one of the best ways to ride out inflation is simply by owning a representative chunk of the market through SPDR Dow Jones Industrial Average (DIA, $438), an ETF known as Diamonds. Many of the Dow’s 30 components are built for inflationary times, among them Nike (NKE, $79) and insurance giant Travelers (TRV, $258). Also, the Dow leans more toward value-oriented stocks, which do better during inflation, than toward growth-focused issues.

Inflation will never be an investor’s friend, but it doesn’t have to be an enemy either. Keep cool and carry a diversified portfolio.

James K. Glassman chairs Glassman Advisory, a public-affairs consulting firm. He does not write about his clients. His most recent book is Safety Net: The Strategy for De-Risking Your Investments in a Time of Turbulence. He owns none of the securities mentioned here. You can contact him at JKGlassman@gmail.com.

Note: This item first appeared in Kiplinger Personal Finance Magazine, a monthly, trustworthy source of advice and guidance. Subscribe to help you make more money and keep more of the money you make here.

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While much of the media is concentrated on bitcoin’s price and whether the U.S. will create its own bitcoin strategic reserve, that old reliable commodity called gold has been making its own moves. Gold hit a record high of $2,956.15 on February 24, 2025; it also outperformed the S&P 500 index in 2024.

Unlike cryptocurrency and other digital assets, there is less controversy about owning gold. In fact, much of the public owns it in some form, whether as jewelry, embedded in some of their electronic devices or even mixed into some specialty cakes. More sophisticated investors might choose to dabble instead in financial instruments like futures, options, certificates or other means to own or speculate on it.

That said, there are certainly caveats when it comes to investing in gold; some even say "Investing in Gold is Dumb." As just one example, as of this writing, gold is currently worth just below $3,000 per ounce, or 0.0625 pounds. I've heard an ounce in bar form described as being like a thick military dog tag. If you wanted to pay someone a million dollars in gold, that would be roughly 334 of those small bars (ounces). That's pretty hard to transport safely, is attractive to thieves and would probably set off security alarms everywhere.

Over the past few decades since the Nixon administration lifted the gold standard to back the U.S. dollar, the U.S. has basically financed its spending through a combination of tax and tariff revenues from the national gross domestic product (GDP), with the deficit being funded by debt through the sale of Treasuries, both short- and long-dated.

Unfortunately, spending for social programs, military and defense, Medicare, Social Security, disaster relief and other government expenditures has outrun the GDP to the point where the deficit is significant. The official figure from the U.S. Treasury for the national debt as of March 3, 2025, was $36.22 trillion, with a debt-to-GDP ratio of around 123% for 2024. All the debt the U.S. has sold through its Treasury bills and bonds has to be returned at some point to the holders when they redeem the principal.

However, CNBC reports that for 2024 alone, the U.S. paid about $1 trillion just for the interest on the debt, and not the principal, largely due to higher yields on newer bonds. This was driven in large part due to somewhat lukewarm interest in buying U.S. bonds in light of the growing national debt. This is somewhat similar to a credit card warning a user about termination beyond the spending limit when payments are not made on time.

The higher coupon rate is the enticement but also comes back as a higher interest payment for the U.S. Basically, if potential bond buyers are skeptical that a government's financial situation is a bit risky, they will want a higher return on the money they lend when they buy bonds at auction. The coupon rate (or interest rate) is what the government bond issuer agrees to pay as interest to the lender. For the U.S., this is a large part of the interest payments it has to make on its debt.

So where would gold fit into all this? Some investors are starting to realize that governments worldwide are saddled with huge deficits and mounting debts, and while we are still far from a 1923 Germany hyperinflation scenario, some of the conditions are there. One potential cause is that without gold-backed money, some governments can be easily tempted to print more money by fiat (by decree), with only the “full faith and confidence in the government” to back that money.

Investors, corporate treasuries and the general public at large are starting to realize that the cycle of excessive borrowing to finance government expenditures, grants and aid of all kinds beyond taxable GDP and productivity might not end well. Overspending beyond GDP and tax collections is one way to get into a hyperinflation situation. Bond and currency holders then begin to wonder what it is they are holding.

Some are starting to realize the value of investing in commodities like gold, silver and oil that are constrained in supply. This is because commodities hold intrinsic value and do not derive their worth from the promises of debtors and institutions. For these investors, the choice of where to store value is the same as it often was during ancient times: They often default to that shiny, rare commodity metal called gold.

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The information provided here is not investment, tax or financial advice. You should consult with a licensed professional for advice concerning your specific situation.

A gold IRA or ETF may be just the inflation hedge you need in your retirement plan. In fact, many investors are flocking to safe-haven investments like commodities to protect their portfolios. Such moves may counter market volatility as well as inflation. One asset class that has shone through some of the darkest economic times is gold.

Gold has held steady against periods of high inflation by many accounts. It has outperformed inflation by 3% on average annually over the past four decades, according to data from the World Gold Council.

In addition, Goldman Sachs analysts expect gold to reach $5,400 per ounce by the end of 2026, citing sustained demand for countries around the world to increase their gold reserves, as reported by Trading Key.

But do precious metals like gold belong in your retirement portfolio? The answer to that depends on several variables. Those interested in incorporating gold into their retirement savings can consider a gold IRA.

What is a gold IRA?

A gold IRA is a self-directed individual retirement account (SDIRA) that holds precious metals like gold, silver and platinum.

SDIRAs work differently from IRAs from major brokers that invest in traditional assets like stocks and bonds. SDIRAs allow you to create a retirement nest egg through alternative investments such as precious metals, real estate, and crypto.

However, SDIRAs operate on a buyer-beware basis. Custodians or providers of SDIRAs are not obligated to evaluate the quality or legitimacy of investments in your SDIRA.

SDIRA custodians also don’t sell investment products or provide financial advice. Many are not registered investment advisors (RIAs). So, they don’t fall under the regulatory scrutiny that major firms like Vanguard or Schwab do.

Still, gold IRAs have all the bells and whistles of more common IRAs. This means contribution limits, tax advantages, and RMD rules remain intact.

Contribution limits

For 2026, you can contribute up to $7,500 worth of precious metals to a gold IRA. Those aged 50 or older can contribute an additional $1,100 for a total of $8,600.

Tax advantages of a gold IRA

You can open a gold IRA as a traditional IRA or Roth IRA. With traditional IRAs, your contributions are tax-deductible. However, you’d owe taxes on qualified withdrawals when you reach age 59½.

Roth IRAs don’t allow you to make tax-deductible contributions. But you can make withdrawals tax-free as long as you’re at least 59½-years-old and you’ve been contributing to the account for at least five years.

Moreover, you can withdraw your contributions penalty-and-tax-free from a Roth IRA at any time. That’s because, unlike traditional IRAs funded with pre-tax dollars, Roth IRAs are funded with after-tax dollars. In other words, you’ve already paid income tax on your contributions to Roth IRAs.

However, withdrawing earnings from a traditional or Roth IRA before reaching age 59½ would generally hit you with taxes and a 10% early withdrawal penalty.

Required minimum distributions (RMDs)

If you have a traditional gold IRA, you generally need to make withdrawals or required minimum distributions (RMDs) by a certain age, depending on your birthday. Here’s how it breaks down based on birthdays.

• Age 70 1/2: if born on or before 6/30/1949
• Age 72: if born on 7/1/1949 through 12/31/1950:
• Age 73: if born on 1/1/1951 through 12/31/1959:
• Age 75: if born on or after 1/1/1960:

The amount is based on factors like your life expectancy. You can calculate these using IRS RMD tables.

When it comes time to take a distribution, your custodian can help you liquidate the physical gold and transfer cash to you, or it can send you the physical precious metal. The latter may be best if you intend to sell the physical gold at a later time.

But before you commit, make sure you ask your gold IRA custodian how they handle RMDs. The process isn’t as simple as having your broker sell the stocks in your IRA. So you need to make sure the custodian has a reliable process in place to satisfy your RMDs and avoid any trouble with the IRS.

How to open a gold IRA

Before you open a gold IRA, you typically need to find a gold broker to help you purchase the physical metal. Moreover, gold in an SDIRA must meet specific IRA fineness requirements.

The gold must have a fineness of at least 99.5%. This gold must also be stored in an IRS-approved depository. In most cases, the gold broker can help you find an approved depository. The company can also help you find a gold IRA custodian to open an account and handle all the administrative work.

Risks of gold IRAs

As you can see, there are many players involved in running a gold IRA. With that can come various fees like the following.

• Gold seller’s mark-up fee
• Storage fee for depository
• Account set-up fee
• Ongoing custodian administrative fees
• Transaction fees

And remember, gold IRA custodians don’t undergo the same regulatory oversight as traditional brokerage firms. They won’t evaluate the legitimacy or reliability of the investments you put into your SDIRA. They merely handle the administrative work regarding your account. It’s entirely your responsibility to evaluate your investments, custodian, depository and everything that comes into play.

But there are other risks you should know about gold. For one, it’s not always a solid inflation hedge. In fact, between 1987 and 2001, when inflation hovered around 3% a year, the price of gold declined.

In addition, gold doesn’t always outperform other asset classes and has shown little in the way of long-term potential.

Between June 1986 and June 2026, the S&P 500, with dividends reinvested, returned an inflation-adjusted annualized total return of 8.18%. In the same time frame, gold generated an inflation-adjusted annualized return of 3.628%.

Gold ETFs

You could avoid high fees and other hassles that come with investing in physical gold by investing in gold ETFs (exchange-traded funds).

A gold ETF tracks the gold markets and aims to mimic their performance. But you can buy shares of a gold ETF through a standard brokerage account in the same way you’d purchase shares of a company’s stock. Plus, you won’t have to hold any physical gold. This would allow you to bypass the costs associated with purchasing and storing gold, as well as the extra legwork of evaluating an SDIRA custodian and other providers.

ETFs have long been known for their instant diversification and low fees. In fact, the iShares Gold Trust has an expense ratio (management fee) of 0.4%, or $40 for every $10,000 invested. The typical annual maintenance fee for a gold IRA alone ranges from $75 to $250.

However, investors should know that paying taxes on gold and other commodity ETFs can be complicated. Depending on how the ETF is structured, you may owe taxes even if you haven't sold shares. Be sure to consult a financial adviser or tax expert before you purchase a gold ETF.

Is gold for you?

Gold has historically stood strong against inflation and other periods of economic and geopolitical turmoil. This precious metal could add a layer of diversification to your portfolio and protect you from downside risk.

However, investing in gold as a retirement asset is different from building a nest egg with stocks and bonds. Gold IRA providers aren’t subject to the same rules and regulations as traditional brokers. It’s up to you to do your due diligence when it comes to vetting a custodian as well as the actual gold you’re investing in. The process can also involve high fees. So, you must ensure gold aligns with your risk tolerance and long-term financial goals.

Read More

• Is Investing in Gold Worth It?
• Gold Investments Continue to Shine
• The Best Gold ETFs With Low Costs
• Yes, You Can Buy Gold at Costco

As the world faces increasing water scarcity and challenges securing reliable water sources, there is a need for better investments in water infrastructure. According to the United Nations, 2 billion people worldwide cannot access safely managed drinking water services.

It’s clear that the growing demands placed on water resources are reaching new levels, fueled by the rise of AI and data centers, rapid population growth and the devastating impacts of climate change. While legislative action has begun remediation efforts to protect our water supply, providing a clear signal to investors that the water sector is an important area for future investments. However, there is significant concern about the possible future deregulation of water policies, including reduced protection of streams, wetlands, and pollution standards, which would move progress in water standards in the wrong direction.

What do water investors need to know about the sector’s long-term sustainability in the coming years?

Rollbacks to clean water are a possibility

Helping to ensure the continued availability of clean water has always been a legislative priority, and progress has been made to shore up our country’s failing grades from the U.S. Environmental Protection Agency (EPA). One of the challenges the EPA faces is PFAS (per- and polyfluoroalkyl substances) and other contaminants in water supplies. In April of 2024, the Biden-Harris administration finalized the first national drinking water standard to limit harmful PFAS chemicals, known as "forever chemicals," protecting approximately 100 million people from associated health risks, including cancer and organ damage. This initiative includes $1 billion in funding through the Bipartisan Infrastructure Law to help communities — particularly disadvantaged ones — address PFAS contamination in public water systems and private wells.

This rule is a huge step forward in reducing water exposure to PFAS compounds, helping safeguard public health and advancing environmental justice.

If the new administration revokes environmental initiatives like this one, water supply challenges could worsen, placing even greater pressure on the need for comprehensive water management strategies.

The strategic importance of investing in water

Water demand is rising from all sectors: agricultural irrigation, industrial manufacturing and, increasingly, technology-driven industries, such as data centers. In addition, frequent droughts quickly affect the water supply and cause faster evaporation rates. Relying on traditional water sources will become more difficult as changes to supply and demand test the limitations of our current system.

According to the World Resources Institute, by 2040, 33 countries will face extremely high water stress, with regions such as the Middle East and North Africa experiencing the most significant shortages. Urgent action on proactive investments in the water sector may be required to help mitigate these challenges.

Investments in the water sector can help turn the tables. Water is an inelastic resource with no substitutes, and its strategic importance is growing, providing a critical avenue for investments for both long-term stability and short-term returns and an opportunity to support the most pressing socioeconomic matters of our lives.

Avoid greenwashing and become a global player

Investing in water is intrinsically aligned with environmental, social, and governance (ESG) principles. As the foundation of all life, water is one of the most sustainable investment strategies conceivable. The United Nations' 2030 Agenda for Sustainable Development outlined 17 Sustainable Development Goals (SDGs), and five of them are directly connected to water:

• Clean water and sanitation
• Ending poverty
• Good health and well-being
• Economic growth
• Action to combat climate change

Investors can play a pivotal role in advancing global sustainability by focusing on infrastructure development, helping to ensure equitable access to clean water and promoting resource conservation. You can invest in specific companies by purchasing their company stock, but you can also get a mix of water investments by purchasing a water-focused exchange-traded fund (ETF). ETFs allow investors to have diversified exposure to water-related stocks without having to select individual companies. Many investors will choose more standard investing options like water stocks. With water stocks, investors can invest in individual companies supporting the sector, such as utilities and infrastructure-based companies. Private equity options are also available for sophisticated and accredited investors with longer time horizons, lower liquidity needs and a higher risk tolerance.

Avoid greenwashing by closely reviewing the companies you are choosing to invest in to help ensure they have sustainable principles and long-term growth potential. Work closely with a financial adviser to carefully examine the fund’s sustainability goals, investment criteria, transparency in reporting and quantifiable metrics. All of these will help an investor determine whether a fund is transparent about its investment quality.

Investing in water-related infrastructure, technology and utilities is crucial for ensuring the future stability of our planet and its global citizens. The water demand is not going away, and neither are the impacts of climate change.

ALINE Wealth is a group of investment professionals registered with Hightower Securities, LLC, member FINRA and SIPC, and with Hightower Advisors, LLC, a registered investment advisor with the SEC. Securities are offered through Hightower Securities, LLC; advisory services are offered through Hightower Advisors, LLC.

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This article was written by and presents the views of our contributing adviser, not the Kiplinger editorial staff. You can check adviser records with the SEC or with FINRA.

Costco shoppers have been clearing shelves of the retailer's one-ounce gold bars. U.S. investors have poured almost $2 billion over the past 12 months into exchange-traded funds (ETFs) that hold gold bullion. And central bankers around the world have been snapping up 67% more gold bricks so far this year than they did as recently as 2021.

There are plenty of reasons investors should include at least a little gold in their portfolios. Although gold prices can be volatile, over the long sweep of history, the precious metal has maintained value.

Giovanni Staunovo, a commodities analyst at UBS Securities, says persistent inflation in the U.S. and wars in Ukraine and the Middle East have been key reasons gold prices have more than doubled in the past decade, to more than $2,600 an ounce.

He expects gold prices to reach $2,900 in 2025 thanks to continuing demand from central banks and interest-rate cuts that are likely to weaken the U.S. dollar, which typically moves inversely to gold prices. For many investors, a 5% allocation to gold strikes the right balance of risk and return, he says.

It may be fun to jingle an ounce of gold in your pocket, but ETFs have other advantages. You don't have to worry about storage, and you can turn your gold fund into money with the click of a button.

The SPDR Gold MiniShares (GLDM) is one of the largest and fastest-growing gold ETFs. The fund has garnered more than $1 billion in net inflows over the past year, bringing assets to $9.1 billion. With an expense ratio of 0.1%, it is a lower-priced clone of the SPDR Gold Shares (GLD), which has more than $74 billion in assets and charges 0.4% in annual expenses.

The mini fund has slightly higher returns than its larger counterpart thanks to a lower expense ratio, but because it is smaller, it trades a bit less efficiently.

Note: This item first appeared in Kiplinger Personal Finance Magazine, a monthly, trustworthy source of advice and guidance. Subscribe to help you make more money and keep more of the money you make here.

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Gold has been in the headlines lately. Maybe you’ve noticed. I’m specifically talking about the shiny metal being sold by warehouse giant Costco. The bars are selling out within hours, if you can get them at all.

With so much enthusiasm around gold, it begs the question: Should gold be a part of your retirement plan?

Gold prices over the decades

It’s important to recognize how gold behaves. If you pull up a price chart that spans several decades, you’ll notice something. Gold has relatively short periods where it rockets up and then longer periods where it does nothing (or worse).

If you’re an expert market timer, then you can obviously profit from buying during the uptrends and avoiding those long periods of underperformance. Unfortunately, during my time in this business, I’ve noticed something. There are very few investors who have even a remote shot at successfully timing the market. For most of us then, it’s the long term that we should concern ourselves with.

So how does gold do over the long term?

Here is one way to think about gold prices. Two hundred years ago, an ounce of gold could have afforded you one quality men’s suit. Today, that same ounce of gold will also buy you a high-quality men’s suit. In other words, it does a fantastic job of preserving purchasing power over the long term.

Physical gold has its plusses and minuses. There’s nothing quite like holding a bar of gold in your hand. And if we’re ever in some sort of doomsday scenario — the grid has collapsed, paper currency is worthless and so on, you’ll likely want your gold close at hand. Of course, hoarding coins and bars can make you a target for thieves. And since the IRS classifies physical gold as a collectible, you may be taxed at a steeper tax rate (currently as high as 28% on long-term gains) if you ever need to sell your gold.

Investing in gold without buying bars

Fortunately, there is more than one way to invest in gold. At SAM, we take a four-pronged approach. Part of that is owning physical gold, but there are three other categories that can benefit when the price of gold appreciates:

Major miners. Stocks of the largest companies that explore and produce gold, like Newmont Corp. (NEM) and Barrick Gold Corp. (GOLD), can be attractive at the right prices. They have operational leverage, meaning that while the price of gold rises, their costs stay the same, which can result in windfall profits when gold is a hot investment.

Emerging producers. This is the high-risk, high-reward part of the gold universe. Some of these companies don’t even produce gold. Rather, they are valued on their “pounds in the ground.” The lack of an operating history means these stocks carry greater uncertainty, but they can trade at a fraction of the value of their proven gold reserves.

Royalty companies. These are like banks for the mining industry. They provide capital to miners in exchange for a percentage of their production. Royalty companies have few employees and low overhead costs. When they’re not hunting for deals, they pretty much sit back and collect money. This superior business model has resulted in high profit margins and outstanding returns over time.

Is gold for you?

Whether you should own gold, how you should own it, and how much you should own ultimately depends on you and your financial goals. If capital preservation over the long term is a top priority for you, that argues for a larger allocation. But if you are growth- or income-driven, perhaps a small bit of exposure makes more sense for you. This sort of planning can be done on your own or with the assistance of a financial adviser.

Just know that if Costco is yet again out of stock or limits how many gold bars you can buy, you have many other options.

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This article was written by and presents the views of our contributing adviser, not the Kiplinger editorial staff. You can check adviser records with the SEC or with FINRA.

As the market value of gold continues to increase, this is not just a good time to consider diversifying your portfolio, but an opportune time to consider jewelry made of the precious metal. In 2020, the value of one ounce of gold surpassed $2,000 for the first time ever; today’s price is hovering above $2,400.

Jewelry is not as liquid as gold bullion and bars, but its value does rise in a commensurate fashion, and the longer you hold on to it, the greater the profit. The bonus is the joy of shopping for unique pieces, learning their history, and then wearing your antique and vintage finds.

Qualities that determine value range from purity of the metal and weight to condition and craftsmanship. Spot prices of platinum (approaching $1,000) and sterling silver (near $30), also precious metals, fluctuate at unprecedented highs. 

Here, we look at what to watch out for in jewelry, how to find the goods, and how to have some fun with jewelry investments.

What makes jewelry valuable

Value is very dependent on age – antique is reserved for pieces that are at least 100 years old – and number of karats. Not only is 24-karat gold the purest, it’s also the softest and most easily scratched – the traditional photo op of Olympic athletes biting their medals leads back to the 1800s gold rush when that was the way to test metal's purity. Generally, jewelers recommend 14- and 18-karat (58.5% and 75% pure gold) for everyday wear. 

A small jeweler's magnifying loupe enables one to study stamps, karat and dates. Quality silver is usually marked with the number 925, country of origin and the word “Sterling.”

The number of carats applies to gemstone size. Expensive diamond jewelry likely includes grading reports from the Gemological Institute of America documenting carat weight. The GIA’s gem encyclopedia explains “play-of-color,” where certain stones are found (lapis in Afghanistan; opals in Australia), and how tourmalines (mineral deposits that resemble gemstones) are identified by color or locale.

Semi-precious gemstones are highly collectible and wearable, while diamonds, emeralds, sapphires, jadeite, garnets and rubies are more coveted. There's a wealth of difference between synthetic and natural stones; small seed, seawater, freshwater and cultured pearls. Gemstones are graded according to the 4 Cs: Cut, color, clarity and carat weight.

Jewelry is also classified by its type and design. For instance, significant differences in necklace styles described at Spruce Crafts range from rope-like bayaderes to bibs (popular during Greek and Roman times), chokers, collars, festoons and lavallieres (named for a mistress of Louis XIV).

The history of jewelry trends

Knowing the history of jewelry also helps to understand what has value. Ornate Georgian jewelry dates from 1714 to 1830; the Victorian era, 1837-1901, reflects Queen Victoria’s reign; and Edwardian, 1901-1910, refers to King Edward VII. The 1920s and 1930s are the heyday of Art Deco followed by Art Deco Revival, Mid-Century and contemporary.

If you are looking to gain appreciation and knowledge of jewelry (or just look at some beautiful items) fine arts museums are excellent venues to study how historic periods, politics, wars, aristocracy and trends have transformed jewelry-making.

This context shows how what's considered valuable or trendy changes, too. For instance, one of the more dramatic forms of Victorian jewelry was hairwork, which enabled a family member to memorialize their beloved by weaving, framing and gilding strands of their hair. 

Visitors at London's Victoria and Albert Museum can observe Bronze Age artifacts and medieval jewelry that illuminate times when lower classes wore copper and pewter. You can also see how in the Renaissance period, different stones were thought to protect people from various illnesses, and you can see the work of avant-garde artists who push the limits with cutting-edge technology and materials.

Custom-made jewelry has been a statement of extreme wealth and triumph for centuries, extending into the modern era. Over-the-top, one-of-a-kind pieces displayed at the American Museum of Natural History's Ice Cold: An Exhibition of Hip-Hop Jewelry (open until January 2025) include shiny signs of success created for Run-DMC, exemplified by Adidas’ 14-karat gold sneaker-shaped pendants.

Where you can find jewelry to invest in

People acquire gold in myriad forms and from unexpected places; Costco sells bars, and according to the New York Times, golden “beans” are popular in China. And between sites like Ruby Lane, Etsy, eBay, 1stDibs and TheRealReal, the internet is a 24/7 emporium for jewelry at every price point conceivable, bombarding followers with seductive images of bespoke, pre-owned and sought-after jewelry. 

Before buying online, be sure to read sellers' reviews and check return and exchange policies. You should also look out for charges for resizing, engraving, converting (i.e. earrings into charms, a pendant into a brooch and vice versa), shipping costs, insurance and tracking.

Second-generation jeweler Elizabeth Henry, who oversees six stores in Massachusetts, New Hampshire and Maine, said Instagram helped Market Square Jewelers survive the pandemic. Their frequent live shows have created a loyal community of "jewelry nerds" who can comment, ask questions, and then purchase by writing "mine" plus a price. 

You can also shop at auction houses. Bonhams has 89 live and online jewelry auctions in 2024 worldwide, according to their jewelry global director Jean Ghika. Bonhams does valuations for auction and enables interested parties to preview and bid online and onsite. Items from a June auction, which I saw at New York City’s Madison Avenue location, included intricate designs by Piaget, Chopard, David Webb, Van Cleef & Arpels, Bulgari, and a pair of diamond bracelets owned by the late Barbara Walters. 

Ghika wrote in an email that “some makers have enduring appeal regardless of time period." She added: "Style-wise we have seen a renewed interest in jewels from the second half of the 20th century, namely the 1950s and 1960s; equally, there is also an emerging interest in the jewels from the 1980s which often focus on bold designs and strong use of color."

Additionally, check out estate sales (estatesales.net is state-specific), stoop sales, garage sales, flea markets, thrift shops and events that could be opportunities for finding valuable jewelry. For example, at the bustling Manhattan Vintage Show, held four times a year in New York City, one can try on distinctive pieces and interact with dealers from all over the country. The three-day event boasts a kaleidoscopic array of clothing, accessories and baubles, all under Metropolitan Pavilion's roof. 

Approximately a quarter of the 100 vendors sell jewelry, and if you look carefully, you’ll unearth gems that will appreciate in value, such as a silver ring designed by esteemed architect Frank Gehry in collaboration with Tiffany’s, or modernist pins by Danish silversmith Georg Jensen, founded in 1904 in Copenhagen. Fashionistas love rifling through racks of Gucci and Pucci, pairing bright, still in-vogue patterns with bakelite, turquoise, cameos, coral and Austro-Hungarian crystals, stacking rings and bracelets, and layering necklaces.

At the Jewelry and Object Show (held in New York City, Las Vegas and Miami), dealers explain the provenance and cultural significance of hat and collar pins, ear clips, money clips, tennis bracelets, bangle bracelets, retro charms, and chains of all types (serpentine, Cuban, cable, curb, Figaro, herringbone, mariners, trace, paperclip, ball, belcher, box) and lengths (princess, matinee and opera). There are classic cufflinks, lockets, fine watches, old-fashioned and mourning brooches and pendants for sale.

One piece de resistance at a recent Jewelry and Object Show in the Metropolitan Pavilion was a radiant gold bracelet, circa 1840, designed by Italy's legendary House of Castellani for sale by DK Bressler. While many sellers connect with customers via websites and social media, Bressler’s owner Ron Kawitzky, who has been operating out of New York’s famous diamond district for almost 40 years, said the best way to assess fine jewelry is to see it in person, handle it and observe makers' marks. I suggest scheduling an appointment first. 

You could have valuable pieces already without knowing it. Look through your own jewelry box for signed silver pieces, high karatage gold, rare gems, and anything from Cartier, Hermes, Harry Winston, Faberge and Fred Leighton. Watches by Rolex, Montblanc, Piaget, Patek Philippe, Longines and Verdure also have high value as investments.

Be on the lookout for Paloma Picasso’s graffiti X’s and olive leaves; Elsa Peretti's signature waves, open hearts, bone cuffs and bean-shaped pendants. Peretti’s first jewelry design was a sterling bud vase on a leather string inspired by a flea market find. 

How to consider jewelry investments

Much like collecting art that will hang on your walls for years, experts encourage investing in high-quality jewelry that resonates on an emotional level. Learn as much as you can and decide how much you’re willing to spend. You should also determine if you’re buying to celebrate a personal milestone, bequeath or sell in the future as the value of gold goes up.

Meghan Dyer, head of sales at EraGem based in Bellevue, Washington, said a beautiful piece of jewelry is viewed as a “future heirloom and long-term investment.” Vis a vis the current precious metal market, Dyer was one of several dealers whose price tags on older stock remain unchanged but, she said, newly listed items will reflect an uptick in troy ounce prices. 

When it comes to selling your jewelry, she suggests paying for an independent appraisal. Not one source I spoke to for this story was in favor of melting old jewelry; in fact, they said banishing pieces of history to the furnace was criminal.

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Most investors have probably never fretted about how to add a nice stake in pork bellies or winter wheat to their portfolio. But many have lined up in Costco to buy a gold bar. All such investments are part of the broad asset class of commodities, along with crude oil, coffee, copper and more. Despite impressive run-ups in many commodities this year, some strategists say they’ve still got a long, upward run ahead of them and deserve a spot in your portfolio.

That’s because commodity prices tend to ebb and flow in long cycles, largely governed by human nature, says John LaForge, head of real asset strategy at Wells Fargo Investment Institute. Commodity producers ramp up production when prices are rising, until eventually markets are saturated, or at least so well stocked that profits start to suffer. “It gets to a point where producers aren’t interested in planting an extra acre of corn or producing an extra barrel of oil,” says LaForge. 

Producers then scale back until all that excess supply is worked off. With commodities once more in short supply, prices start to rise again and the cycle repeats. These bull and bear cycles tend to last roughly 10 to 15 years, on average, says LaForge. Currently, “we’re in year four of a bull super cycle” that began in March 2020, he says.

"Very positive" outlook for commodities

Shorter-term developments also affect the price of commodities — harsh weather, supply-chain snafus, geopolitical tensions or spikes in inflation, for example — which is why, within a super cycle’s long-term trend, commodities can be volatile. 

Jim Masturzo, chief investment officer of multi-asset strategies at money management firm Research Affiliates, sees several factors pointing to a “very positive” outlook for commodities. They include robust growth in commodity-intensive areas of the economy such as green energy and artificial intelligence, higher-for-longer U.S. inflation, and expectations for an eventual weakening of the dollar. (Commodities, generally priced in dollars, typically move in the opposite direction of the greenback.) 

Commodities can be effective portfolio diversifiers. “Commodities offer diversification from regular stocks and bonds,” Masturzo says. “A perfect example is 2022 — every major asset class was negative as inflation was rising, except commodities.” 

How to own commodities

Outside of gold, it’s almost impossible to invest in commodities directly. Most of the time, you’re investing in derivative instruments, such as futures contracts, that track the price of a commodity (sometimes more closely than other times). Or you can invest in stocks linked to commodities. 

There are pluses and minuses to each approach depending on a number of variables. How much to allocate to commodities overall depends on your risk tolerance, but you’ll likely need 5% to 10% to realize the diversification benefits, strategists say.

Gold shines brightly among commodities lately. “We’ve been broadly bullish on commodities for some time, especially on precious metals,” says Mayukh Poddar, senior portfolio manager at Altfest Personal Wealth Management. Geopolitical tensions and ongoing inflation angst are positives, and gold is getting a boost from foreign governments increasingly deploying excess reserves into gold, he says. 

“Generally speaking, we prefer the metal; the stocks of miners are more volatile,” Poddar says, although the firm invests some in the latter, which are well priced now. Exchange-traded funds are good choices. Poddar prefers low-cost SPDR Gold MiniShares (GLDM, $46), backed by physical bullion. For a broader basket of precious metals, he likes abrdn Physical Precious Metals Basket Shares (GLTR, $104), offering exposure to gold, silver, platinum and palladium. (Prices, returns and other data are as of May 31, unless otherwise noted.)

Long-term investors shouldn’t be put off by gold’s huge gain. The metal rallied from roughly $1,820 an ounce last October to around $2,325 recently, down from an all-time high in May of $2,435. “That’s not extreme, particularly in a bull super cycle,” says LaForge. A pause to consolidate gains shouldn’t be surprising, he says. But LaForge sees gold trading at more than $2,500 per ounce in 2025.

Gold-mining stocks have conspicuously lagged the metal’s blockbuster rally, making them compelling now for tactical investors who can stomach their volatility. “Gold stocks seem to be stuck in neutral, which is uncharacteristic — they typically outperform the metal in a bull phase,” says John Hathaway, senior portfolio manager at Sprott Asset Management, an investment firm specializing in precious metals. Intrepid investors seeking exposure to mining stocks can consider VanEck Gold Miners (GDX, $35), an ETF whose top three holdings are Newmont (NEM), Agnico Eagle Mines (AEM) and Barrick Gold (GOLD).

Crude oil has been on more of a roller coaster. Having briefly traded below $0 in 2020 when COVID decimated demand, oil rebounded to over $120 a barrel in 2022 as Russia’s invasion of Ukraine upended supplies and has now fallen back to below $80 a barrel. LaForge sees modest gains, to $85 a barrel, in 2025. “Oil needed to cool down a bit,” he says. “Even in bull cycles, prices don’t skyrocket higher every year.”

In contrast to their gold strategy, when it comes to energy, the portfolio managers at Altfest prefer stocks to the commodity itself. (Strategists at Wells Fargo also recommend that stock investors overweight the sector in their portfolios.) If oil stays within a stable range, says Altfest’s Poddar, energy producers and related firms should earn reasonable profits. He finds attractive valuations among the integrated giants, including ExxonMobil (XOM) and Chevron (CVX), which are the top holdings in Energy Select Sector SPDR (XLE, $93). 

But before you zero in on one particular commodity, consider whether a broader approach may suit you better. Although some parts of the commodities complex might be more attractive than others at any given time, investors need not stress over picking the standouts. 

“A broad basket is best,” says LaForge. The reason, he says, is that in a bullish super cycle, a rising tide tends to lift all boats — about 90% of commodities move in the same direction in a super cycle, whether bull or bear, he notes. “If investors try to get too cute and pick that one commodity, it could be the one of 10 that doesn’t participate.” 

A broad ETF worth exploring, according to Poddar, is Invesco Optimum Yield Diversified Commodity Strategy No K-1 (PDBC, $14). The actively managed ETF invests across energy precious metals, industrial metals and agriculture sectors. As its name implies, does not issue pesky K-1 forms at tax time.

Note: This item first appeared in Kiplinger Personal Finance Magazine, a monthly, trustworthy source of advice and guidance. Subscribe to help you make more money and keep more of the money you make here.

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The start of 2024 is a tough act for the stock market to follow. The S&P 500 index notched 22 record highs in 2024 — all before the end of the first quarter. At the market’s peak on March 28, the S&P 500 was up 10% for the year and up 28% from the start of a powerful thrust that started last October. 

It’s little wonder that the market hit a springtime speed bump, pulling back 5.5% in April before bouncing mostly back. Now, investors have to ask first whether the pullback has run its course before they consider whether the second half will deliver further gains. 

We would not be surprised to see the market fall (and pick itself back up) multiple times over the next several months, within a modestly upward trajectory that delivers gains by year-end. An S&P 500 level of 5300 at year-end seems a reasonable-to-conservative target, with 5500 at the high end of strategists’ estimates. Judging by index levels alone, wrapping up at 5300 would not represent much progress beyond the first-quarter high of 5254 for the S&P 500, although it would be an 11% price gain for the year — a 12.5% return including dividends. (Prices, returns and other data in this story are through April 30, unless otherwise noted.) 

But that doesn’t mean you should have closed the books in March, pocketed your gains and put the proceeds under your mattress. The market is not a monolith, and a rotation of leadership in a number of investing styles and categories will present pockets of opportunity (and some risk) that will demand careful attention to your portfolio. 

In contrast to the record-setting euphoria that characterized the start of the year, however, your patience is likely to be tested in a market contending with several crosscurrents, rising uncertainty and a pick-up in volatility, especially as we approach the U.S. election. Investors who soldier on will be rewarded, says Yung-Yu Ma, chief investment officer of BMO Wealth Management, U.S. “We continue to expect more flow than ebb, more push than pull and more forth than back.” 

It might help to remind yourself that corrections are a fact of investing life, and the market’s recent stumble didn’t even come close to one. Corrections are declines of 10% or more, but less than 20% (which is when a bear market kicks in). There have been 10 corrections since 1990, according to investment research firm CFRA, with an average market decline of 14.7%. 

“One thing to remember about a correction is the speed of recovery,” says CFRA’s chief investment strategist, Sam Stovall. Since 1990, the S&P 500 has returned to breakeven in an average of just three months. 

One pillar gone

Still, there’s no arguing that an important support for the stock market is gone — or at least missing for now. Early in the year, the market was buoyed by the expectation of six or seven interest rate cuts this year from the Federal Reserve, which would have significantly reversed the monetary tightening put into effect by the 11 rate hikes in 2022 and 2023 that brought the Fed’s benchmark rate from near zero to a range of 5.25% to 5.50%. 

Inflation appeared to be waning, with the Fed’s target rate of 2% seemingly within reach, and it looked as if the central bank was going to pull off an economic miracle — a so-called soft landing, taming debilitating price hikes with just enough tightening to cool an overheating economy without breaking its back. 

Not so fast. “The market was overly optimistic about immaculate disinflation,” says Phil Orlando, chief stock strategist at financial firm Federated Hermes. Inflation proved tough to vanquish, and a spate of recent economic reports show prices have headed north instead of south. The government’s recent release of the consumer price index marked the third straight month of no improvement. For the 12 months ending in March, the inflation rate was 3.5%, up from a 12-month rate of 3.2% in February and, for now, about where Kiplinger sees it ending the year. 

Inflation pain points include gas prices, housing and auto insurance costs. Overall, inflation should continue to moderate, although recent months have shown that the “last mile” to the Fed’s target rate can take a twist here or a turn there. 

The Fed’s preferred inflation barometer runs lower than the CPI but confirms the recent uptick. 

Traders are now expecting just one or two cuts from the Fed this year. But no cuts are a distinct possibility and, although unlikely, the possibility of rate hikes has entered the conversation. A “slower to lower” Fed and “higher for longer” economic growth, inflation and interest rates are now the expected order of the day. 

Bond yields have risen in anticipation, with the yield on 10-year Treasuries touching 4.7% in late April, before receding a bit. Inflation beneficiaries have rallied, including commodities as well as energy and materials stocks. Says Jason Draho, a U.S. investment strategist at UBS Global Wealth Management: “The overarching macro theme for the past few months is reflation.” 

It’s also worth noting that despite the market’s hiccup in reaction to diminishing prospects of near-term rate cuts from the Fed, rising interest rates historically haven’t been as bad for bull markets as investors might think. 

Research from market strategist Brian Belski at BMO Capital Markets found that, going back to 1990, the S&P 500 has gained 13.9%, on average, during periods when 10-year Treasury yields were on the rise, compared with 6.5% during falling-rate periods. “This makes sense, since lower rates can be reflective of sluggish economic growth and vice versa,” Belski says. 

A sturdy second support

Without an accommodative Fed to cut rates, at least until closer to year-end, the market is left with a second, arguably more important pillar of support — namely, a surprisingly resilient economy and its corollary, healthy corporate earnings. 

Although a lukewarm report on first-quarter economic growth showed a slowdown, economists concluded that it wasn’t as bad as it looked and that the report understated strong domestic demand. That was followed by an employment report showing moderating gains in job and wage growth. And a manufacturing index that had finally pulled into expansion territory in March contracted again in April. 

Nonetheless, many economists have been adjusting their forecasts higher for gross domestic product growth in 2024 and see little sign of anything resembling a recession or even stagflation, which occurs when the economy stalls but inflation remains high. In April, for one example, Wells Fargo Investment Institute boosted its outlook for GDP growth this year from 1.3% to 2.5% (which is also the growth rate that Kiplinger forecasts). 

“We wouldn’t be surprised to see close to 3% GDP growth this year,” says Ryan Detrick, chief market strategist at money management firm Carson Group. Labor markets and consumer spending are still strong, he says, and the industrial side of the economy is picking up. “It’s positive, especially if the consumer slows down a bit, for that baton to be passed to manufacturing as the economic cycle ages,” Detrick says. 

Meanwhile, corporate profits are robust. Analysts expect earnings for S&P 500 companies to rise an average 10% in 2024, according to earnings tracker LSEG I/B/E/S, and another 14% in 2025. That’s after hardly any growth at all in 2023. 

Better yet, the rest of the market is starting to share in the wealth that heretofore has been concentrated in the so-called Magnificent Seven, the tech-focused behemoths that have dominated lately. “Earnings growth is broadening out, allowing the rest of the market to catch up,” says Lori Calvasina, head of U.S. equity strategy at RBC Capital Markets. 

The chart on the facing page, from FactSet Research, another earnings research firm, shows that by the fourth quarter, analysts expect earnings growth of 15% from the same quarter a year ago for the Mag Seven, but they expect 18% for the 493 companies that make up the rest of the S&P 500. Contrast that with year-over-year earnings growth expected for the first quarter of nearly 39% for the Mag Seven and negative 4% for everyone else. 

“The year-on-year revenue and earnings growth that we’ve seen out of tech growth names has been eye-popping,” says Federated Hermes’s Orlando. “I’m not telling you they’re going to lose money, but the pace of growth is going to slow.” 

Crosscurrents to watch

One thing that investors can unfortunately count on in an election year is an increase in market volatility. But these choppy markets tend to resolve to the upside. “Once you’re through the election and uncertainty is alleviated, most of the time you see a rally. We don’t think this time will be different,” says Detrick. History shows average stock market gains of more than 7% in presidential election years (see the chart on page 24). 

Perhaps more important than who lives in the White House is the makeup of Congress: Stocks have gained the past 13 times we’ve had a divided Congress, Detrick’s research shows. Since 1951, the S&P 500 has logged annual gains of 15.7%, on average, when Congress is split but 8% when one party controls both the House and the Senate. 

Drilling down to the sector level, a survey of industry analysts at RBC Capital Markets shows that a Trump sweep or a Trump presidency with a split Congress would be favorable for energy, healthcare and materials stocks. The analysts’ views on sector returns were more neutral in a Biden sweep or split. 

Overall, says RBC’s Calvasina, “the conclusion is that the outcome of the election matters to some sectors and industries more than others, but it’s not the main thing that’s going to drive the markets over the rest of the year.” 

Geopolitical tensions are another worry for investors, with an ongoing war between Russia and Ukraine and escalating conflict in the Middle East. “We all sound crass talking about human-life stories in terms of dollars and cents, but that’s part of our job,” says Mark Hackett, chief of investment research at insurer Nationwide Financial. 

Other than initial reactions, the market typically is not affected much by geopolitical events, he notes. “There’s usually a momentary reaction as people are scared, uncertain or sad—but these events tend not to be disruptive long-term.” It would have been a mistake, he adds, to have sold stocks when Russia invaded Ukraine, or last October, when Hamas attacked Israel. 

But Paul Christopher, head of global market strategy at Wells Fargo Investment Institute, worries that the current Middle East conflict “has entered a new realm. There’s a real potential there for sudden surprises,” he says. Threats to oil supplies in a worst-case scenario could send crude prices surging, he says, “in which case economic slowing in the U.S. would accelerate quite a bit.” Oil prices have been well behaved so far. 

But potential oil shocks are one reason strategist Ed Yardeni, of Yardeni Research, has been recommending that investors overweight energy and precious metals stocks in their portfolios. “They’re shock absorbers against any shocks from these two wars,” he says. 

Buy the new guard

Even down from record highs, stocks aren’t cheap, with the S&P 500 recently trading at 20 times expected earnings. But there’s a wide variation among sectors: Tech stocks sport a P/E of 27, on average, while energy, the cheapest sector, trades at a P/E of less than 13. 

A pivot away from the large, growth-focused stocks in the technology and communications services sectors — or at least some profit-taking — makes sense in order to rebalance into more value-oriented fare. “If you’re going to fish in a pond, fish in one with stocks trading at 14 times earnings with accelerated earnings growth,” says Hackett. “That’s preferable to 30 times earnings with decelerating growth.” 

So-called cyclical stocks, those that do best when the economy is strong, generally fall into the value camp. Sectors you should have on your radar now, according to several strategists, include energy, materials and, depending on who you ask, industrials or financials. Cyclicals also tend to do well in the second half of election years as optimism begins to emerge, notes strategist Calvasina, who recommends overweighting energy, financials and materials stocks. 

Of course, it’s possible that the economy isn’t as strong as some make it out to be, says Wells Fargo Investment Institute’s Christopher. “We think the economy will have a saucer-shaped trajectory this year,” he says, with midyear weakening that is not entirely apparent yet. But that will help cool inflation, spur Fed rate cuts and set up accelerating growth for the economy in 2025, so his advice is the same: Stock up on cyclicals, including energy, industrials and materials. 

Investors looking for a top-notch value fund can consider Dodge & Cox Stock, a member of the Kiplinger 25, the list of our favorite actively managed no-load funds. Or consider Oakmark, a fund whose long-term returns have rewarded patient investors. (To see what stocks Oakmark comanager Bill Nygren likes now, see “5 Cheap Stocks to Consider,” on page 19.) To add broad sector exposure to your portfolio, consider exchange-traded funds, including Energy Select Sector SPDR, Vanguard Financials and Fidelity MSCI Materials. 

Profit from strength in industrial stocks by zeroing in on infrastructure plays, says BMO strategist Ma. Three separate government spending bills are pouring billions of dollars into green energy, roads and bridges, semiconductor manufacturing facilities, and improvements to the electricity grid, among many other initiatives. “These projects take a long time to get going and have a long runway — only a fraction of the buildout has taken place,” says Ma. 

Industrials are also getting support from the longer-term trends of onshoring, reindustrialization of the U.S. and building up supply-chain resilience. There’s even a link to the artificial intelligence megatrend, he says, as a huge need for data centers and the electricity to run them comes into play for industrial firms. 

Ma likes the diversified approach of Global X U.S. Infrastructure Development, an ETF with 73% of assets in industrial firms and 20% in materials companies (which produce and process the raw materials that go into infrastructure production — think concrete, metals, plastics and so on). Among the ETF’s top 10 holdings are Emerson Electric, a member of the Kiplinger Dividend 15 with a 1.9% yield; industrial machinery and supplies company Parker Hannifin; and Vulcan Materials, one of our January Investing Outlook picks for 2024, up 32% since our recommendation but with more room for gains. All are rated “buy” by Wall Street analysts. 

It’s prudent to balance cyclical bets with a stake in defensive sectors. For Calvasina, that’s utilities. Consider Invesco S&P 500 Equal Weight Utilities. For Christopher, healthcare is an undervalued defensive choice. Fidelity Select Health Care is a Kip 25 fund. 

Small-company stocks are on some strategists’ buy lists, but others remain wary, as previous rallies have fizzled. “There’s a long list of why they’re interesting,” says Calvasina. Valuations are at a deep discount compared with large-company stocks; analysts are increasingly revising earnings estimates upward; and forecasts for economic growth are moving higher. “In an above-average or hot economy, small caps outperform, and it looks like that’s where we’re headed,” she says. 

The problem? With typically higher debt levels, small caps feel the pinch of higher interest rates more acutely. They’re unlikely to rally convincingly until the Fed is certain that inflation is under control and cuts rates accordingly. 

“You’ve got to kick off the cutting cycle, or be certain it’s around the corner,” says Calvasina. “I covered small caps for a long time — they’re like my first professional child. But I think Fed rate-cut expectations are all over the place at the moment.” 

Still, small caps deserve a spot in a diversified portfolio. Index investors can improve their chances with a fund that tracks the S&P SmallCap 600 instead of the Russell 2000; the former has a profitability requirement for constituents that raises the quality bar. Consider ETF 20 member iShares Core S&P Small-Cap. Or employ the services of a skilled manager in a fund such as Needham Aggressive Growth. 

Views on international markets are mixed. Among developed countries, Europe is “not quite warming up, but getting less cold,” says BMO’s Ma. Positives include modest valuations and anticipated rate cuts from the central bank, but for now he remains neutral. Japan, by contrast, is a bright spot.

 A number of structural corporate governance changes are increasing shareholder value, says Ma, such as aligning CEO incentives with stock performance, returning cash to shareholders via more dividends and buybacks, and using cash wisely for acquisitions. (Historically, Japanese companies have hoarded cash and been resistant to corporate takeovers.) 

“Structural change like this is rare,” says Ma. “It tends to have a multiyear runway, and the market tends to underestimate it.” He recommends iShares MSCI Japan, an ETF that provides exposure to a broad array of companies. 

Dan Suzuki, deputy chief investment officer at Richard Bernstein Advisors, likes emerging markets. They’ve languished for years, and a stronger dollar weighs on nations with high dollar-denominated debt loads. But Suzuki sees the green shoots of recovery as global economic growth picks up and a re-flation wave benefits commodity-producing nations. Actively managed Baron Emerging Markets, a Kip 25 fund, is our choice. (For more insights from Suzuki, read his thoughts for the rest of 2024.)

Finally, fixed-income investors should consider a “barbell” approach to a mercurial bond market. With the yield curve still inverted, short-term bonds and bond funds deliver superior yields for now and are a good place to keep cash you’re waiting to deploy. T. Rowe Price Ultra-Short Term Bond, yielding 4.9%, is an option. 

But consider locking in some long-term bond exposure if and when opportunities arise, says Federated’s Orlando. In a volatile interest rate market, 10-year Treasury yields could retest higher levels in the second half, he says. But with the Fed having completed its rate-hiking cycle, the next move is more likely down; Orlando sees the 10-year yield at 3.8% or lower over the next year or so. (Kiplinger expects the 10-year note to end 2024 with a 4.3% yield.) In that case, recent yields of 4.6% or 4.7% look pretty good. 

“Where’s the top? I can’t pick the exact spot. But investors who have lengthened out their bond duration will be happy they did — much like people who locked in 3% mortgage rates a few years ago,” he says. 

Buy Treasuries directly from Uncle Sam at TreasuryDirect.gov or from your broker. Fund investors can’t “lock in” yields because bonds flow in and out of fund portfolios, but they might consider Vanguard Long-Term Treasury Fund, with a 4.5% yield. Stick with high-quality fixed-income holdings. There’s little in-centive to reach for yield, with the spread between yields on Treasuries and those on lower-rated bonds “incredibly tight,” says Hackett. “You’re not rewarded for being aggressive.”

Note: This item first appeared in Kiplinger Personal Finance Magazine, a monthly, trustworthy source of advice and guidance. Subscribe to help you make more money and keep more of the money you make here.

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These days, it feels like there's not a lot Americans agree with each other on. But we do seem to have one consistent belief: that real estate is a great long-term investment. 

Americans voted real estate as the best long-term investment, according to a new Gallup poll. And in fact, real estate has come out on top of this poll every year since 2014, beating out stocks or mutual funds, gold, and savings accounts or CDs. 

This year, 36% of Americans put real estate on top. Next up was stocks, at 22%, followed by gold, 18%, and savings accounts or CDs, 13%. Coming in at the bottom of the list was bonds, at 4%, and cryptocurrency, at just 3% — not a huge surprise, considering many people are still trying to figure out what cryptocurrency is. 

That real estate has been such a consistent winner this past decade is interesting, though. Now, don't get me wrong: Both real estate and the stock market have historically been great long-term investments. They have both exceeded the rate of inflation, meaning that if you were invested, you saw some great returns in the long-term. They also both generally have higher rates of return than safer vehicles like savings accounts, CDs (even with the high CD rates these days) or bonds. 

But lately, stocks have given a better return than real estate, and those returns have come as investing has gotten increasingly accessible thanks to tools like online brokers and trading platforms. Real estate, meanwhile, has only gotten less accessible, if you're not already a homeowner, as prices have been rising and down payments are a bigger barrier to entry than, say, throwing $100 into a Vanguard account. (That's particularly true now, when people like myself are arguing it is the worst time to buy a house between high mortgage rates and prices.)

If you're an older homeowner or real estate investor, though, it's easy to understand why you'd say real estate is a better investment than the stock market. From 1990 to 2006, returns on housing were higher than stocks, according to Investopedia. 

But since 2006, stock market growth has exceeded housing. Using the S&P 500 vs the Vanguard Real Estate Index, Sean Ross at Investopedia found that from December 2013 to December 2023, the real estate index had a 37% total return — while the S&P 500 had a 155% total return. 

Even so, again, I can understand why people stick with real estate. It's a simple idea, really, which is that real estate feels safer. The stock market has bumps and volatility in short-term segments, while housing generally keeps a more slow but steady climb. And you can't disagree that on a rainy day, a roof over your head feels like a better investment than a GOOGL share in your Robinhood account. 

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Today is World Water Day, and I’d argue that there’s no more critical time for individuals to consider investing in this natural resource.

As many across the country continue to bear the effects of climate change by way of increasingly tempestuous seasons, impact investing is top of mind as it gets closer to home.

According to a report by the 2030 Water Resources Group (a public, private, civil society multidonor trust fund hosted by the World Bank Group), “By the year 2030, global freshwater demand is expected to outstrip supply by 40%, and an estimated 1.6 billion people will lack safely managed drinking water.”

I’ve previously written about the myriad ways to invest in water, including water-related funds directly, utilities, water testing and metering, desalination and infrastructure.

Here’s why I’m still bullish on the commodity.

1. There’s inelastic demand.

The world needs water, but there is only a finite supply of the resource. Indeed, according to the Intergovernmental Panel on Climate Change, “Roughly half of the world’s population is experiencing severe water scarcity for at least part of the year.” Therefore, it becomes incumbent on governments, humanitarian organizations and impact investors to find sustainable solutions to maximize the supply our planet has.

Although we know how critical water is for human consumption, we often forget how necessary it is for crops like beef, chicken, corn, potatoes or cotton that propel necessary industries like agriculture and textile production.

In our tech-forward world, we forget the cyclical nature of energy — that water use requires energy, and energy production needs water. Perhaps we’re producing less paper, but what’s the bandwidth looking like on our Wi-Fi networks? We must sense the invisible strain on this resource.

When basins and lakes are parched, we’re reminded that healthy rivers do more than promote summer recreation, they also support urban vitality.

When you pick up your next glass of H2O, recall its power in transforming the world around us.

2. It’s a hedge against poor health outcomes.

In February, NPR reported that the Environmental Protection Agency (EPA) recently moved to categorize nine new PFAS (per- and polyfluoroalkyl substances) — more commonly referred to as “forever chemicals” — under the Resource Conservation and Recovery Act. These substances are known to cause certain cancers, affect immune systems and negatively impact cholesterol levels, among other issues.

Modern medicine has made incredible advances in the past few years, and yet, too many (and increasingly younger) Americans are afflicted with hereditary diseases and those brought on by lifestyle choices and increasing amounts of stress.

As health challenges continue to ebb and flow through our personal lives, it’s a good reminder to find alignment in the missions of the companies you’re investing in.

3. The U.S. government continues to heavily invest in infrastructure.

Since the Biden administration’s Bipartisan Infrastructure Law was announced in 2021, it has sunk $400 billion into 40,000 projects across 4,500 communities in our country. Most recently, in September the initiative drew $180 million to launch a water recycling program.

Water shortage supplies are a serious matter, and the stunning images of Lake Mead over the past two years have been a solid frame of reference for the toll it has taken on our local economies and communities. Looking at investing opportunities for water management agencies is a smart place to start to find alignment with the Biden administration’s ambitious goals. Indeed, government investment in the water sector further strengthens the investment case.

When investment dollars go to work in the water sector, it improves access to clean water, revitalizes infrastructure and improves overall water conservation for future generations. That’s a long-term wealth building strategy that we all can get behind.

ALINE Wealth is a group of investment professionals registered with Hightower Securities, LLC, member FINRA and SIPC, and with Hightower Advisors, LLC, a registered investment advisor with the SEC. Securities are offered through Hightower Securities, LLC; advisory services are offered through Hightower Advisors, LLC.

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This article was written by and presents the views of our contributing adviser, not the Kiplinger editorial staff. You can check adviser records with the SEC or with FINRA.

Inflation has caused plenty of angst at grocery stores, lumber yards and even concert venues over the past four years. Back in May of 2020, consumer prices were basically flat compared with a year earlier. By June of 2022, the annual inflation rate had soared to 9.1%, then started cooling so that overall prices in December 2023 were 3.4% higher than the year before. That's close to the 40-year average of 2.9% but still not ideal. 

Inflation can wreak havoc with your portfolio, too. "Inflation impacts your portfolio in acute and obvious ways and in more sneaky and nefarious ways," says Wylie Tollette, chief investment officer of Franklin Templeton Investment Solutions and coauthor of a 2022 study on which kinds of investments do best in inflationary times. 

Inflation erodes the value of your investments by reducing their purchasing power, for starters. And when inflation is on the rise, central bankers tend to respond with higher interest rates to cool the economy and put a lid on prices. The Federal Reserve, for example, has hiked its benchmark rate 11 times since March 2022. The one-two punch of higher inflation and rising rates sent stocks and bonds reeling, making 2022 the rare year in which both markets tanked. 

More subtly, inflation rates can also influence overall market valuations, or the prices investors are willing to pay for financial assets. In general, the higher the inflation rate, the less investors are willing to pay for stocks. 

One rule of thumb states that stocks are overvalued if the average price-to-earnings (P/E) ratio for stocks overall is higher than 20 minus the inflation rate. Based on a 2024 expected inflation rate of about 3%, that implies a fair value for the S&P 500 index would be about 17 times expected earnings. As of January 31, the S&P 500 index traded at a P/E of 21.7, but that's skewed higher by a handful of giant growth stocks known as the Magnificent Seven.

Likewise, investors are generally willing to lock money up in a bond only if they think the bond's interest rate will beat inflation over its lifetime. "It's all about inflation expectations," explains Rob Arnott, founder of the investment firm Research Affiliates. 

As bad as inflation can be, stagflation (when inflation is rising but the economy is in a rut) can be worse – as can deflation (when widespread, persistently falling prices threaten to destabilize the economy overall). Economists say there are basically five different pricing environments, or kinds of "flation," each impacting your portfolio in different ways. They're listed below with summaries of which types of investments tend to prosper in each. 

Inflation

A little bit of inflation, which is a sustained increase in the price level of goods and services, is generally considered beneficial for the economy. But when prices start rising by more than about 2% a year, policymakers, bankers and businesspeople worry. 

Business managers, fearing their revenues will lag, often start raising prices, and workers demand raises, potentially sparking a dangerous upward cycle. The investments that have historically beaten high inflation include energy stocks, residential real estate held directly (real estate investment trusts have provided much less inflation protection in previous cycles) and Treasury inflation-protected securities. TIPS are federal IOUs that adjust their principal in line with the Consumer Price Index (CPI). 

Commodity funds also tend to beat inflation. For example, the TCW Enhanced Commodity Strategy (TGABX), a member of the Kiplinger 25 list of our favorite no-load mutual funds, returned 44% in the most recent period of rising inflation, from March 2021 through May 2022. 

Stocks in general can be a poor inflation hedge over short periods but serve as potent protection for investors willing to buy and hold for more than five years, Tollette says. Fixed-rate bonds typically underperform during high-inflation periods. 

Disinflation

When the rate at which prices are rising slows, you get disinflation, which is what we have now. During disinflation, unlike in deflationary periods, prices still go up – sometimes painfully. The important distinction is that they are climbing more slowly than in the recent past. 

The good news is that a moderation of inflation, such as the cooling that the economy experienced in 2023, is typically a boon for investors because it bodes well for corporate profitability and thus stock prices. During these periods, investors are often rewarded for taking more risks, such as buying stock in growth-oriented companies. 

Since inflation started declining in July 2022, the growth-oriented Nasdaq Composite index has handily beaten broader measures, such as the S&P 500, for example. Declining inflation also means that bonds bought during the more inflationary period now promise higher "real," or inflation-adjusted, returns. Commodities, however, have done poorly in previous periods of disinflation.

No-flation

Periods of price stability (typically defined as times when consumer prices overall rise by no more than 2% a year) are sometimes referred to as "no-flation." They tend to be a "golden era for financial assets," says Gary Schlossberg, global strategist for the Wells Fargo Investment Institute. 

Think back to 2013 through 2019, when the Consumer Price Index generally stayed below 2%. The S&P 500 notched gains in six of those seven years and produced an above-average annual return of 13.6%. Price and economic stability create a good climate for just about all investments but especially for riskier investments, such as growth-oriented and small-company stocks, Schlossberg says.

Deflation

The prices of some items, such as computers, gasoline and seasonal foods, drop from time to time. But a generalized, economy-wide drop in prices, or deflation, is rare. That's good, because deflation can lead to a vicious cycle: A weakening economy leads to lower wages, layoffs and decreased spending, which in turn ushers in still-lower prices and a further weakening of the economy. 

The U.S. has seen general deflation only twice in the past century: During the Great Depression in the early 1930s and from March through October of 2009, partly overlapping what many call the Great Recession. In both periods, stock prices initially plunged much more than consumer prices and took years to recover. Volatile commodities also tend to suffer during deflation. Bonds that pay a fixed, positive rate of interest offer positive real returns, barring a default.

Stagflation

Inflation that coincides with stagnation in the job market and the economy, known as stagflation, causes truly challenging times for investors. Because economic weakness often prevents companies from raising prices enough to recover their costs, profits shrink, and stock returns fail to keep up with inflation. 

From 1973 through 1982, the annual inflation rate averaged 8.7% and the average unemployment rate topped 7%. But the annual average return of the S&P 500 over that period was just 6.7%, meaning investors lost purchasing power. The economy escaped a stagflation scare during the pandemic. 

If you want to hedge against this type of painful economic malaise, Tollette says your best bet is TIPS, which, if you hold to maturity, are guaranteed to return your investment and move up with inflation. 

Note: This item first appeared in Kiplinger's Personal Finance Magazine, a monthly, trustworthy source of advice and guidance. Subscribe to help you make more money and keep more of the money you make here.

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In early December 2023, gold hit a record price of $2,147 an ounce. Investors are paying attention. With inflation running hot for three years in a row, is now the time to put gold in your portfolio?

Over the years, I have been a leading disparager. Consider just a few of the things I have written about gold in Kiplinger and elsewhere: "I am not a fan of gold" (1999). "Stay away from gold. It is a barbaric relic" (2002). "Let me put my prejudices on the table: I loathe gold" (2014). But is this time different? Let's begin with gold's biggest liability: With the exception of a single decade, it has not been a good long-term investment. 

Forget Barrick Gold (GOLD), Newmont Mining (NEM) and Agnico Eagle (AEM), the large gold-mining companies. They have been terrible performers and are unlikely to get any better. 

The most convenient way to own the metal itself is via an exchange-traded fund (ETF) such as the SPDR Gold Shares (GLD), whose value is linked to the price of bullion. Over the past 10 years, Gold Shares has returned a paltry 5.1% annualized, compared with 11.9% for the SPDR S&P 500 (SPY), the ETF linked to the popular large-stock index. 

An investment of $10,000 in the gold fund became $16,445 over that time; the same amount in large-capitalization stocks became $30,782. The gold ETF was volatile, too. It lost money in five of the past 10 calendar years and beat the S&P ETF in only three.  

The 1970s were an outlier decade for gold 

Gold's history isn't inspiring. After President Nixon ended the government's promise to convert dollars to gold at a fixed price, an ounce soared from an average of $36 in 1970 to $615 in 1980. But that amazing rise was an anomaly, driven by pent-up demand from price controls and a crazy decade of slow growth and high inflation because of poor fiscal and monetary stewardship. 

In February 1981, I wrote an article for The Atlantic about the fears of gold enthusiasts ("goldbugs," as they were called) that the newly elected president, Ronald Reagan, and his Federal Reserve chief, Paul Volcker, would set America's economic house in order, thus crushing gold. Those fears were realized, and it took 27 years for the price of gold to get back to its 1980 level. 

Gold tripled over the next five years, then stagnated and fell again. In 2016, gold seemed to anticipate the return of inflation – or maybe it just got too cheap, or investors got nervous about what the surprising new president would do. The Gold Shares ETF jumped just over a total of 50% during the Trump years, then flattened out from 2021 to 2023. 

Since 1990, gold has gone from $386 an ounce to that recent record of $2,147. Sound good? That's an increase of a factor of a little less than six. Over the same period, the Dow Jones Industrial Average rose by a factor of 14. Gold increased at less than 5% annually; stocks, 8%. Obviously, such calculations depend on where you start, but any post-1980 analysis has gold rising at a far lower rate than stocks. 

Here's the kicker: Gold doesn't pay dividends. Stocks do – and I am not even counting their dividends in the analysis above. In fact, if you hold physical gold, you have to pay a fee for the storage. 

Fundamentals favor stocks over gold by a mile

As a commodity with no significant industrial use, gold increases mainly with the cheapening of the dollars used to purchase it (that is, the effect of inflation), plus the emotions – mostly fear – of the buyers. 

Gold also benefits from the rising wealth of the world, which drives the demand for jewelry, but that demand is counterbalanced with increasing supply through better mining. Production has risen 50% since 1997, which is one reason Barrick Gold's stock is cheaper today than it was then. 

Stocks, by contrast, increase because the value of the underlying companies is determined by the imagination and diligence of the humans who manage and work for them. When you buy stocks, you buy brains and hard work. You get to ride along on the dream train with the inventors of a phone that can tell you everything about the world and lets you video chat with relatives 10,000 miles away, the engineers who figured out how to drill for oil sideways, the scientists who developed treatments to put cancer into remission and medicine to make you thin, the builders of cruise ships that carry 8,000 passengers, the fashion designers who make yoga wear, and the streaming-media providers who make it possible to watch a TV series whenever and wherever you please. 

Gold certainly has a mystique as a haven. But in times of catastrophe, gold's record is mixed. Yes, during the financial crisis of 2008, gold rose 5% as stocks dropped 38%. And when COVID struck in early 2020, the S&P 500 index fell 34% in just over five weeks while gold held nearly all its value. But after the attacks of 9/11, for example, gold and stocks performed about the same. Plus, when it comes to safe havens, U.S. Treasury bonds have typically been a better bet. 

Isn't gold a hedge against inflation?  

The rate of growth in the Consumer Price Index zoomed from 1.2% in November 2020 to a peak of 9.1% in 2022 – one of the steepest increases in U.S. history. During that time, stock prices rose, then fell, and wound up being flat overall. Gold was flat, too. In fact, gold didn't take off until the inflation rate peaked and started falling. 

The reason that gold isn't an unmitigated delight during inflationary times is that when consumer prices rise, interest rates go up as well. Gold typically suffers when interest rates are high because it doesn't pay interest or dividends, so its relative position declines against bonds yielding 5% and stocks yielding 2%. 

Who should buy gold?

And stocks, of course, rise briskly over time—not every month or every year, but almost always over a decade and more. Gold does not. The case for gold, in my view, is short term only, and it goes something like this: Currently, investors have become relaxed about inflation, with the Fed signaling that cuts in interest rates may be on the way. Having been far too pessimistic, Mr. Market may have gone overboard in the other direction.

Meanwhile, look at the world. The war in Ukraine could easily spread to other parts of Europe. The war in Gaza could ignite a conflagration not just with Hezbollah but with Iran itself. And what about North Korea? Taiwan? Some even say that democracy in the U.S. itself is in jeopardy and that the debt of the richest nation in the world is getting shaky. 

I'm not an alarmist, and I am aware of gold's spotty record in crises. But, for all its deficiencies, gold remains the best prospective hedge against disaster. I am definitely not buying gold as an insurance policy, but, for investors with apocalyptic views, there is probably nothing better.

James K. Glassman chairs Glassman Advisory, a public-affairs consulting firm. He does not write about his clients. His most recent book is Safety Net: The Strategy for De-Risking Your Investments in a Time of Turbulence. You can reach him at JKGlassman@gmail.com.

Note: This item first appeared in Kiplinger's Personal Finance Magazine, a monthly, trustworthy source of advice and guidance. Subscribe to help you make more money and keep more of the money you make here.

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After a disastrous market in 2022, many strategists claimed that the 60/40 portfolio, which holds 60% of assets in stocks and 40% in bonds, was dead. In its place, some strategists suggested investors consider the 25/25/25/25 portfolio, or 25x4 portfolio, which calls for dividing your assets evenly into stocks, bonds, commodities and cash. 

"We believe the 25/25/25/25 portfolio will outperform the 60/40 portfolio in the 2020s," says Michael Hartnett, a chief investment strategist at BofA Global Research. 

The simplest reason is that interest rates and inflation are higher than in decades past. The 60/40 portfolio worked best when inflation and interest rates were low or falling, says Hartnett. But this decade he expects higher inflation and interest rates, with added volatility, creating market conditions that are well suited for cash and commodities to outperform bonds and stocks.

So far, though, that hasn't played out. Although the 25x4 portfolio did marginally better than a 60/40 portfolio in 2022, over longer periods, it has lagged. A 60/40 portfolio has gained 4.6% annualized over the past three years; a 25x4 portfolio has lost 0.4% on average per year.

Think twice before switching to the 25x4 portfolio 

In short, don't count the 60/40 portfolio out yet. "Over the years, the 60/40 portfolio has held up for investors, and it's actually provided wonderful returns with low risk levels," says Jan Holman, director of adviser education at Thornburg Investment Management. 

This isn't the first go-around for the 25x4 portfolio. It got its start decades ago by way of Harry Browne, the late investment adviser and two-time Libertarian Party presidential candidate (in 1996 and 2000). In Browne's so-called Permanent Portfolio strategy, investors held 25% in cash, 25% in gold, 25% in long-term bonds and 25% in stocks, rebalancing annually. The idea was that the four asset classes would help minimize risk no matter the market or economic condition. 

Browne helped develop a no-load mutual fund tied to the 25x4 strategy called the Permanent Portfolio Permanent (PRPFX), which launched in 1982. But it's not a straight-up version of his approach. Instead, the fund is more "dynamic," says fund manager Michael Cuggino. 

It targets an allocation of 30% stocks, 25% precious metals (20% in gold and 5% in silver) and 45% in bonds and cash (10% of which is denominated in Swiss Francs). The stock side of the portfolio includes a mix of real estate and natural-resources stocks, such as Prologis (PLD) and Exxon Mobil (XOM), as well as aggressive growth stocks, such as Nvidia (NVDA) and Meta Platforms (META). "The fund's goal is to outpace inflation," says Cuggino, a fund manager since 2003. 

The fund's annualized 5.7% return over the past decade has indeed beaten the 2% average inflation rate over the period. And it has been far less volatile over that time than its peers (moderate allocation funds), which typically hold about 60% of assets in stocks. But 63% of its peers did better, generating an average 6.1% annualized 10-year return. 

That's evidence that it's important to think through any allocation strategy carefully before you implement it. "Asset allocation should always be decided on an individual basis and in the context of a comprehensive financial plan, not based on a gimmick," says Gordon Achtermann, a certified financial planner in Fairfax, Virginia. As an alternative, consider a low-cost target-date fund. "You won't beat the market," he says, "but you won't get badly hurt, either."

Note: This item first appeared in Kiplinger's Personal Finance Magazine, a monthly, trustworthy source of advice and guidance. Subscribe to help you make more money and keep more of the money you make here. 

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To help you understand what is going on in the stock market and the economy our highly experienced Kiplinger Letter team will keep you abreast of the latest developments and forecasts (Get a free issue of The Kiplinger Letter or subscribe). You'll get all the latest news first by subscribing, but we will publish many (but not all) of the forecasts a few days afterward online. Here’s the latest…

Following a rocky few years for markets, including the war in Ukraine and other shocks, we expect commodities to be less volatile in 2024, as a post-pandemic normal finally emerges. 

Let’s start with energy. At least for now, there is no sign of a crude oil price spike. Global supply is not too tight, with production in the U.S. and a few other non-OPEC countries growing fairly swiftly. This is offset somewhat by OPEC and Russia holding down their output. 

Expect prices to stay at $75-$80 per barrel through late winter, then a modest spring increase, barring a major geopolitical crisis. The Middle East remains the biggest risk. Ongoing conflict has yet to disrupt oil supplies, but the Strait of Hormuz could be at risk if the U.S. and Iran ever engage in direct conflict. Roughly a fifth of global oil passes through the strait, so any disruption in the Middle East could cause the price per barrel to skyrocket. Absent this scenario, look for gasoline prices to rise to at least $3.60 per gallon this spring, up from $3.28 now. Diesel, now at $4.10 per gallon, could reach the $4.50-$4.75 range if it’s a fairly normal year (no recession, etc.). 

Natural gas stands to remain cheap. Benchmark gas futures have dropped below $2 per million British thermal units on mild weather. Without a prolonged spell of cold weather, gas supplies will be above normal, and prices should stay low. 

Base metal prices will decline by 5%, versus a 10% drop in 2023.
Nickel will lead the sector lower, with a 22% price decline. Markets now face an oversupply, thanks to the recent production explosion in Indonesia, which now accounts for 43% of global nickel output. Nickel will play a crucial role in the clean-energy transition, but it is now used largely in stainless steel fabrication. 

Aluminum supply growth will also outpace demand, resulting in prices that are 1.6% lower than last year’s average. China, the world’s largest producer of aluminum, will expand its output by 2.2%. Production will expand elsewhere, too, though U.S. supplies could temporarily tighten after the closure of a Missouri smelter. 

Copper is a notable exception, with supply disruptions in Latin America resulting in a global deficit and price increases of 5%, compared with last year. 

The downward trend in agricultural prices will continue, though risks remain. Supply prospects have improved for staples like corn, soybeans and wheat, but ongoing conflict in Ukraine could still choke off that country’s grain exports. 

The big wild card in any commodities outlook: China, the largest consumer of raw materials in the world. Chinese demand for commodities has been resilient so far but depends on Beijing stepping up fiscal support for its shaky economy.

This forecast first appeared in The Kiplinger Letter, which has been running since 1923 and is a collection of concise weekly forecasts on business and economic trends, as well as what to expect from Washington, to help you understand what’s coming up to make the most of your investments and your money. Subscribe to The Kiplinger Letter.

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Investors are regularly searching for ways to maximize returns while minimizing risk. One often overlooked avenue for achieving this balance is investing in commodities. In my opinion, maintaining a certain percentage of a portfolio in commodities can increase diversification and reduce the risk of the overall portfolio. Let's explore the reasons why investing in commodities should not be ignored.

What are commodities?

Commodities are tangible assets of raw materials or agricultural products that can be bought and sold in standardized quantities. Commodities range from precious metals to energy resources like oil and natural gas and even include agricultural products like corn and wheat. While we are still likely buying stocks (“paper”), investing in commodities means buying an interest in companies that mine or manufacture or grow tangible goods.

Whether it’s food, minerals or lumber, all these goods are commodities that trade on the market. So, when we are investing in a company that supplies a commodity, we not only want to study that company’s fundamentals, but we also want to understand the supply and demand characteristics of the underlying commodity.

We can likely agree on the continued demand for electric vehicles and the movement toward electrification as the world progresses toward a more renewable energy base and away from fossil fuels. Of course, this will not happen overnight — it will take time — but there is an undeniable demand for goods that support the electrification theme.

Well, what metal is crucial in all things electric? Read on to understand the opportunities that exist with commodities and how they allow us to tap into the fundamental drivers of the global economy.

How to invest in commodities

The typical investor cannot just go out and buy a pound of copper, a brick of gold or a bushel of corn or soybeans and trade it, although I suspect some have tried. Luckily, the minds on Wall Street have developed various methods and vehicles that can be utilized by investors to express interest or exposure in a series of commodities or a specific one.

You can invest in commodities through various instruments such as funds, ETFs or futures contracts that allocate the capital under their management to various commodities or companies in the commodity sector. Each method has its own advantages and considerations, and investors should carefully evaluate their risk tolerance, investment objectives and available resources before making a decision.

The revenues and likely prospects for growth of these investments are determined by the price of the underlying commodity. It is important to understand that many commodities are traded on the futures exchange, where there are contracts for purchase at a certain time at a certain price. Given that, there are specific risks that investors need to understand before investing in such vehicles.

Things to be aware of when investing in commodities

While there are numerous advantages to investing in commodities, it's essential to be aware of the associated risks and considerations. Commodities can be highly volatile, and market trends and timing can greatly impact their performance.

Additionally, global events such as geopolitical tensions or natural disasters can impact commodity prices. Careful monitoring and regular analysis are necessary to navigate these complexities successfully. If you work with a financial adviser, this is something they will be doing on your behalf.

Benefits of commodities

Including commodities in an investment portfolio offers several notable benefits. Firstly, commodities have historically exhibited a low correlation with traditional asset classes like stocks and bonds. This means that when other investments decline, commodities may provide a cushion against losses.

Secondly, commodities have the potential to act as a hedge against inflation. As prices rise, the value of commodities often increases, providing a valuable store of wealth.

Lastly, in certain market conditions, commodities can offer attractive returns due to supply and demand dynamics.

Highlighting gold, silver and copper

When considering specific commodities, gold, silver and copper stand out as compelling investment options. Gold has long been regarded as a safe-haven asset, maintaining its value even during times of economic uncertainty. Silver also offers similar hedging benefits and has industrial applications as well. Copper, known colloquially as the “red metal,” is a vital component in infrastructure development, making it an attractive option as economies grow and demand for construction materials rises.

Given its tendency to predict the changing economic winds, copper is the element that is required in all electric functionality. CNBC reported that demand for copper could nearly double by 2035, and mining companies are having a hard time keeping up. Copper’s role in energy transition has led to bullish bets on the metal, but at the same time, multiple forces in politics and the market are making moves that could destroy demand.

Commodities: An alpha-generator

In an inflation-centric economy, having exposure to commodities is likely an alpha-generator, providing further excess returns over time. By including commodities, such as gold, silver and copper, in your portfolio, investors can potentially reduce risk, hedge against inflation and tap into unique market opportunities. However, it's crucial to stay informed, understand the risks involved and continually reassess your investment strategy.

As you explore the world of commodities, remember to speak with your financial adviser about your financial goals and risk tolerance. Investing in commodities should not be overlooked as a viable strategy for diversifying and balancing your investment portfolio.

ALINE Wealth is a group comprised of investment professionals registered with Hightower Advisors, LLC, an SEC registered investment adviser. Some investment professionals may also be registered with Hightower Securities, LLC, member FINRA and SIPC. Advisory services are offered through Hightower Advisors, LLC. Securities are offered through Hightower Securities, LLC. All information referenced herein is from sources believed to be reliable. ALINE Wealth and Hightower Advisors, LLC have not independently verified the accuracy or completeness of the information contained in this document. ALINE Wealth and Hightower Advisors, LLC or any of its affiliates make no representations or warranties, express or implied, as to the accuracy or completeness of the information or for statements or errors or omissions, or results obtained from the use of this information.

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This article was written by and presents the views of our contributing adviser, not the Kiplinger editorial staff. You can check adviser records with the SEC or with FINRA.

You have to learn to walk before you can run: The same principle applies to investors who want to know how to trade futures.

Before trading these derivatives securities, eager beginners should understand what futures are, how they work and why both professional and experienced retail investors use them.

According to Statista, the number of futures contracts traded globally grew by 142% from 12.13 billion in 2013 to 29.32 billion in 2022.

The options market has grown even faster – options contracts traded increased from 9.42 billion to 54.53 billion from 2013 to 2022 – as investors' appetite for speculation and risk has increased significantly.

To illustrate the fundamental aspects of futures trading, we'll focus on their use with equity securities.

However, investors also use futures for commodities, currency, cryptocurrency and fixed-income trading and investing. Indeed, Treasury futures are among the most traded contracts.

But let's start with what's probably most familiar to you, equity futures.

What are equity futures?

Equity futures are derivative contracts between a buyer and a seller.

The buyer agrees to buy a stock at a specified future date for a set price. The seller agrees to sell that same stock to the buyer based on the terms of the derivative contract.

Two-sided trades like these are carried out by the billions daily on futures exchanges such as the Chicago Mercantile Exchange (CME).

It's important to note that the buyer and the seller must meet the terms of their contract. The buyer must buy and the seller must sell.

There is no walking away from your bet, unlike with call and put options, which allow the contract holder to let them expire worthless without a forced settlement. It's a big reason why options have become so popular recently.

The origin of futures in the U.S., according to CME Group's Trader's Guide to Futures, traces to the mid-19th century.

Farmers would sell their crops for immediate delivery at the spot or cash price, or they would agree to deliver the product at a future date. These forward contracts were private agreements between buyers and sellers.

Forward contracts are used mainly by institutional investors today because of their unregulated nature.

How do futures work? 

Six components of a futures trade are essential to understand. They are contract size, contract value, tick size, price limits, mark-to-market and margin call.

Here, we dive into each, using the Nasdaq-100 E-Mini futures contract as a real-world example.

Contract size: Every asset traded as a futures contract has a standardized size.

A Nasdaq-100 E-Mini futures contract is $20 times the index's price.

Contract value: This refers to the notional or total value of the underlying asset in a contract. If the Nasdaq-100 trades at $15,000, a single futures contract's notional value is $300,000 ($15,000 times $20).

It's important to understand that the notional value is much higher than the price at which the Nasdaq-100 E-Mini futures contract can be bought or sold.

Using leverage, an investor pays $15,000, or 1/20th of the contract's notional value of $300,000.

Tick size: The tick size is one of the contract specifications set by futures exchanges. It tells you how much you've made or lost on your futures contract at a given time.

The minimum tick size for the Nasdaq-100 E-Mini futures contract is 0.25 point, or $5 per contract (0.25 times $20).

To understand the math, assume that the Nasdaq-100 E-Mini loses 150 points in a single day.

Based on the Nasdaq-100 trading at $15,000, 150 points divided by a minimum tick of 0.25 points equals 600 ticks. If you multiply that by $5 per contract, your loss is approximately $3,000.

An easier way to calculate this is to multiply the contract size of $300,000 by 1%.

Price limits: Some futures exchanges apply limits on daily price fluctuations. This restricts the amount the price of a contract can move in either direction.

These restrictions are put in place to reduce volatility. The CME has price limits of 7%, 13% and 20% on the Nasdaq-100 E-Mini futures contracts.

When prices hit 7% and 13%, up or down, from the previous day's volume-weighted average price (VWAP), trading is halted for 15 minutes to help the market reset.

If they hit 20% in either direction, trading closes for the day.

Mark-to-market: At the end of each trading day, the CME and other futures exchanges set a settlement price for each contract based on the day's closing price range.

A profit is credited to your trading account at your broker. Conversely, a loss is debited.

The exchanges do this to ensure traders have enough capital in their accounts to meet the daily margin requirements or performance bonds.

It's an act of good faith by both the buyer and seller of the futures contract that you will honor the position.

The Nasdaq-100 E-Mini futures contract's margin is approximately 6% of the notional or contract value.

When you consider that you're not buying actual assets but derivatives of those assets, the mark-to-market process is the most sensible way to handle these bets.

Margin call: You've probably seen movies where a margin call appears in the dialog. This happens when the value of your account falls below a certain level set by your broker as part of opening your futures trading account.

Should you fail to rectify the shortfall, your broker could suspend your trading privileges or shut down the account entirely.

Why are futures traded?

To understand why futures are traded, we first need to establish who trades them.

There are generally two types of traders, hedgers and speculators. The former use futures to hedge their price risk. The latter are merely placing bets on the future direction of an asset's price.

An example of a hedger would be a portfolio manager who invests their client's assets in some of the stocks in the Nasdaq-100.

While they believe the stocks bought will move higher, they can hedge their position by selling Nasdaq-100 E-Mini futures contracts to reduce the effect of any stocks in their portfolio potentially retreating in price.

An example of a speculator would be a professional or individual trader who believes the Nasdaq-100 will rise or fall in price in the future.

If they're bullish, they buy Nasdaq-100 E-Mini futures contracts. Conversely, if they're bearish, they sell them.

Now that you know who uses futures contracts, it's time to answer why they do.

It comes down to one word: leverage.

In the example of the Nasdaq-100, if you have $100,000 cash to invest in the Nasdaq-100, you might buy shares of equal value in the Invesco NASDAQ 100 ETF (QQQM).

If you use your margin account to buy the ETF, based on two-to-one leverage, your cash outlay drops to $50,000 to buy $100,000 of QQQM.

Now, here's where leverage and futures contracts make sense.

To capture the same $100,000 in the Nasdaq-100, you could buy one Nasdaq-100 E-Mini future for $15,000 (based on the price in our example above, not the actual market price at this exact moment).

However, it would give you $300,000 in notional value, three times the amount by cash alone or through your margin account at your broker, for significantly less of an outlay in actual cash.

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We added a commodity-focused fund to the Kiplinger 25, our favorite no-load mutual funds, two years ago because of rising inflation. 

The TCW Enhanced Commodity Strategy (TGABX) aims to beat an index that tracks a basket of commodities, including copper and cotton, by investing in futures contracts backed by high-quality short-term bonds. 

Since then, however, inflation rates have declined and, on the whole, commodity prices have as well, despite recent gains in the value of oil and gold. Over the past 12 months, the Bloomberg Commodity Index has dropped 8.7%. The fund has fared even worse, losing 9.8% over the past year. It lagged the benchmark and peer funds that invest in a broad basket of commodities. 

The short explanation is that in the back half of 2022, the fund's short-term bond portfolio, which accounts for about 90% of assets, was a drag on performance, as the Federal Reserve raised interest rates to fight inflation and cool the economy. (Bond prices and interest rates move in opposite directions.) 

And so far in 2023, the decline in commodity prices overall has weighed on the fund's returns. "When you see slowing economies across the globe, you generally see softness in commodity prices," says Ruben Hovhannisyan, who co-manages the fund with three other TCW bond strategists. 

Commodities could turn around in 2024

Some strategists expect commodity prices to move higher in 2024. The "commodity super-cycle bull continues to march on," says John LaForge, head of real asset strategy at Wells Fargo Investment Institute. 

Hovhannisyan, on the other hand, says it's difficult to predict commodity cycles but that the fund should recover when the Fed begins to cut interest rates. "When the interest rate cycle turns," he says, "you should see some payback." 

Commodities can be volatile assets at times. But a small stake in this fund as part of a broad portfolio can help hedge inflation and boost diversification. On the latter aim, the fund didn't disappoint in 2022. It gained 13% as both stocks and bonds posted double-digit declines. 

Note: This item first appeared in Kiplinger's Personal Finance Magazine, a monthly, trustworthy source of advice and guidance. Subscribe to help you make more money and keep more of the money you make here.

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Did you know you can buy gold at Costco? It's true. Costco began selling one-ounce gold bars last year and now members of the warehouse club can purchase silver coins as well.

Deciding to add gold and silver to their inventory was a shrewd decision. Analysts at Wells Fargo expect revenue “may now be running at” $100 million to $200 million a month" from gold, according to CNBC.com. 

Gold prices are rising and rose above $2,500/oz for the first time on expectations that the Federal Reserve is inching closer to cutting interest rates, according to seekingalpha.com. The spot price for a troy ounce is fetching $2,525 on the commodities market. That is a 2.63% increase in one week as of August 21, 2024. 

For the silver coins, members have two options: A 20-count of American Eagle Silver coins for $6999.99 or a 25-count of Canada Maple Leaf Silver coins that is currently sold out. Both sets contain one troy ounce coins. They are available online with a limit of five units per member and are not eligible to be returned cost or refunded.

For the gold bars, here are three options — PAMP Suisse Lady Fortuna Veriscan and PAMP American Buffalo or the PAMP American the Free Statue of Liberty.  All varieties are one troy ounce and made of 24-karat gold. They are currently priced at about $2,569.99 and $2,549.99 respectively. 

The gold bars sell out regularly, and when available, can only be purchased online with a limit of two per member and are not eligible to be returned or refunded. Delivery is not available to Nevada or Louisiana.

Costco ships the gold bars and silver coins via UPS insured shipping and a signature is required on delivery.

Membership price hiked in July

When Costco CFO Richard Galanti was asked about this last year during earnings calls, he said it was “a question of when, not if." That day has come and Costco is raising its annual membership fees by $5 for non-executives and by $10 for executives in the United States and Canada. The change is effective September 1. 

The new Costco fee for non-executive memberships in the U.S. and Canada will be $65, up from $60. Executive membership fees will be $130, up from $120, which consists of the $65 primary membership fee plus the $65 Executive upgrade. 

In addition, the maximum annual 2% reward associated with Executive memberships will increase to $1,250 from $1,000. 

One way to save, however, is by taking advantage of online marketplace Stack Social's one-year Costco membership  offer.

• Gold Star Membership: With this plan, you’ll need to pay Costco's $60 per year regular fee but you'll receive a $20 digital Costco Shop Card by email.
• Executive Gold Star Membership: Under this offer, you’ll pay Costco's $120 per year regular fee but receive a $40 digital Costco Shop Card by email.

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When most people think about investing, their mind goes to the most common types of investments, like stocks or bonds, or their investment accounts, like their 401(k) or traditional or Roth IRA. 

However, there is a wide array of investment options that can help you diversify your holdings so you are better prepared in the event of a major market meltdown. Essentially, alternative investments are supplements to traditional long-only positions in stocks, bonds and cash.

Who can invest in alternative assets?

Before diving into the types of alternative assets, it's important to know who is qualified to invest in these asset classes. They're considered alternatives because they aren't included in any of the asset classes that would be considered conventional, which are stocks, bonds and cash. These alternative assets are more complex and may be riskier than conventional ones because they usually aren't registered with regulators. 

As a result, most alternative investments are open only to accredited investors. Accredited investors are those who have a net worth of over $1 million, excluding their primary residence, or earned income of more than $200,000 (or $300,000 for married couples) in each of the last two calendar years. 

Financial professionals can also qualify as accredited investors without satisfying one of those two requirements, but until just recently, they must have had a Series 7, 65, or 82 license to do so. Recently, the House of Representatives passed a new bill that allows people with "professional knowledge through educational or professional experience" to qualify as accredited investors without holding any of those licenses. 

The same day, the House also passed a new bill updating the official definition of an accredited investor. This bill gave the Securities and Exchange Commission discretion to decide which credentials are needed to be considered accredited. It also requires an SEC review every five years with amendments as needed. 

What are the different types of alternative investments?

Broadly speaking, most alternative investments can be separated into two groups: public and private.

Public alternative investments definition

Public investments are those that report their holdings publicly. For example, hedge funds may be considered public investments because they must abide by certain reporting regulations with the SEC. In a hedge fund, your investment is pooled together with others' to be managed by a professional portfolio manager who uses many tools, including some more complex and high-risk methods, with the goal of earning above-average returns. 

Hedge funds are considered public because they must file quarterly reports on their holdings, especially those in publicly traded stocks. Most hedge funds also send monthly or quarterly letters to their investors to share details on their views of the markets and sometimes additional details on their holdings, like what they think about the companies they invest in. 

Hedge funds use an array of strategies to achieve risk-adjusted returns for their investors. Long/short equity funds often get most of the attention. Other strategies include global macro, commodities, risk arbitrage, event-driven, fixed-income arbitrage, relative value, and distressed securities. Today, multi-strategy and multi-manager firms are becoming particularly popular, as are hybrid funds that combine a traditional hedge fund structure with that of a private equity firm.

In some cases, exchange-traded funds (ETFs) might be considered public alternatives because they list their holdings publicly and are traded on exchanges like stocks. This is particularly true of ETFs that utilize structures similar to those of hedge funds, aiming for similar risk-adjusted returns.

Private alternative investments definition

Private alternatives include private equity (PE), which includes venture capital (VC), private credit, and infrastructure. PE and VC are similar to hedge funds in that they buy pieces of businesses, but they are privately held businesses rather than publicly traded ones. 

Private equity and venture capital have become exceedingly popular in recent years because these funds have generated significantly better returns at a time when generating alpha, or excess returns on top of what a benchmark has earned, in the publicly traded markets has been extremely difficult.  

Other types of alternative investments

Finally, some alternative investments aren't really public or private. These include commodities like gold, silver, grains, or oil, real estate, and cryptocurrencies. Non-accredited investors can invest in some of these other asset classes, like cryptocurrencies and real estate. Moving out to the far fringes of alternatives, some other options include art and collectibles, wine, farmland, and peer-to-peer lending.

In some cases, investors can invest in a fund that covers multiple individual assets within one of these other classes. For example, a growing number of crypto funds are providing easier access to multiple cryptocurrencies in one fund for investors who don't want to learn to navigate crypto exchanges. Real estate funds can also bundle multiple properties into one fund. 

However, such funds often require investors to be accredited to invest in them.

The pros and cons of alternative investments

Like anything, there are pros and cons of investing in alternatives. On one hand, they provide diversification for your portfolio and the potential to generate returns or alpha in one area of the market when other areas are falling. On the other hand, alternatives are more complex than conventional assets and usually require investors to be accredited. 

Investors are always advised to consult with an adviser and do their due diligence before investing in anything.

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Unless you're a trader or a tactical investor – and a nimble one at that – you really have no business investing in gold. 

Why? Because history shows that gold has been a terrible place to put your cash, even when inflation is running hot.

But first, let's define our terms. You don't even really "invest" in gold. Since the yellow metal produces no cash flows, holders of gold merely speculate on its future price. And anyone who holds onto gold for any length of time almost invariably learns two things: its returns usually lag those of stocks (often by a lot), and it's a poor hedge against inflation.

I bring this up now because the price of gold is showing signs of life at the end of a week in which it hit three-month lows. Long-term investors would do well to shrug off this news. There's nothing to see here, at least not for them. 

Now, to be fair, as mentioned above, gold ETFs and gold miner stocks can be effective tools in the hands of professional traders and tactical investors. But that means knowing when to get in — and when to get out. 

Stocks, by comparison, tend to be a very good buy-and-hold bet. Allocate capital to a broad-market index such as the S&P 500, keep saving through dollar-cost averaging and – thanks in part to the miracle of compounding – you might just retire comfortably one day.

Gold can't do that for you, but stocks can. Here's why: unlike gold, stocks represent a claim on something dynamic and real. 

When you own equity in a company, your stock represents a claim on the business's assets. But more importantly, your stock represents a claim on the long-term stream of free cash flow generated by that business. That cash can then be distributed to shareholders as dividends or kept on the balance sheet as retained earnings.

Stock entitles a shareholder to a portion of a growing pile of cash. Gold, by comparison, represents a claim on a lump of metal that produces…nothing. As pretty as it might be, gold gets dug out of the ground, refined and then turned into stuff that mostly just sits there. 

In the first quarter of 2023, about half of all global demand for gold came from the jewelry industry. Roughly a third went into producing coins and bars, while a fifth was purchased by central banks. Lastly, industrial buyers and exchange-traded funds (ETFs) formed a marginal source of demand for the so-called barbarous relic.

Apart from demand from these sources, gold has no intrinsic value. The price of gold depends on what you can get someone else to pay for it. 

This fundamental inertia – gold's inability to generate value and its utter dependence on demand – makes it untouchable for someone like Warren Buffett. Here's one of the billionaire investor's many putdowns of gold:

"Gold has some industrial and decorative utility, but the demand for these purposes is both limited and incapable of soaking up new production. Meanwhile, if you own one ounce of gold for an eternity, you will still own one ounce at its end."

Gold is garbage long term

The above arguments are well known, yet they fail to dissuade too many people from owning gold. Perhaps some comparative returns will help to change some minds?

True, past performance is not indicative of future results, and you can manipulate historical returns by fussing with their beginning and end points. Nevertheless, I think the following data make some strong points:

The historical returns sort of speak for themselves, don't they? Stocks beat gold over every standardized period going back three decades. It's also interesting that returns from stocks were remarkably stable. 

What's most striking, however, is that over the past three years – a period in which inflation hit 4.7% annually in 2021 and 8.0% in 2022 – gold generated a negative annualized real return.

So can we please dispense with the zombie idea of using gold as a hedge against inflation? It has a very mixed record in that role historically, and it's been an absolute dud over the past few years as U.S. inflation hit a four-decade high.

Sure, things might change going forward, but the record doesn't lie: stocks are far better at generating wealth than gold. And that's been especially true recently when inflation came roaring back. 

Don't be fooled by gold. Those late-night infomercials hawking the benefits of gold coins are based on fear, not reality. Your hard-earned dollars will generate far better returns in a cheap S&P 500 ETF than they will in a bag of magic coins. 

More columns by Dan Burrows

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• After the Best Start in 26 Years, What Comes Next for Stocks?
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• We Are Not in a Bull Market
• Why I Don't Buy Stocks

Wall Street's most prevalent investment strategies looking out toward the rest of 2023 look much, much different than they did this time a year ago.

Around this time last year, the S&P 500 had just entered a bear market, putting an end to the 2020-2022 bull run. 

Additionally, the Federal Reserve was on the cusp of instigating the third of what would become 10 rate hikes between the start of 2022 and today. But no one knew back then just how far or fast these hikes would go, leaving investors to balance on a precarious perch of uncertainty amid a world that was still trying to find its footing in the wake of COVID-19. 

Today, the situation is hardly any more certain, but for different reasons. The Russia-Ukraine war has led to tremendous hardship and global uncertainty. And yet the S&P 500 is up by more than 13% year-to-date and the Nasdaq Composite Index has climbed nearly 30% since January. Spending is on the rise in the U.S. and the unemployment rate has remained low. Inflation, however, remains elevated with at least one more rate hike penciled in for July.

Meanwhile, the word "recession" is getting bandied about in the media, with experts arguing over the possibility of 2023 bringing one upon the U.S. –  if it hasn't already begun.

How, then, should investors go about their business in this evolving environment?

We've asked several fund managers and other industry experts just that – and in turn, they've shared some of the investment strategies they like for the rest of 2023. Read on to see what they have to say.

• Provided by: Roger Aliaga-Diaz
• Position(s): Global head of portfolio construction at Vanguard

"As we approach mid-year, the current market environment continues to be as uncertain as it was at the beginning of the year," Aliaga-Diaz says. While he believes interest rates are reaching a peak and that the Fed will "prevail in its fight against inflation," he says the battle may be won at the expense of a "mild recession later this year." 

Given that, he tells investors to not let continued uncertainty tempt you into making changes to your long-term investment strategies. 

"Research shows that making large changes to your asset allocation to capitalize on short-term market movements is difficult to consistently get right," Aliaga-Diaz says. "The best and worst days for the markets are often clustered close together and maintaining discipline in periods of heightened uncertainty and volatility is crucial."

• Provided by: Karina Funk
• Position(s): Chartered financial analyst, chair of Sustainable Investing at Brown Advisory and portfolio manager of the Brown Advisory Sustainable Growth Fund

"When macroeconomic surprises hit, the equity market tends to be very inefficient, and this creates opportunities that we seek to exploit," Funk says. "As active managers with a long-term investment horizon, we seek to take advantage of short-term dislocations by allocating capital to new and/or existing names that may be trading at a discount relative to our view of their fundamental strengths, downside risk, and forward upside potential."

For example, inflation plus a wind-down of historic COVID demand for vaccine containment solutions caused West Pharmaceutical Services (WST) to miss its earnings expectations at the end of 2022. And yet her team, still believing in the company's leadership and value proposition, added to their allocation during the drop. Since then, it's proven to be even stronger and faster-growing than pre-COVID, she says.

"Current macroeconomic uncertainty, led by changes in monetary policy and inflation, is likely to continue in the second half of the year," Funk says. "While we can and do run scenario analyses of how some of these risks may affect our portfolio holdings or candidates, our focus as bottom-up fundamental managers is to invest in companies that have a lot more that is within their control than outside of it."

For example, rather than just trying to predict how inflation will affect input costs, she also targets companies with demonstrated pricing power and inelastic demand, such as a life sciences firm that provides critical solutions for part of life-saving treatments.

"In terms of sustainable investing, the more compelling the customer value proposition, the more a company can navigate an uncertain macroeconomic environment," she says. 

An example of this is the need for energy efficiency with the increasingly complex processor loads of artificial intelligence, like Monolithic Power's (MPWR) chips, which "provide precise power that reduces wasted energy," she says.

• Provided by: Steve Laipply
• Position(s): Global co-head of iShares Fixed Income at BlackRock

Bond yields are on the rise, with more than 60% of fixed-income sectors yielding 4% or more now. "The front end of the U.S. Treasury curve now yields more than high yield indices did at the end of 2020," Laipply says. "And not only has it been true that yields are back, but the notion of 'bonds as ballast' has begun to reappear after going missing in action during 2022."

He believes that many multi-asset portfolios are under-allocated to fixed income currently, especially given bonds can be a powerful diversifier to riskier assets. Investors should be reallocating to fixed income, he says.

"Given where yields now are, investors are able to reduce equity over-weights, increase credit quality, improve liquidity and lower overall portfolio risk," he says.

As an example, he says to consider stepping into higher quality, medium-term fixed income via funds like the iShares U.S. Treasury Bond ETF (GOVT), the iShares Core US Aggregate Bond ETF (AGG), the iShares MBS ETF (MBB) or the iShares 5-10 Year Investment Grade Corporate Bond ETF (IGIB).

"We believe the new regime of greater macro and market volatility is poised for a long stay and demands a new investment playbook," he says. "For those who have had to look elsewhere for income over the past decade, the great yield reset has transformed the strategic opportunity in fixed income."

• Provided by: Ashok Bhatia
• Position(s): Deputy chief investment officer for fixed income at Neuberger Berman

Bonds may be more appealing in 2023, but not all bonds are to be trusted equally. 

"As companies and individuals need to refinance debt into higher rates, or pay more to finance working capital, we expect that one-off issues in credit markets will continue," Bhatia says. Rather than a broad rise in default rates, he expects the risks to be idiosyncratic, or company-specific.

To invest in such an idiosyncratic environment, he says to "move up in quality, so higher rated credits within sectors and higher rated sectors in general." You should also reduce exposure to cyclical sectors and businesses with high capital needs or a lot of floating-rate debt because the adjustment to interest rates will impact these companies first. Finally, expand your allocations to securitized or non-corporate exposures where you can.

"In terms of investment strategies this would correspond to, it would be things like Core or Global Core fixed income type of strategies," Bhatia says.

He expects that as U.S. and European investors increase their fixed-income allocations over time, higher quality segments such as agency mortgages, high-quality-asset-backed securities and investment-grade corporate bonds will be "key beneficiaries of these flows."

• Provided by: Miles Lewis
• Position(s): Portfolio manager at Royce Investment Partners

"In the wake of recent bank failures, the regional banking industry has seen a significant correction in market values and high volatility throughout the first half of 2023," Lewis says. "This challenging climate is creating highly promising long-term investment opportunities among select small-cap regional players."

Periods of high anxiety tend to be profitable entry points for banking stocks, he says, as was seen in the 2008 Financial Crisis. Many banks are trading below their tangible book value, but the "discounted valuations in most cases are not rooted in fundamentals, which for many banks remain solid, albeit with some near-term pressure on margins and returns."

Additionally, "fears about the long-term viability of the industry and near-term risks are greatly exaggerated." As an example, he points to concerns about office corporate real estate, noting that most regional and community banks don't have exposure to large downtown office buildings that are commonly cited as under distress.

"While smaller regional and community banks are likely to feel some impacts of pending regulation, the current focus of the regulators is on banks with greater than $100 billion in assets, which does not include the majority of U.S. banks," Lewis adds.

Deposit costs are elevated currently, but he says this is largely a function of the inverted yield curve and Fed rate hikes. "If history is a guide, then yield curves do not remain inverted forever – the average since 1970 is about 14 months - and the Fed typically cuts rates when the economy slows."

Finally, he says his recent conversations with dozens of bank CEOs confirm his views that "regional and community bank models are strong and will endure, despite mainstream narrative to the contrary."

• Provided by: Bob Welch
• Position(s): Senior vice president and financial advisor at Wealth Enhancement Group

Despite stronger-than-expected returns on the Nasdaq and S&P 500 so far this year, Welch says that "if you look under the surface of the market, there is cause for concern."

He points to how Apple (AAPL), Microsoft (MSFT), Alphabet (GOOGL), Amazon (AMZN) and Nvidia (NVDA) account for roughly 80% of the S&P 500's year-to-date returns, saying that "it is not healthy when so few companies are responsible for such a large percentage of the return."

This, coupled with inflation and recession uncertainty, has led him to a more conservative asset allocation in his investment strategies.

"We are less bullish on the broad market, instead favoring sectors that are defensive in nature, namely healthcare and consumer staples," Welch says. "We also like stocks that grow their dividends over time."

Welch is also comfortable holding more cash now that money market funds are yielding close to 5%.

• Provided by: Allison Bonds
• Position(s): Head of private wealth management & independent wealth management, State Street Global Advisors

Stocks have kicked off 2023 with early gains, but Bonds cautions that market leadership has been narrow, with a small number of mega-cap tech stocks driving those gains.

"Full-year estimates for 2023 suggest U.S. earnings will be lower than where they were to start the year," she says. "In contrast, markets outside of the U.S., particularly Europe, present the potential for more positive earnings growth and attractive valuations relative to U.S. equities."

To hedge risks within the U.S., she suggests investment strategies that focus on companies with stable cash flows and strong balance sheets that are trading at favorable valuations.

"Several ETFs including the SPDR S&P Dividend ETF (SDY) and SPDR MSCI USA StrategicFactors ETF (QUS) provide diversified exposure to stocks with these traits," she says. "Outside of the U.S., we suggest allocating to the SPDR Portfolio Developed World ex-US ETF (SPDW) or the SPDR Portfolio Europe ETF (SPEU)."

Given the threat of a recession in the U.S. still looms, she'd also caution investors to diversify beyond stocks and bonds. "Investors might consider adding some gold exposure to their portfolio through an ETF such as SPDR Gold Shares (GLD) or SPDR Gold MiniShares Trust (GLDM), as the precious metal can serve as a hedge against both slowing economic growth and inflationary risks," she says.

• Provided by: Erin Scannell
• Position(s): Private wealth advisor at Ameriprise

Scannell also believes it's prudent to mitigate risks given the fact that leading economic indicators point to a recession. However, he also sees opportunities.

"Machine learning and artificial intelligence (AI) have exploded this year as ChatGPT and others have had exponential user growth," he says, adding that it took Facebook 10 months to get 1 million users and ChatCPT only five days.

"We believe the transformational technology has the potential to disrupt existing industries while at the same time creating new businesses, with most forecasts predicting a 20% to 30% growth rate moving forward," Scannell says.

To take advantage of this, he would overweight the following AI stocks as part of a diversified portfolio: Microsoft, Alphabet, Adobe (ADBE), Synopsys (SNPS), Nvidia and Taiwan Semiconductor (TSM).

When looking at investment strategies on a sector level, Scannell says he'd overweight the software industry, "where the technology is likely to play an increasingly instrumental role in the development of more effective, reliable and personalized software solutions" in the short-term.

Over the long term, he's overweight technology hardware, semiconductors, manufacturing and industrial firms, financial firms and healthcare.

• Provided by: Jason Blackwell
• Position(s): Chartered financial analyst, chief investment strategist and principal at The Colony Group

The U.S. may be heading for a recession, but that doesn't mean the rest of the world is going down with us. 

"There are many great companies that are domiciled outside the United States and other regions are in different phases of their economic cycle," Blackwell says, adding that he particularly likes emerging markets right now.

Liquidity also remains important. For that, he sees private credit as an area of opportunity among investment strategies.

"With regional banks needing to slow down the growth of their loan books, a number of businesses may need more creative forms of financing," he says.

Finally, Blackwell recommends keeping an "all of the above" approach to energy. "With the Inflation Reduction Act making it through the debt ceiling negotiations, there is a tremendous amount of incentive for companies to invest in sustainable projects," he says. "However, traditional energy will continue to have a major role in the economy for decades to come."

• Provided by: Derek Pszenny
• Position(s): Accredited investment fiduciary, co-founder of Carolina Wealth Management

"Right now, there's a divergence between growth stocks and value stocks – growth stocks for the year are up 20%, while value stocks are flat or even down a little bit," Pszenny says. 

This means that if you started the year with a portfolio that was 50% growth and 50% value, there'd be a statistical difference of nearly 10%, he says.

"Generally speaking, a 5% difference is considered statistically significant," Pszenny says. So at this point in the year, it is crucial investors look at the spread between large growth stocks and large value stocks, and rebalance as necessary."

China is a world superpower, so the fortunes of the Chinese economy have a big impact across the world, and of course in the U.S. too. 

Our hugely experienced Kiplinger Letter team will update you on all the important developments in China and what impact that has at home and for investors (Get a free issue of The Kiplinger Letter or subscribe). Here’s the latest forecast, starting with background on semiconductor exports…

The U.S. is preparing to unveil new semiconductor export controls that would double the number of machines requiring export licenses.

U.S. producers of chipmaking gear, such as Applied Materials (AMAT), are bracing for impact. Notably, Washington will be working with the Netherlands and Japan, whose governments have agreed to bar sales of the same chipmaking equipment as the U.S. 

While American firms account for 40% of the global market for semiconductor manufacturing equipment, both the Netherlands and Japan are significant players. The Dutch firm ASML (ASML), for example, is the only supplier of extreme ultraviolet lithography machines, used to make the most advanced chips.

But U.S. officials have struggled to get other countries to strike deals, most notably South Korea, a leader in semiconductor manufacturing with a small but sophisticated industry for chipmaking gear, and Germany, the leading supplier of the components used in the production of semiconductor manufacturing equipment.

Why China stands to benefit

One consequence of semiconductor-related U.S. export controls is on China, as Beijing will likely dominate the global industry for less advanced chip tech, according to U.S. intelligence officials.

Moves to cut China off from advanced chips and chipmaking gear have fueled its efforts at the lower end of the tech spectrum. China currently leads the world in building new chipmaking facilities and is expected to account for 18% of global fabrication facilities by 2025, an increase of 7% from 2019, with most facilities dedicated to mature technologies.

Read more

• The Best Semiconductor Stocks
• Semiconductor Stocks: A Smart Bet for the Long-Haul
• Intel Promises Return to Chip Dominance. Does Anyone Care?

Mining is the extraction of materials from the earth. While sometimes controversial, it plays a huge part in the economy as it affects the supply of raw materials which power industries. 

To help you understand this sector, our highly experienced Kiplinger Letter team will update you on major developments (Subscribe to The Kiplinger Letter or get a free issue). Here is our latest mining forecast…

While international regulators are still putting various rules in place, they will likely start accepting deep-sea mining applications this summer.

The UN-affiliated International Seabed Authority (ISA) won’t finish its mining code by July 9, the deadline that was set after the island nation Nauru triggered a provision in the UN Convention on the Law of the Sea. 

To keep the process moving, ISA will instead start hearing bids from companies interested in mining the seabed. Less clear is when mining will actually start, likely not until next year at the earliest, but other obstacles could push the start date back even further.

Cost of deep-sea mining is still high

Raising the necessary capital will also be a challenge for miners who are working out the kinks, such as the Metals Company (TMC). The Canadian firm has estimated that a full-fledged mining operation with a processing facility would cost $10.6 billion to launch, a sum that might be prohibitively expensive.

The seabed contains more valuable minerals than all continents combined, including abundant deposits of copper, nickel, manganese and cobalt.

Clean-energy mining 

All have key clean-energy applications, most notably batteries for electric vehicles (EVs). Notably, the U.S. will not have a dog in the fight for deep-sea minerals.

Lockheed Martin (LMT), which long maintained an interest in deep-sea mining via foreign subsidiary UK Seabed Resources, has already exited the business.

American companies cannot directly apply for deep-sea mining permits, since the Senate has not yet ratified the UN Convention on the Law of the Sea.

This forecast first appeared in the Kiplinger Letter, which has been running since 1925 and is a collection of concise weekly forecasts on business and economic trends, as well as what to expect from Washington, to help you understand what’s coming up to make the most of your investments and your money. Subscribe to the Kiplinger Letter here. 

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Commodity prices often move based on escalating geopolitical tensions, as is happening now with crude oil amid a full-scale attack on Iran by the U.S. and Israel.

Investors continue to seek the perceived safety of hard assets amid increased uncertainty surrounding the Trump administration’s reshaping of foreign policy, including the ousting of Venezuelan President Nicolás Maduro and demands to annex Greenland.

Besides speculative gains, commodities can also be useful for hedging against inflation. But for most retail investors, buying physical commodities outside gold and silver directly (which you can do at Costco) isn't realistic. It's not as if you can store barrels of oil or bushels of wheat in your garage.

While investing in companies that produce agricultural, mining or energy commodities can offer partial exposure to geopolitical uncertainty or inflation, they're not perfect substitutes because stock prices also reflect company-specific risks, including debt, management quality and operating costs.

To get around these risks, many investors turn to commodity exchange-traded funds (ETFs), which trade publicly and offer diversified exposure to commodity markets. But these funds don't usually hold physical commodities. Instead, they typically invest in futures contracts.

As you'll see, choosing the best commodity ETF isn't as simple as picking the one with your favorite raw material in the name. You'll need to take a close look at how each fund gets its exposure and be prepared to navigate some hidden tax traps along the way.

The ins and outs of commodity ETFs

Outside of precious metals, such as gold and silver ETFs, most commodity funds don't own physical commodities. They gain exposure through futures contracts.

A futures contract is a derivative that obligates the buyer to purchase (and the seller to deliver) a specific amount of a commodity at a set price on a future date. The ETF is holding contracts that reflect bets on future commodity prices.

For example, an ETF designed to track the price of West Texas Intermediate (WTI) crude oil doesn't buy and store barrels of oil. Instead, this fund might buy WTI crude oil futures contracts.

That's a key point. When you buy a commodity ETF, you're not getting direct exposure to the current (spot) price of the commodity. You're getting exposure to the price of a specific futures contract or basket of different ones, depending on the fund.

For instance, the spot price of oil might be $65 per barrel in June, but the ETF could be holding July contracts, which might trade higher or lower. While futures and spot prices are generally correlated, they're not identical and don't always move in lockstep.

This leads to another critical concept: contango. Futures contracts for commodities trade along what's known as a futures curve, a plot showing prices for delivery in various future months.

In a contango market, futures prices are higher than the current spot price, a common condition for many commodities, especially oil.

Here's why that matters: Futures contracts expire. When July comes around, our hypothetical crude oil ETF can't hold the July contract anymore. It must roll the position by selling the expiring July futures and buying a one dated later, say August.

But when the futures curve for oil is in contango, August contracts are more expensive than July. That means the ETF sells low and buys high, locking in a small loss each time it rolls.

This repeated cycle creates what's called negative roll yield, which is a performance drag over time. For long-term investors, this can mean that even if spot prices rise over time, your ETF's return might be much lower or even see a loss due to the cost of rolling futures in a contango environment.

There's one more wrinkle: taxes. Some commodity ETFs are structured as commodity pools, which means they issue a Schedule K-1 tax form (PDF). The form is more complex than the standard 1099 tax form and can delay filing, especially for investors with multiple K-1s.

The K-1 form also introduces complications such as potential state-level tax obligations and more detailed reporting requirements.

The bottom line: Commodity ETFs can be useful for short-term tactical exposure, but between futures-based tracking, roll costs and tax complexity, they're not always investor-friendly for long-term buy-and-hold portfolios.

How we chose the best commodity ETFs

We began by screening out the riskiest corners of the commodity ETF space, which meant excluding funds that use leverage or inverse exposure. Funds that concentrate on a single commodity, such as oil, gold or natural gas, were also excluded.

Commodities are already volatile, so most investors, unless they're active traders, are better off with long-only ETFs that hold a diversified basket spanning energy, metals and agriculture.

Next, we filtered for tax simplicity. Specifically, we only included ETFs structured to avoid issuing a Schedule K-1 form. Some are clearly labeled "No K-1" in the fund name, but for others, you must dig into the prospectus or tax documentation to confirm.

Avoiding K-1s makes tax reporting easier and helps sidestep delays and state-level complications.

From there, we applied a two-part screen:

Liquidity: We prioritized ETFs with a reasonably low 30-day median bid-ask spread to minimize trading costs.

Reputability: We looked for funds with sufficient assets under management (AUM), as a proxy for stability, scalability and investor trust.

For commodity ETFs, expense ratios weren't as big a concern. Complexity in this space naturally drives costs higher, and most offerings are far more expensive than passive equity or bond ETFs.

But while there's less basis for comparison, it's still worth shopping around and taking note.

• Assets under management: $6.2 billion
• Expenses: 0.59%, or $59 annually for every $10,000 invested
• 30-day median bid-ask spread: 0.07%

The Invesco Optimum Yield Diversified Commodity Strategy No K-1 ETF (PDBC) seeks to outperform the DBIQ Optimum Yield Diversified Commodity Index Excess Return, which includes 14 commodities across the energy, metals and agriculture sectors.

The ETF is actively managed to enhance roll yield, a strategy that involves selecting futures contracts with the most favorable pricing along the curve to reduce the impact of contango over time.

To support this exposure, the fund holds cash collateral in a money market fund and uses some swaps to improve tracking efficiency.

PDBC doesn't issue a K-1, simplifying tax reporting. However, investors should be aware that, in taxable accounts, the fund typically pays a large December distribution that's mostly classified as ordinary income.

Learn more about PDBC at the Invesco provider site.

• Assets under management: $2.4 billion
• Expenses: 0.98%
• 30-day median bid-ask spread: 0.04%

The First Trust Global Tactical Commodity Strategy Fund (FTGC) is an actively managed ETF with no benchmark index.

Instead, the portfolio managers have broad discretion to select futures contracts they believe offer the most favorable risk-reward trade-offs and to avoid those they view as less attractive.

FTGC's current holdings, in addition to cash and Treasury collateral, include gold, silver, copper, gasoline, WTI crude, coffee, soybeans, corn, nickel, sugar, cattle, natural gas, cocoa, cotton and more.

As of the latest data, the portfolio is heaviest in energy (39.06%), followed by agriculture (24.68%).

The fund avoids issuing a Schedule K-1 and instead provides a standard 1099. Unlike PDBC, FTGC spreads its distributions out quarterly in March, June, September and December rather than delivering one large year-end payout.

Learn more about FTGC at the First Trust provider site.

• Assets under management: $2.5 billion
• Expenses: 0.26%
• 30-day median bid-ask spread: 0.05%

The abrdn Bloomberg All Commodity Strategy K-1 Free ETF (BCI) passively tracks the Bloomberg Commodity Index Total Return, aiming to replicate the index's holdings as closely as possible to minimize tracking error.

The fund holds cash collateral in money market instruments and provides broad exposure across metals (both base and precious), agriculture and energy.

As a passive strategy, BCI offers significantly lower costs than actively managed commodity ETFs.

However, it might be more vulnerable to performance drag from contango since the fund can't adjust roll decisions and must follow the index methodology.

Structured as a 1940 Act fund, BCI also avoids issuing a Schedule K-1, instead providing a standard 1099 for tax purposes.

Learn more about BCI at the abrdn provider site.

• Assets under management: $2.3 billion
• Expenses: 0.68%
• 30-day median bid-ask spread: 0.12%

The Harbor Commodity All-Weather Strategy ETF (HGER) tracks the Quantix Commodity Index. While not actively managed, the index uses a more sophisticated, rules-based quantitative approach that aims to systematize commodity trading strategies.

HGER trades 24 of the most liquid commodity futures contracts listed on U.S. or U.K. exchanges. The strategy emphasizes inflation sensitivity by targeting commodities with high pass-through costs and strong correlation to the Consumer Price Index (CPI).

It also considers such factors as scarcity and currency debasement.

Structured as a 1940 Act fund, HGER doesn't issue a K-1 and instead provides a 1099, making it easier to manage at tax time.

Learn more about HGER at the Harbor provider site.

• Assets under management: $189.2 million
• Expenses: 0.72%
• 30-day median bid-ask spread: 0.09%

The Direxion Auspice Broad Commodity Strategy ETF (COM) passively tracks the Auspice Broad Commodity Index, but its approach is more dynamic than a traditional long-only strategy.

The fund's 12-commodity basket, spread across agriculture, energy and metals, can be either long (holding futures contracts to benefit from rising prices) or flat (holding cash when trends are unfavorable), with positions that can shift intra-month.

The approach effectively makes COM a trend-following strategy designed to manage risk. That's especially important in commodity markets, which often experience prolonged downtrends.

By going flat in weaker markets, COM seeks to proactively limit drawdowns during bearish cycles.

Like other 1940 Act funds, COM avoids issuing a Schedule K-1 and instead delivers a standard 1099 for tax reporting.

Learn more about COM at the Direxion provider site.

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Matthew Lewis is a professor in the John E. Walker Department of Economics at Clemson University and a gas price expert.

What factors have contributed to the sharp rise in gas prices?

An increase in crude oil prices is the main reason. To a secondary extent, disruptions to the refinery market and pipeline distribution system can affect prices, but the most recent increase is primarily driven by fluctuation in oil prices. Much of the initial shock this spring had to do with all the reshuffling that had to happen as refiners looked to get oil from different places after economic sanctions triggered by the war in Ukraine led to a disruption of oil from Russia.

When crude oil prices rise, gas prices tend to increase quickly, but they fall much more slowly when oil prices decline. Why is that?

The most common reason is consumer behavior. When consumers see a price for gas that’s higher than what they’re used to paying, they search around more carefully for a gas station with a lower price. But when oil prices start to fall, gas station owners know that if they lower prices just a little bit, consumers will think that they’ve found a good deal and won’t continue to search around. That softens competition between gas stations and reduces the pressure for them to continue to lower the price of gas.

Do gas station owners earn more profits when prices are rising?

When you get an oil price shock or refinery disruption, the price increase will be passed on to consumers quickly, but stations earn very low profit margins because the market for gas is so competitive. They’re barely covering rent and other costs when gas prices are going up. The only time they’re able to cover the costs and make any money for themselves is when prices are falling.

Why do gas prices sometimes vary considerably among individual stations?

Because of variations in state gas taxes, there are differences across state lines. In addition, some brand-name gas stations charge higher prices because some consumers believe that their gas is better than gas sold at off-brand stations. And some stations that are attached to large convenience stores are able to charge lower prices because they sell a lot more gas.

Does that mean it’s worth using tools such as GasBuddy to shop around for lower prices?

Given the amount of price differences in some parts of the country, I would say yes. In places like California, where gas prices are high, it can definitely pay to shop around. You certainly don’t want to drive across town to save 5 cents, but it’s usually not that hard to save more than that by just checking an app and pulling up a map.

How long will gas prices remain high?

Although it’s difficult to predict oil prices, the oil futures market is about as good a predictor as you can get, and it’s forecasting that prices won’t fall anytime soon. But it’s a little misleading to compare oil prices now with the past two years because prices were artificially deflated by a decline in demand due to the pandemic.

When inflation looms, retail investors and institutional investors alike look for ways to secure their finances. One quickly learns that tangible assets are a historically secure choice, and a quick Google search on “Tangible Asset Investment” presents long lists of physical assets that are considered secure investments with reliable returns. No matter the source, these lists are almost sure to mention precious metals.

Precious metals have been used for millennia as a store of value because of their rarity and beauty. Gold and silver are by far the best known, but other precious metals such as platinum or palladium also find their way into more diversified portfolios. These aren’t the only precious metals on the periodic table, and upon taking a closer look, one will uncover a metal whose rarity and beauty eclipses the rest.

This metal is Osmium.

Osmium is a precious metal, like gold and silver. It is a member of the platinum group metals (PGMs) along with metals such as ruthenium, rhodium, and of course, platinum. Like other precious metals, osmium is chemically durable and resistant to rust or corrosion. In addition to being durable, it’s dense – very dense. At 22.61g/cm3, Osmium is the densest element known to humankind.

Its status as the world’s densest element leads the list of osmium’s other outstanding features, which includes having the highest abrasion resistance of any known substance and offering extremely effective protection against gamma radiation. Most notable on this list, though, is the same feature that has caused osmium’s popularity as a tangible asset investment to skyrocket in Europe.

Osmium is the rarest naturally occurring stable element on Earth and, in its crystalline form, absolutely unforgeable.

It would seem natural that the world’s densest element and rarest precious metal would be one of the world’s best-known metals. However, osmium is still relatively unknown. This is due primarily to the fact that, despite its many exceptional qualities, osmium has never had any significant industrial uses. It is difficult to procure, and in its raw “sponge” form, prone to oxidization and produces a toxic and volatile oxide. Since its discovery in 1804, osmium has remained out of the elemental spotlight.

In 2014, a team of Swiss scientists perfected a process that rendered hazardous osmium sponge into a beautiful crystalline structure. Unlike more conventional crystallization methods, the new technique ensured that the osmium could be crystallized in an ultraprecise manner, creating geometrically perfect flat disks with uniform crystal height. The resulting osmium was completely free of toxic emissions and was safe to handle freely without protective equipment. Crystalline osmium is the purest form of osmium at 99.9995% purity. To compare, 24-karat gold has a purity of 99.95%.

How rare is osmium, exactly? Compared to the nearly 200,000 tonnes of gold estimated to be in global reserves today, the amount of osmium assumed to be in circulation and still in the Earth’s crust are a mere 44 tonnes combined. A cube of all the extracted gold on Earth would have an edge length of 24 meters. A cube of all the osmium to be found? 2.1 meters.

Because of this rarity, there exist no osmium mines. Instead, osmium is extracted as a by-product of platinum mining. The amounts extracted are minuscule: it is estimated that 10,000 tonnes of platinum ore yield no more than one troy ounce of the unforgeable metal.

Saying that osmium is unforgeable means that it cannot be falsified. More accurately, it is impossible to create counterfeit samples of crystalline osmium, for two reasons:

There is no element denser than osmium. This is relevant when one observes how, in the past, counterfeit gold bars have been discovered to contain other metals. Because there is no metal denser than osmium, osmium bars couldn’t be filled, or “salted,” with another metal.

Secondly, crystalline osmium undergoes a state-of-the-art certification process that simultaneously confirms its purity and utilizes its crystalline structure as a digital fingerprint.

Microscopy specialists at the the Osmium Institute, the German company commanding the element’s certification and market distribution throughout Europe, use ultrahigh definition microscopes to create 3D images of the crystalline structure of every piece of crystalline osmium undergoing certification. The edges of the crystals act like the friction ridges of a human fingerprint, and in a similar fashion, create an infallible method for identifying the piece.

Every piece of certified crystalline osmium is given an eight-digit alphanumeric code, known as the Osmium Identification Code, or “OIC” for short. The codes are stored on the International Osmium Database and contain information like the piece’s dimensions, weight, 3D scan, and net value based on current market prices of crystalline osmium.

The International Osmium Database also plays a key role in securing the trade of crystalline osmium across the globe: Every time osmium is sold from the Osmium Institute or exchanges hands among private traders, the ownership and possessorship of the piece is updated. This is done by using a private key known as the Owner Change Code. The OCC acts as a sort of online property deed that links a buyer to their osmium in the database’s online ledger. The OCC secures the transaction of osmium and ensures that pieces cannot be stolen and wrongfully resold.

The means that for the first time, a precious metal is being sold with the same technology used to secure digital assets.

The primary market established by the Osmium Institute for crystalline osmium has grown exponentially since its beginnings in 2017. Four years ago, the price for osmium was €810 ($914 USD by today’s conversion rates). At the time, it was sold on an emerging market centered almost entirely in Germany. Today, crystalline osmium is sold on the primary market goes for over $1,845 USD and is sold to investors around the globe.

This increase of over 100% has been primarily due to osmium’s growing popularity as a tangible investment in Europe. The state-of-the-art digital certification undergone by crystalline osmium has also led to its markets growing in Asia, Africa, Australia, and most recently, North America.

By modern portfolio theory, osmium is an ideal method of diversification. Its price changes do not correlate with the fluctuations of other commodity or hard asset markets. In comparison to the volatility of stock exchanges and deteriorating diamond markets in the wake of manmade diamonds saturating global markets, crystalline osmium has historically been a far stronger performer.

Strong performances by previously unknown precious metals aren’t new. Iridium, another Platinum Group Metal, saw prices multiply as its demand in industrial applications grew. The effect this growing popularity had on its price has compounded with a slowing demand for platinum. Should the same trend occur with osmium, a massive price hike is to be expected. Given the limited occurrence of osmium to begin with, a decline in extraction could see the price of osmium skyrocket.

Another factor driving up demand of osmium is its increasing use in luxury jewelry and accessories. Osmium metal has a natural blueish-silver hue that is exaggerated by its crystallized structure. When exposed to direct sunlight, the metal shines in a dazzling fashion, creating an otherworldly sparkle.

This sparkle attracted the likes of Hublot and Ulysse-Nardin, two Swiss watchmakers who produced exclusive timepieces featuring crystalline osmium. The metal’s sparkle makes it an innovative alternative for center stones in jewelry. Jewelers such as German-based producer Oslery showcase osmium in their unique jewelry lines, inlaying the metal within frames of gold, platinum, and titanium.

The use of osmium as a luxury metal isn’t exclusive to jewelry, either. A gold domino with crystalline osmium pips retailed for over €8,000. In late 2021, high-end headphone producer Ultrasone launched a line of headphones inlayed with crystalline osmium. As the market for osmium expands, so do the possibilities of its application in luxury goods.

While crystalline osmium is introduced to the market by the Osmium Institute in Germany, the metal is available worldwide. With the help of channel partners working in over 30 countries around the globe, interested investors can obtain the world’s rarest precious metal from anywhere in the world.

You can learn more about osmium and the Osmium Institute by visiting www.osmium.com, or by contacting the institute directly at info@osmium-institute.com and at 1-888-8OSMIUM (867-6486).

This content was provided by Osmium Institute. Kiplinger is not affiliated with and does not endorse the company or products mentioned above.

Every year, The Kiplinger Letter publishes a special issue that looks ahead to the expenses businesses should budget for in the next calendar year. It starts with how fast to expect the economy to grow, and then looks at key economic data like future inflation and interest rate trends. Then, to help readers make their budgeting plans, letter editors at a range of business costs, such as energy prices, IT costs, health care costs and shipping rates.

We've republished it here for your 2022 planning.

Click here for a free issue of The Kiplinger Letter or for more information.

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Expect GDP to grow 5.5% in 2022, with consumer spending increasing 4.7%, as both subsiding coronavirus infections and massive federal spending bills keep the economy humming. Unemployment should dip below 4% before 2022’s end.

Corporate earnings figure to jump 13%, after 2021’s heady 20% increase. But inflation will still run hot at around 3.0% at the end of 2022, after the 5.3% rise that we expect this year. Pent-up consumer demand and government spending will continue adding price pressures.

The cost of borrowing will inch up, with the 10-year Treasury note rate set to rise to 2.3% by the end of 2022. The 30-year fixed mortgage rate will rise to 3.8%. However, the bank prime rate will stay unchanged at 3.25%, as it’s related to the Federal Reserve’s federal funds rate, which will not change. The central bank will likely wait until 2023 before raising short-term rates, though we expect the Fed to end its purchases of Treasuries and mortgage-backed securities late this year and wrap up that "taper" by next September.

The tight labor market will push average pay hikes to 3.5% next year, following 2021’s 4% rise. Wage gains will continue to be strong for production jobs in construction, manufacturing, shipping, travel, retail, and food service. That is, until the lofty job opening rate comes down. Expect high demand for these workers in the first half of 2022 as infections ease and more of the service sector opens fully.

Health costs are likely to pick up after insurers cover costs from the surge of Delta infections this year. Expect prices for employer-sponsored plans to jump 7% in 2022, after a 4% drop in 2021. Many firms will choose to absorb the higher costs instead of passing them on to employees because they need to keep attracting workers. That will likely change in future years as the labor supply improves. Meanwhile, prescription drug prices will rise 7%, while dental insurance will cost 3% to 4% more.

Forecasting how much higher energy costs will go is tricky; much depends on whether the pandemic is still weighing on the global economy next year or is largely over, with oil demand rebounding strongly worldwide.

For gasoline and diesel, the 2022 prices should be averaging 5% to 10% higher than 2021 levels. That’s a smaller increase than seen this year, with gas prices rising by 40% from early Jan. to the present, as demand recovered faster than output.

For natural gas, a similar outlook: a more modest increase after the spike that has occurred so far this year. As always with natural gas prices, weather patterns will play a major role. A cold winter next year could cause a sharp rise, for instance, whereas unusually mild temperatures could lead to a major decline. Setting aside such extremes, underlying supply-and-demand trends suggest that gas prices will nudge higher, on the order of mid-to high-single-digit gains.

Electricity rates will continue this year’s steady climb. So far in 2021, prices for all types of users are running 5.1% higher than in 2020. Plan for a similar uptick next year as demand continues to recover.

Expect shipping costs to be about 5% lower as conditions normalize a bit. However, many contracts will be renewed at higher rates for a while as contract rates catch up to spot rates. Look for flatbed truck rates to ease more than dry van or refrigerated. Rail container rates will improve a bit as backlogs are resolved, but other rail rates will rise at least 2%, as automobile and coal production increase.

Most ocean freight rates will ease a little in mid-2022 as trade normalizes after container rates doubled in 2021. Chassis and container shortages will linger, though. Refrigerated rates for U.S.-South America trade will continue to increase.

Air freight rates will move inversely with global passenger travel volume since much freight flies in the holds of commercial airliners. The loss of that capacity last year and this year has driven rates up sharply. If the pandemic fades enough that international travel returns to normal in 2022, freight rates will pull back. Look for continued disruptions to passenger air travel that will last into next year, meaning freight rates are likely to stay near this year’s level, or may creep up a bit more.

Payroll taxes are rising, with the $142,800 wage base increasing to about $145,500. For firms that pay pension premiums to the Pension Benefit Guaranty Corp, there is no change in rates except for inflation-related indexing. Flat-rate premiums for single-employer plans will hover around $89 per plan participant in 2022. Variable-rate premiums for underfunded plans will be approximately $47 per $1,000 of unfunded vested benefits (subject to a per-participant ceiling of $600 or so).

For commercial property insurance, rates should rise between 5% and 10%, on average, for properties that aren’t exposed to natural catastrophes. For those with exposure expect an average increase of 15%. Rates for directors and officers insurance will increase by 50% for public companies, and 60% for private firms and nonprofits, due to a steady increase in litigation. Casualty insurance will be up 5% to 10%. Cyber insurance for companies renewing policies are in for hikes of up to 5%. For those with recent claims or incidents, premium hikes may be about 7% to 10%. Retailers with point-of-sale systems should expect hikes of 10% to 15%. Cyber insurers may be willing to offer a rate cut if a firm can show improved security.

Legal costs for businesses will rise about 4%. Many fees are negotiable, though. Accounting costs figure to increase up to 10% for a typical company

Domestic airfares will rise another 20% whenever travelers feel safe again. Hotel rates are inching up, as the industry recovers back from the pandemic. Car rental rates will stay high because of strong demand and vehicle shortages.

Office rents are in for a slight increase in 2022 after falling this year. Retail rents will stay about flat, as construction is at a multi-year low, but vacancy rates are high. Well-located, newer malls with modern anchor tenants may see some hikes. Demand for warehouses continues to be strong; rents will rise about 2.5%. Demand continues to remain strong.

It’s best to budget for at least slightly higher tech and telecom costs. PC prices are a bit higher, especially for laptops. Watch out for delays and shortages. Small hikes for printers, both personal and commercial. 5G phones are getting cheaper, though and cellular service data costs continue to fall, but expect to score fewer deals. Home internet services have seen small price hikes and fewer deals on bundles. Business internet service is one area with competitive pricing and deals.

Nuclear energy has returned to favor, a trend reflected in the prices of uranium ETFs.

This too is an artificial intelligence story.

The AI revolution as well as a confluence of other real-world developments is driving rapid growth in electricity demand, with many folks seeking out greener power sources to replace the likes of oil and coal.

And the past couple of years have been a clear reminder for several countries that they'd be best served becoming energy-independent from Russia.

These are among numerous long-term drivers. But they're not the whole story behind price action for uranium.

Much of uranium's buoyancy can be chalked up to rising demand, yes, but also constrained supply.

Years of low prices forced many smaller uranium miners to shut down or throttle down production, and larger miners have spent precious little in capital expenditures to improve their operations.

That process has reversed, with supplies rising as uranium prices surged. And uranium futures reached 18-month lows amid generally sufficient supply.

Nonetheless, the horizon continues to brighten for nuclear energy, and in turn, the small collection of publicly traded uranium stocks … the uranium ETFs that hold them.

It's a good time to explore three uranium ETFs.

It's a small field – these are three of the most pure-play funds in the space. And they still collectively represent just over $5 billion in assets.

But the best ETFs in the uranium space can provide a few different types of exposure to this rocketing commodity.

Data is as of March 25. Yields represent the trailing 12-month yield, which is a standard measure for equity funds.

• Assets under management: $2.9 billion
• Dividend yield: 5.5%
• Expenses: 0.69%, or $69 annually for every $10,000 invested

The Global X Uranium ETF (URA, $24.87) is the largest uranium-focused ETF on the market, with $2.9 billion in assets under management.

Those assets have soared in recent years, mind you – URA claimed just over $100 million in AUM during the COVID lows before gobbling up assets in more recent years.

URA provides comprehensive exposure to the niche uranium industry. Its portfolio of 49 stocks includes miners, refiners and manufacturers of equipment for both uranium companies and nuclear-facility firms.

Concentration risk is often a factor in smaller industry and thematic funds, and that's absolutely the case for URA.

For one, producer Cameco (CCJ) makes up 22% of the uranium ETF's assets.

And the top 10 holdings – which include Canada's NexGen Energy (NXE) and Kazakhstan's Kazatomprom, the world's largest uranium producer – make up almost two-thirds of URA's weight.

Indeed, Global X Uranium ETF's holdings are almost entirely made up of international stocks.

Canada accounts for 43% of net assets, followed by the U.S. (18%), South Korea (12%) and Australia (11%).

URA focuses on uranium miners. But it does have exposure to physical uranium via an 8.3% weight in the Sprott Physical Uranium Trust – a Toronto Stock Exchange-listed ETF that currently holds 66.2 million pounds of uranium.

Learn more about URA at the Global X provider site.

• Assets under management: $1.3 billion
• Dividend yield: 0.0%
• Expenses: 0.75%

While you can't invest directly in Sprott's physical uranium ETF in the U.S., you can buy its mining ETF – the Sprott Uranium Miners ETF (URNM, $34.73).

URNM, for the record, was the North Shore Global Uranium Mining ETF until 2022, when Sprott acquired and reorganized the assets.

Sprott Uranium Miners ETF primarily focuses on companies involved in uranium mining, although it also will invest in companies that hold the physical element, own uranium royalties, or are otherwise involved in the uranium industry.

This is another concentrated, mostly international portfolio with just 36 holdings. It's mighty top-heavy too, though the exposure is spread around a little bit more at the very top than URA.

Namely, Cameco is near the top at 18.5%, but Kazatomprom makes up 15.5%, and the Sprott Physical Uranium Trust is another 11.5%.

The uranium ETF's top holdings also include Canada's NexGen Energy as well as Australian production firm Paladin Energy (PALAF).

Like URA, URNM has seen its assets explode, to more than $1 billion from roughly $48 million at the end of 2020.

Learn more about URNM at the Sprott provider site.

• Assets under management: $1.1 billion
• Dividend yield: 0.8%
• Expenses: 0.61%

The VanEck Uranium+Nuclear Energy ETF (NLR, $79.34), like the other two uranium ETFs, has seen its AUM surge since the COVID bear market to above $1 billion. However, its trajectory is different from URA and URNM.

The VanEck Uranium+Nuclear Energy ETF is a lesson in the importance of "checking under the hood."

The name would seem to imply similar exposure to either URA or URNM. And so would its description (from VanEck):

VanEck Uranium+Nuclear Energy ETF (NLR) seeks to replicate as closely as possible, before fees and expenses, the price and yield performance of the MVIS Global Uranium & Nuclear Energy Index (MVNLRTR), which is intended to track the overall performance of companies involved in: (i) uranium mining or uranium mining projects that have the potential, in MV Index Solutions GmbH's (the "Index Provider") view, when such projects are developed are expected to generate at least 50% of a company's revenues or are expected to constitute at least 50% of such company's assets; (ii) the construction, engineering and maintenance of nuclear power facilities and nuclear reactors; (iii) the production of electricity from nuclear sources; or (iv) providing equipment, technology and/or services to the nuclear power industry.

In other words, the fund invests in miners, nuclear facilities builders, nuclear power companies and associated firms.

A closer look at the ETF's 25 holdings, however, shows that NLR isn't quite a pure-play on uranium as you might expect – or at least, not how you'd expect.

That is, a little more than 48% of the fund is invested in plain ol' utility stocks – companies such as Constellation Energy (CEG), Public Service Enterprise Group (PEG) and PG&E (PCG).

Those power producers do indeed have ties to uranium – all three utilities generate electricity from a collective 27 nuclear plants.

Their businesses simply aren't positioned to benefit from spikes in uranium prices the same way that uranium miners and several other related companies are.

They have enjoyed collective bounce due to rising power demand for the ongoing AI infrastructure buildout.

To wit: Over the past three years, NLR has mustered a 52% total return (price change plus dividends) amid uranium's rise. URA is up 4.2% in that same time frame, while URNM has declined by 11.7%.

Learn more about NLR at the VanEck provider site.

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It's difficult to remember a time when tech stocks weren't the market-leading sector. For well over a decade now, the major indexes have been dominated by high-growth technology names, and this only accelerated during the pandemic, as home-bound Americans depended more heavily on technology to keep working and stay busy.

But it hasn't always been that way, and investors today would be wise to diversify outside of this comfort zone. We might be in the early stages of a commodities bull market, one that could see commodity stocks – typically from the materials sector – outperform growth stocks and potentially for several years.

"Since 2008, the market has had a strong preference for growth names in general and technology names in particular," says John Musgrave, co-chief investment officer of Cushing Asset Management. "But commodity and energy names dominated in the 2000-08 period – a time when many tech stocks lagged."

We might be entering a period similar to that 2000-08 stretch. Then, as now, tech stocks had enjoyed a long period of outperformance, and commodity stocks had suffered through a period of underperformance. And then, as now, we were coming out of a period of extraordinary and unprecedented stimulus from the Federal Reserve.

But there's another angle, too.

With America's trillion-dollar infrastructure plan nearing reality, we could soon see a sustained demand for raw materials from the government. Moreover, infrastructure spending is popular virtually everywhere, and with the global economy still trying to get past the lingering effects of the COVID pandemic, we can bet that other countries will follow suit.

And, of course, there is the elephant in the room: inflation. Between pandemic-related supply disruptions and higher-than-usual demand, both consumer and producer price inflation has been bubbling higher. Commodities are a natural inflation hedge, so any sustained rise in prices should only add fuel to this fire.

Today, we're going to take a look at seven commodity stocks poised to take advantage of this unique confluence of events. Buyer beware: These stocks have historically been volatile … but that volatility comes with the possibility of market-beating returns.

Data is as of Sept. 7.

• Market value: $93.7 billion
• Dividend yield: 4.7%

We'll start with Brazilian mining juggernaut Vale (VALE, $18.71). Based in Rio de Janeiro, Vale is one of the world's leading miners of iron ore. It regularly dukes it out with fellow commodity stocks BHP Group (BHP) and Rio Tinto (RIO) to be the largest iron ore miner in the world. Vale also is the world's largest nickel miner and is a major producer of copper, gold, silver and other metals, as well as metallurgical and thermal coal.

If it's gritty and used in heavy industry, chances are good that Vale pulls it out of the ground.

Vale is not a stock for the faint of heart. When it moves, it really moves. And that can cut both ways. From its lows in 2002 to its highs in 2008, an investor holding the stock could have made well over 20 times their money. But from that peak to its trough in 2016, VALE shares lost about 95% of their value.

The stock has been largely pushing higher since 2016 and really took off out of the March 2020 lows. But even after more than tripling over the past five years, VALE still would have to double and then some to touch its old highs.

That's OK. If commodities continue to boom, Vale's shares should get much closer to its record levels than where they are today.

• Market value: $120.7 billion
• Dividend yield: 6.6%

Along the same lines, fellow miner Rio Tinto (RIO, $74.56) is almost impossible not to own if your goal is to build a diversified portfolio of commodity stocks. The company is one of the largest miners in the world and has a history stretching back to 1873. The company is headquartered in London but has operations spread across the globe.

Rio Tinto is anything if not diversified. It's a leading producer of iron ore, aluminum, copper, diamonds, titanium and even salt.

Mining stocks might not seem all that sexy in an age of electric vehicle stocks or cryptocurrencies, which of late have frequently doubled or better in a single year. But Rio Tinto is no slouch. From its lows in the late 1990s to its highs in 2008, for instance, shares rose by a factor of more than 13.

Currently, Argus Research likes RIO amid measures to improve its core operations. "Rio Tinto has strengthened its operating performance and balance sheet by cutting costs and selling noncore assets," says analyst David Coleman (Buy). "The company has traditionally performed well during difficult economic times, and, in our view, has strong long-term growth opportunities."

RIO is unlikely to explode for those kinds of gains again, but it could still deliver sizable outperformance if commodity strength continues.

Coleman also notes that Rio Tinto can deliver returns through its hefty dividend, which currently yields well more than 6%. (Just note that, as is the case with many European companies, the stock pays its dividend semiannually like a bond as opposed to quarterly like an American dividend stock.)

• Market value: $12.0 billion
• Dividend yield: N/A

Without steel, you have no industrial economy. It's really that simple.

And that brings us to Cleveland-Cliffs (CLF, $23.94). Headquartered in its namesake – Cleveland, Ohio – Cleveland-Cliffs was traditionally an iron ore mining company. It was the largest and oldest independent American iron ore miner, with a history dating back to 1847. But after a series of acquisitions, Cleveland-Cliffs is now also the largest flat-rolled steel producer in North America.

The company is now fully vertically integrated, handling the process from the mine to the steel mill. While this might not completely insulate the company from the post-COVID supply chain issues plaguing much of the global economy, it certainly helps.

It also helps that Cleveland-Cliffs has made real strides in environmentalism, at least for a heavy industrial producer. The company has pledged to be the leader in "sustainable" steel making and mining, and it has a goal of reducing carbon emissions by 25% by 2030.

Cleveland-Cliffs' shares have been on fire since March of last year, rising by more than a factor of five. Regardless, B. Riley analysts (Buy) still call CLF "one of the most compelling stocks within our coverage." That's in part because it's so dirt-cheap – at a forward price-to-earnings ratio of just 4.8, CLF is among the cheapest commodity stocks you can find.

• Market value: $8.7 billion
• Dividend yield: N/A

Although it isn't as prominent as steel, aluminum is a crucial industrial metal. It's lightweight, making it the metal of choice for aviation. Automakers are also experimenting with aluminum bodies to decrease vehicle weight and improve gas mileage. Ford (F) made a splash several years ago by introducing an aluminum-bodied F-150 that persists to this day.

Unlike iron or steel, aluminum also won't rust over time, has insulating properties that can lower heating and cooling bills, and is virtually impervious to temperature changes, making it ideal for many construction projects. These same properties make it a "greener" metal in an era in which climate consciousness is front and center.

If you want exposure to aluminum, it's difficult to avoid Alcoa (AA, $46.77), the largest American aluminum company. Alcoa mines bauxite ore and processes it into aluminum and aluminum products – and returning to the green theme, Alcoa also owns hydroelectric power plants.

Like many of the commodity stocks covered here, Alcoa is subject to booms and busts. AA plunged by about 90% between the end of 2017 and March 2020. But since then, shares have rallied by more than 700% and have shown no sign of slowing down.

• Market value: $53.4 billion
• Dividend yield: 0.8%

Copper is an essential commodity in building and construction. As the safest and most widely used metal in electrical wiring, as well as an important component of plumbing, it's just about impossible to build anything today without copper.

Copper is also well known as an economic bellwether. The price of "Dr. Copper" will tell you a lot about the health of the economy. It tends to do well when the economy is booming, and a drop in the price of copper often portends a slowdown.

If you want exposure to copper, then it only makes sense to own Freeport-McMoRan (FCX, $36.36), one of the world's largest and highest profile copper miners.

But there's more to this story.

While commodity stocks are often associated with the "dirty" side of the real economy, copper is a critical component in the making of green energy. Electric vehicles, such as those made by Tesla (TSLA) and others, use about four times as much copper as gasoline-powered vehicles. So, the greener the economy gets, the more demand we'll see for copper.

"Copper should benefit from cyclical demand growth, longer-term secular demand growth in electric vehicles, renewable energy and the decarbonization agenda in general and significant supply constraints," say Jefferies analysts (Buy).

• Market value: $46.1 billion
• Dividend yield: 3.8%

Industrial metals underpin the real economy, of course. But precious metals have historically been used as inflation and currency hedges, and gold miners are a way to get indirect exposure to precious metals.

Newmont (NEM, $57.73) is one of the world's largest miners with proven gold reserves of 94.2 million ounces as of the end of 2020. It runs a truly global operation with mines in the United States, Canada, Mexico, Dominican Republic, Peru, Suriname, Argentina, Chile, Australia and Ghana.

In addition to gold, the company also produces significant amounts of copper, silver, zinc and lead.

As was the case with the industrial miners, Newmont's share price can be subject to wild swings. The prices of the metals it mines are volatile, and the miner itself can be thought of as a leveraged play of the metals. So, when the share price moves, it can really move.

That's OK. This creates ample trading opportunities. Between its 1984 lows and 1987 high, the shares rose by more than a factor of five. Between 2000 and 2012, the shares rose by a similar amount. And more recently, the shares rose by more than a factor of three between 2015 and early 2021. Being on the right side of a move in miners can be one of the best trades you ever make.

As an added benefit, the stock is also a solid dividend payer. Newmont yields 3.8% at current prices, which is wildly competitive in a world in which the 10-year Treasury yields just 1.3%.

• Assets under management: $6.0 billion
• Dividend yield: 0.0%
• Expenses: 0.59%, or $59 annually for every $10,000 invested

And finally, if you want to bypass commodity stocks altogether and go straight to the commodities themselves, consider the shares of the Invesco Optimum Yield Diversified Commodity Strategy No K-1 ETF (PDBC, $19.97).

PDBC is a commodities ETF that tracks the performance of the DBIQ Optimum Yield Diversified Commodity Excess Return Index, which is made up of 14 liquid commodities futures contracts spread across energy, industrial metals, precious metals and agricultural commodities.

West Texas Intermediate crude is the largest single position, but the fund has sizable positions in copper, aluminum, sugar and a host of others.

It's generally not practical for a commodities ETF to own commodities outright. There are storage and transportation costs to consider, and there is no real reason to own a silo full of wheat when liquid futures contracts exist. PDBC gets the exposure it needs by taking long positions in commodities futures and investing its collateral in U.S. Treasury bills. Those bills aren't adding much to returns at current yields, but if the Fed follows through with raising interest rates, PDBC will stand to benefit as it will earn that higher yield on the collateral it has in T-bills.

Commodity ETFs can be a bit of a minefield. Many have complex tax accounting and send a Schedule K-1 come tax season rather than the standard 1099. Well, PDBC keeps it simple. If you buy it or trade it, any gains or losses will show up on the standard 1099 you get from your broker.

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Links mentioned in this episode:

• Taxes on Unemployment Benefits: A State-by-State Guide
• The Basics of Unemployment Benefits: Who Qualifies, How to Apply, How Much You’ll Get
• Job Listing: Associate Personal Finance Editor
• Job Listing: Associate Investing Editor, ESG
• 10 Best Marijuana Stocks to Buy for 2021
• Investing in Cannabis? Beware These Red Flags
• How Long Should You Keep Tax Records?
• 22 IRS Audit Red Flags
• How to Fix Your Social Security Earnings Record

Transcript:

David Muhlbaum: A few weeks ago we talked about green investing, a very hot sector in the stock market. Today, we're going to cover another kind of green, green gold. I'm talking about cannabis, marijuana, which is generating plenty of investor interest. Also, unemployment insurance and a recovering job market are increasingly at odds. All coming up on Your Money's Worth. Stick around.

David Muhlbaum: Welcome to Your Money's Worth. I'm Kiplinger.com Senior Online Editor David Muhlbaum, joined by my cohost, Senior Editor Sandy Block. How are you doing, Sandy?

Sandy Block: I'm doing great, Dave, back from a road trip.

David Muhlbaum: Okay. Well, over the past year we have cranked out all sorts of content here about unemployment and unemployment benefits because, obviously there was a lot of unemployment. And historically, we paid a lot of attention to unemployment and job creation from this macroeconomic perspective, but this year was obviously much more how-to, here's how you get the benefits, here's how you navigate the system, and here's how you pay taxes on it if you have to.

Sandy Block: Right. And navigating the system turned out to be a real challenge for a lot of people, not only because they were first-timers at this, but because a lot of states were overwhelmed. It wasn't fun, but the unemployment benefits were ultimately pretty good.

David Muhlbaum: Yeah. They were pretty good because of these big bump-ups that came from the federal stimulus programs. Some of these date back to the early days of the pandemic. Congress, over the past year, was, what, $300?

Sandy Block: Yes.

David Muhlbaum: A week to every out-of-work American's unemployment check and-

Sandy Block: On top of what they were already getting from their state.

David Muhlbaum: On top of what they got from the state. And now, we're getting pushback from literally, states, about this sort of thing.

Sandy Block: Right. And that's because, and on my road trip, I saw this everywhere I went. There's the perception that this is causing people to stay home and contributing to a labor shortage. Now, the April's jobs report showed-

David Muhlbaum: What did you see?

Sandy Block: Oh my gosh, every single place I stopped, fast-food, gas, whatever, had a sign begging for people to come in. And places that you wouldn't normally think of as being really generous, fast-food joints, were promising signing bonuses, healthcare, 401(k)s, and my favorite was, free food. Now, I worked in a fast-food joint, free food was a given 40 years ago.

David Muhlbaum: What about a shifty?

Sandy Block: A shifty?

David Muhlbaum: Did you not use that term?

Sandy Block: No. No.

David Muhlbaum: Shifty is a drink at the end of ... at a place that serves booze. A shifty is a drink at the end of your shift.

Sandy Block: Oh, right. Right. No, I never worked at a place that served booze so I only got free milkshakes at the end of my shift and that's not so much fun. But the question is, is the reason that these folks can't hire -- and there really is a problem, I saw a lot of places saying they had to cut back on hours because they didn't have enough people, or were only operating the drive-through window -- is that really because of this extra unemployment benefit? Is $300 a week keeping that many people at home, or are there other factors going on here?

David Muhlbaum: Yeah. Is it a labor shortage, a perceived labor shortage? A lot of this sprung up after the April jobs report with rather disappointing job growth and it's gotten to be a pretty partisan issue too. All the states that are cutting off the additional federal unemployment benefits, all those states have Republican governors. The other side is the Biden administration.

Sandy Block: Right. And again, there's a lot of back and forth on this and it's really not been tested because we don't know what's going to happen. I guess the real test will come in September, when this extra $300 runs out. Is all of a sudden everybody going to go work at fast-food places or are we still going to have a labor shortage because what's also happening here, what we're hearing is that some people are still at home taking care of their kids. Some people don't feel safe going back to work, maybe they didn't get vaccinated, or they don't want to get vaccinated. And in some places, this could be hitting places, where people are realizing, working in a restaurant is a crummy job. You didn't make very much money -- and they are holding out. That actually seems to be working because a lot of places are raising their wages.

David Muhlbaum: Obviously, we're seeing what you're seeing in terms of the signs. I'm seeing it here at my mother's continuing care facility where they are basically putting out apology notes about the food service because they are having a hard time hiring line cooks. But, actually, since I brought that up, it's actually a somewhat odd situation because here at this CCRC, working in food service is really a whole lot different than the restaurant industry that you're referring to. This is normal hours, benefits, actually, frankly, not working for tips. It seems a sort of good place to wait out the pandemic and yet it seems that restaurant owners are at least able to hire away enough of the staff there to make a difference. There are enough people who want to go back to what, maybe I'm calling it the old way, and maybe the money's up.

Sandy Block: Maybe it's, what did you call that, the shifty? Maybe it's the shifty.

David Muhlbaum: Maybe it's the shifty.

Sandy Block: Maybe it's the shifty. I don't think they have a shifty at the retirement community.

David Muhlbaum: No, but they have, I just remembered, they don't have the shifty, they don't have the shifty here, but out in the real world, if you will, they have the Restaurant Revitalization Fund. There's more stimulus money so possibly one of the things behind that rising pay in the sector is all the stimulus money that's flowing in there. If it isn't one stimulus, it's another.

Sandy Block: Right. And that's really why this is, I think, hard to call. Because the stimulus is still unfolding, the checks got a lot of attention from us and others. There's still more money coming from state and local governments, other programs. So I think this supply and demand labor situation is kind of hard to call right now while all of that money is still out there.

David Muhlbaum: Yeah. A lot of firms are hiring including us, Kiplinger.

Sandy Block: Yes.

David Muhlbaum: We are looking for an Assistant Personal Finance Editor. No, seriously. You can help us cover all these crazy times. You could maybe even help on the podcast, if you can talk pretty. And we also need an Associate Investing Editor, someone who really knows ESG, environmental, social, governance factors. It's a close cousin to the green investing that we talked about here a month ago. Both of these positions are on LinkedIn and other sites and I'll put in a link to the show notes.

Sandy Block: Will they get a shifty?

David Muhlbaum: No. But I'd still like to hear from you.

Sandy Block: It's still a great place to work.

Cannabis Investing with Matt Hawkins

David Muhlbaum: Welcome back to Your Money's Worth. Joining us this week is Matt Hawkins who has a long track record in cannabis investing. I'll put in a link to your bio, Matt, but founder and managing partner of Entourage Effect Capital, a leading private equity investment firm, that's your current title. Welcome, Matt, and please feel to correct or clarify my introduction.

Matt Hawkins: That's perfect, thank you. It's great to be here.

David Muhlbaum: Also co-hosting for this segment today is our Senior Investing Editor, Kyle Woodley. Matt, you already know Kyle because, well, Kyle, you explain.

Kyle Woodley: Hello, hello. Matt's CV now includes being a contributor to Kiplinger. He brings a lot of expertise to our coverage of this still-emerging industry, but I think one of the most important things he has to offer to listeners is, being able to not just give us a fish, but teach us how to fish. That is, he can provide the insight that investors need to evaluate marijuana investments for themselves, just like they would, say consumer staples or tech stocks. I'll admit, I actually learned a lot about what I didn't know about the space in his most recent piece for us, Investing in Cannabis: Beware these Red Flags. I'm really glad you could join us today, Matt.

Matt Hawkins: I appreciate that. I'm interested to hear what you guys have to ask me.

David Muhlbaum: Contributing writer for Kiplinger, you're going to have to put that on the top of the resume. That's a great piece. It's one that we want to explore today as well as Kyle mentioned touching on investing opportunities in cannabis broadly and since I've been doing so much of the talking, Kyle really ought to ask the first question.

Kyle Woodley: Every stock market sector, industry, theme, each one has its own set of factors that investors need to heed and do their due diligence on. What makes the marijuana industry distinct? Are there any specific, I don't know, red flags?

Matt Hawkins: Absolutely. The thing about the marijuana industry, especially in the United States is that you're dealing with companies that are either listed on the Canadian Securities Exchange or on the smaller exchanges like over the counter. There's no real action on the NASDAQ or New York Stock Exchange, save for a few ETFs and maybe a couple of non-plant-touching companies. And so it's harder to find out research. It's hard to find the research that's out there. Some investment banks that are more boutique in nature provide that kind of coverage, but for the most part, it's not like going to buy Apple. It's a different program.

David Muhlbaum: I assume that one of the fundamental reasons for that is marijuana's ongoing status as a controlled substance under federal law.

Matt Hawkins: That's exactly right. And until it becomes either quasi-legal through a variety of legislative initiatives, that's going to be the case. There's a couple of things on the horizon, one being the Safe Banking Act, which has already passed the House I believe three times now. It is in the Senate, and I think once the Senate flipped to the Democrats after the Georgia run-offs, the prospects of that piece of legislation being passed by the Senate went up dramatically.

David Muhlbaum: As a follow-up question to that, a number of companies, as you mention in your piece, that are in the marijuana space, are there because they are dealing with these stop-gaps, they are providing stop-gaps because of the legalization status. What's going to happen if/when marijuana becomes federally legal? It's going to change a lot of people's business plans, no?

Matt Hawkins: Totally. And there are some of those stop-gap measures, I think I may or may not have referred to it in the piece, but we like to those companies bandaids. For example, we don't really like to look at alternative banking solutions because I believe they are just bandaids. Once the Safe Banking Act passes, all the big banks are going to want to take deposits. Right now, it's just state charter banks, credit unions, local banks, municipal banks. But the minute BofA can start taking deposits because the federal government lets them, they are going to want to do it. And so all these different mechanisms by which money is being moved or held or whatever the case may be, not only do those business models change, they likely cease to exist.

David Muhlbaum: To step for a moment beyond the immediate legislative outlook of the industry, can we just take a step back to talk about the industry as a whole. We've been talking about red flags, we've been talking about warnings, we've been talking about limited availability of U.S.- traded stocks, but can you just give us some sense of what the big upside is for the marijuana sector? There's a reason you're here, and by that, I don't mean on this podcast; I mean in this sector.

Matt Hawkins: Well, look, I had a luck-in-timing moment back in 2014. I had exited a multi-family play. I had done some private lending in the downturn. I started dabbling in that again and one of the things that I was seeing in 2014, which is when Oregon, Colorado, the State of Washington all went recreational adult-use legal. In Denver, there were warehouse owners looking to refinance their mortgages out of commercial debt into private debt, which would then give them the ability to lease their facilities to growers. They were paying high yields, it was a nice play. You have the security of a first lien on a piece of real property. But my luck-in-timing moment was realizing that if I could somehow figure out how to raise money and underwrite the actual cannabis assets themselves, I would have a first-mover advantage -- and I did.

There was just one or two other groups at the time doing it and we got lucky. We were able to make some big bets in an emerging industry and we've been able to ride that wave, at least initially, and now we've got 68 investments I think to date out of our family of investment vehicles. It's been a good ride, but we're doing it because of what's on the horizon. We won't see anything in our lifetime like an event that brings in this much capital, that can provide a huge boost to the industry and provide returns to early adopters of this sector and that's what we're playing for.

David Muhlbaum: Got it. I'm going to use your explanation of your history to pivot us, I think, to talking about investing, the individual investor's approach. As you've just made clear, you're an investment banker, you raise money -- a lot of it -- to make strategic capital investments in companies. Some of the names I got from your site. Acreage, GTI, Ebbu. Am I pronouncing that right?

Matt Hawkins: I believe it was Ebbu, yes.

David Muhlbaum: And Form Factory. Now, some of these, or the companies that acquired them, are publicly traded, so for reasons I'm sure you'll appreciate, we're not going to talk about individual cannabis stocks with Matt. But if you, listener, are interested in investing in individual cannabis stocks, fear not, we've got just the thing for you, 10 Best Marijuana Stocks to Buy for 2021 by our contributor Will Ashworth. I'll put in a link to that.

Kyle Woodley: But we do want to ask you about cannabis funds, specifically as they are used as just another tool in the toolbox. When you've got an industry that's still in a great state of flux, that's still finding itself, like the marijuana industry is, many investors are probably going to think to themselves, okay, why don't I just buy a marijuana fund, so that I don't have one big single stock pick that goes the wrong way, it doesn't just completely blow up in my face, blow up my whole portfolio. But do you think that investors clip a lot of that potential in the industry by making such a diversified investment or is there enough ceiling for a slew of stocks to collectively make waves?

Matt Hawkins: Let me just give one disclaimer that most of our investing is obviously on the private side but I think the rule of thumb for being diversified in the cannabis industry applies to both public and private opportunities. On the private side, because of the nascency of this industry, and because of the lack of knowledge of what goes on in a cottage industry like this, you would be wise to invest with someone like us, who knows the industry cold, that's been doing it since 2014. And I think the same thing can be said for the public side, is that if you don't have the ability to diversify yourself on a variety of these, maybe it's the top 10 picks that was just referenced, but if not, then perhaps an ETF is better suited for you.

But ultimately, both the public and the private sector are going to benefit from this change of a major dynamic when legalization occurs. There's going to be an influx of capital both on the private and on the public side so I think that only increases valuations.

Kyle Woodley: No. I was just going to follow up on that and just ask, do you have any, out of curiosity, any particular preferred ETFs out there? We talk a lot about the ETFMG Alternative Harvest ETF, that's ticker MJ, which is the largest fund out there by assets and one that a lot of people know. We've actually recommended the AdvisorShares Pure US Cannabis ETF, ticker MSOS, because of its focus on U.S. marijuana stocks versus MJ and others which, they have very distinctly Canadian and international tilts. Are there any funds out there that you look at and you go, this is an interesting way, a distinct way to invest in the cannabis space?

Matt Hawkins: Without giving investing advice, I will say this. We don't look at ETFs, we obviously know the public sector cold. I would say that, because the public sector is our lifeblood, that's where we either sell companies to or we get lucky and do off-market pipes. We know the sea levels of most every important publicly traded company in the United States and so we may be a bit bias, but my opinion is that you'd be much better off looking at an ETF that contains primarily U.S. Assets. And the reason is that the U.S. market is not only the largest cannabis market in the world, but it's about to go through a shift and a paradigm that is like we've never seen before.

Canada has already done that. Canada is already completely legal and the market, God bless 'em, is smaller than the state of California. It's doesn't make much sense, and to me, the Canadian licensed producers have a flawed model, to begin with. Originally they were set up to be the outsource providers to the world, but their cost structure doesn't allow them to do and so a lot of them, Canopy was smart, Canopy tried to get creative with how they could indirectly own U.S. Assets with Acreage and they got ownership in TerrAscend and a few others. But the other licensed producers have been slow to move and so that's problematic.

Kyle Woodley: What was the trigger point for you where you all of a sudden realized, this is the opportunity, because marijuana, to some extent, had been out there in some way or another, but the point at which you go, wait a minute, this is truly an opportunity. What was that flashpoint where you were like this is why I need to be in this business?

Matt Hawkins: I knew that when I took the chance in 2014 that it was going to be a huge risk/reward because I thought there could be something like this on the horizon, but I had no way of knowing for sure. And plus, it wasn't easy raising money back then. Hell, I live in Dallas, Texas and so you can imagine how hard it was to raise money back then, just from the conservative nature of our state, but what that moment in time was, is when California went adult-use legal in 2016. When that happened, that changed everything, and the fact that California became the largest market in the world overnight with this election was just downright, not only eye-opening, but it was kind of like, holy crap, this is going to happen. Then we decided to get really smart about where to pour the capital. We spent a conscious effort to spend the next three years investing a fair amount of capital in that state and now we've got a pretty good presence there. We're excited about the prospects.

David Muhlbaum: It's interesting you mentioned the difficulty of raising money back then in Texas. We talked a good bit about federal legislation and as most people know, marijuana's legality varies by state. We have Idaho and Washington next to each other, very different takes on it and that's a reminder that marijuana has a cultural history as an illegal substance. And it's taken a lot of restraint, I haven't made a single wacky weed joke today. We've treated this sector as oil and gas. Now that might be a future illegal substance, but that's another story. But I am curious about whether, as you go about your business, Matt, whether you get pushback or teasing or whatever, like, the Cheech and Chong stuff.

Matt Hawkins: I certainly did for the first three years of doing this. Not only that, but I had people judge me, like what's wrong with you, and thought I was crazy. Now, those same people either want to join our investments or they want to talk about it and laugh about it and sometimes they ask me for product. I'm like, look, I'm not your dealer. But the truth of the matter is, that just points to the stigma is almost 100% gone. There is still a sliver of the far right in the Bible Belt where I live that thinks this is still the gateway drug and that's unfortunate, because we've seen time and time again the medicinal benefits that this product has. But look, it's still a vice product, there's no doubt about it, and there's always going to be some people that say it shouldn't be used and sold.

The problem I have with that argument is that it's already there so why not tax and regulate it and bring in some revenue to your state and probably reduce crime in the process because you're taking it off the illicit market and bringing it to a more controlled situation.

David Muhlbaum: The flip side is that you may be in a situation where people essentially expect you to evangelize for marijuana, for the product itself, rather than the investment opportunity.

Matt Hawkins: Sure and what I just said is about as evangelistic as I get when it comes to this because that's not what we do. The last thing that we want to do is try to change people's minds if they are opposed to it. It's just not our job. It's not our position. We've been lucky enough in the course of our period of time where we put capital together that the stigma has been lifted and so like I said, some of the same people that were against it, in the beginning, have become some of our better investors just in the past years.

David Muhlbaum: It's also interesting that we talk about "in the past year or so." You are, as we described at the beginning, a long-time investor in the marijuana space, shall we say, I'm not sure, but if we look at it in absolute years, it's not that many years. It's like pot years are measured differently somehow. Things are moving fast.

Matt Hawkins: Exactly, and the same amount of money we have under management would be, if I was just in the lower middle-market PE world, it would be a gnat's eyelash compared to what most of the larger funds manage. But for cannabis, we're one of the largest firms and that's just because of the nature of the world we live in. It's all family offices and high net worth individuals that are putting the capital to work and we're just one of the organized groups doing it.

Kyle Woodley: I can't think of another situation in which so much money was primed to go to work because here, you already know what the product is. The product has been in use for literally centuries. We've just been waiting for the legalization so that it can turn into this actual legal business structure or whatever. But think about any other invention, you had to prove it out to people. Even like the smartphone, we had phones before, but the smartphone, that took some ... We didn't just have iPhones right away, we had the Zack Morris cellphone, first and we made our way along. You had to prove to people, and eventually build up demand from there.

Here there is very, very clear demand for it and everybody is just waiting to be able to put money on that. And that makes this so much different than a lot of the other, almost every other investment opportunity I think we've ever seen in our lives whether that makes it necessarily the best one or not is to be determined, but it is certainly different and exciting from that perspective.

Matt Hawkins: Or you can just quit your day job and come help us put...

David Muhlbaum: To follow on Kyle's tangent for a moment, it makes me wonder, and I don't know my history here, but it makes me wonder what was the scene like in 1933 at the end of Prohibition where there were companies that had been beaten down to a shell of their former selves looking to revive? Were there new entities coming in? They were probably going to be in a more government-regulated space, one that continues to today, in terms of how government has kept a foot in alcohol. That's my riff. Kyle, I think there is a parallel.

Matt Hawkins: There absolutely is, because there's a three-tiered system in alcohol and that's one thing that the federal government would have to get their arms around if they decided to make it 100% federally legal and federal oversight controls everything. Right now there's not a three-tiered system in a lot of states. In some states, like California, you can be vertically integrated completely and that's a huge problem because you're going to have real issues if you try to break up those companies that have done that. That would be next to impossible.

David Muhlbaum: Wow, I hadn't even thought about the regulatory structure from an antitrust perspective. That's a whole 'nother thing.

Matt Hawkins: That makes my head hurt just thinking about all the regulatory nightmares that fair regulators who going to have to go through to try to make it work. It scares the hell out of me.

David Muhlbaum: Right.

Matt Hawkins: But just real quick back to Prohibition, look, you had families that made generational money off some of this ... Look at the Kennedys, my gosh. That could be the case in cannabis, but some of these people that were early, early on founders of some of these large public companies, they are doing things that could be life-changing for their families going forward.

David Muhlbaum: Legacies. Where does the name, Entourage Effect, come from? Your company.

Matt Hawkins: Good question. We originally, back in 14, we started the company, it was called Cresco Capital Partners. Cresco is Latin for grow and then over the years we kept getting confused with our friends at Cresco Labs, which is a multi-state operator, and Charlie Bachtell, who is the CEO, would literally sit there and laugh at conferences about how many times people would ask us about the other and I finally just said to him, "We're changing our name. I'm sick of this." He laughed and said, "thank you."

Entourage Effect is the interaction between the cannabinoids and the THC to give the medicinal benefits of the plant and so we liked that analogy because not only is it applicable obviously to marijuana, but it's also applicable to what we do as a firm.

Matt Hawkins: Like I said, we've got 68 investments. Part of our strategy is to bring everybody together, if there's a way for them to work together, we obviously want that to happen. We have a deep network outside of our portfolio and we bring that to the table to the benefit of our investments and so we aren't just money, we are relationships and we're the Entourage Effect.

Kyle Woodley: I actually did have a question about your status working in private equity, which means, frankly, you get to invest in companies before we do. You get to invest in the earlier stages and that means you're probably going to be closer to the leading edge of technology in this space. And so my question for you is, what is there that you see out there that you look at and you're like this is interesting leading-edge technology of the marijuana industry.

Matt Hawkins: That's a tough one because the technology side, we have made a couple of investments in that space, but I would put breeding and biosynthesis and the propagation of the plant, those things are the genetics, and all those I consider to be the technology side of this. And from that standpoint, I think that's where you're going to see some real interesting things happen over the next several years. You've got botany experts and horticulturalists that are coming into the industry unlike ever before that were coming from other parts of the food chain outside of marijuana. And so that, to me, shows the influx of not only talent but also just insight and development and progress. We've got a few plays in those arenas and we're excited about the prospects.

David Muhlbaum: And maybe also the diminution of the stigma issue for those individuals who choose to participate.

Matt Hawkins: Oh gosh, yes. Look, you're getting C-level people come in now from CPG companies, Proctor and Gamble folks, Starbucks, Amazon. The stigma to me is just not an issue and I think people are now seeing this as a, we may be in the third or fourth inning here and I want to get in on the action while I can, and that's a good thing.

Kyle Woodley: The technology answer was right on the money because technology, what that looks like, just completely different by sector. It's not always like AI or a smartphone in front of you. This is effectively the ag sector, the ag industry and so in that case, yeah, whether you're putting a product out that is either higher potency or better crop yield or whatever, those are exciting technologies, maybe not necessarily to just your passerby or whatever, but they are very exciting if you're inside the industry.

Matt Hawkins: Yep. Couldn't agree more. Those sectors, you'll start hearing a lot more about where they are headed as some of the companies that actually, some of them that we've been involved in for a couple, three years now, once they start making the big headways, you'll start hearing more about that and I think it's one of those things that will be very attractive to the con-agras of the world, for example. They want to be in this business, they're just handcuffed right now because of the legality.

David Muhlbaum: Well, when that happens, I hope Kyle will ask you to write about it for us.

Kyle Woodley: I'm going to be making plenty of asks of Matt here for the foreseeable future so hopefully, we'll get more of his wisdom here on, not just on the show, but also online at Kiplinger.com here for plenty of years to come.

David Muhlbaum: Thank you very much for joining us today, Matt.

Matt Hawkins: Awesome, guys. Thank you so much. Happy to do it.

Tax Documents to Keep, Tax Documents to Toss

David Muhlbaum: All right, Sandy, the tax deadline has come and gone, and at every meeting leading up to the tax deadline that I had with my boss, Robert, he would say, "Has everyone filed their taxes?" And I would kind of look away, but I did manage to file an extension. How about you?

Sandy Block: I had to file my taxes because we owed, which tells you, even though I write about taxes and I do our own taxes, I must not be very good at it because we did end up writing a check to the IRS. Yes, we did file on time, we had no choice.

David Muhlbaum: Well, I filed an extension and I paid what I think I owed. I'll sort it out later. But yes, it's that cobbler's shoes metaphor. I attempt to do as good a job as I think I know I should. But of course, as part of that, I was up to my eyeballs in either paper or digital paper, with my wife using an app to scan and create PDFs out of the things that we still have on paper and then archiving things as I went into the Google Drive so that I can hopefully find them again. But the whole thing reminded me of, a) that keeping paper is going away, but, b) it has not gone away yet so I think we should maybe touch on a little bit of, hey, tax season's over, I hope it's more over for you than it is for me. What do I do with this stuff, because it's just sitting there in a manila folder?

Sandy Block: We've been doing this article for every year and it's always very popular and people always argue with us about it. What to keep and what you can safely throw away. I think most people err on what to keep and actually what your wife is doing is really smart because the IRS does accept digital versions of documents, so scanning things, as long as you've got some kind of system. You don't have to keep everything and you probably shouldn't because then you risk losing stuff that you really want. A couple of things you might want to keep potentially forever is one, just your actual tax return. That's a really good record for-

David Muhlbaum: Forever?

Sandy Block: Well, some financial planners say to keep it, you don't have to. And we'll go through that. But the idea of keeping your tax return is this: It's a really good snapshot of your life at that time and if you applied for a mortgage or want to start a business or any kind of loan, you don't know how far back they're going to ask to see your taxes so I personally keep the actual return. Again, you can keep a digital, if you use tax software, it's probably stored for you somewhere. And you can get it from the IRS, but I do keep the actual return.

David Muhlbaum: One thing you actually mentioned about having it in a piece of tax software is that I think the safer bet would be to make sure you've exported a PDF of the actual file.

Sandy Block: Yeah. I wouldn't want to leave it in the cloud.

David Muhlbaum: And not only because of security issues, but because your financial relationship with that provider, you may not renew it.

Sandy Block: And usually, they will give you a PDF. I have them on my computer. The other thing you might want to keep is your W-2 forms, which is just one thing you get at the end of the year. We're not talking a mass ... and the reason you want to hold onto that is when it comes time to file for Social Security sometimes there are errors in your earning record and that could hurt your benefits so you're going to want to be able to point to these W-2 forms and say, yes, I did work at this place this year and as a result, I owe benefits for that time.

David Muhlbaum: On that note though, you can get ahead of that, can't you, because it's possible to get essentially a Social Security transcript or a statement that reflects each year's earnings.

Sandy Block: You can do that every year, which I have not done. Yes, you could go through it every year and make sure it's right, but just in case you don't, the W-2s are a good backup. And I think it's good to know how much you made. I like to go back and say how did I possibly eat on that salary. That's a journalism thing. The general rule is this, the IRS has three years after the due date of your return or in your case, the day you actually file it, if you get an extension to kick off an audit of your returns so you should hold on to your tax records at least until that time has passed. But as I mentioned earlier, there are some records, like maybe the actual tax return and your W-2s that you want to hold on a little longer.

Sandy Block: Things you can throw away after one year are your pay stubs. After you've checked them against your W-2s, the W-2 has all that information. If all the totals match, you can shred the pay stubs and you can take a similar approach with your monthly brokerage statements, which can really pile up. You can generally dispose of them if they match up with your year-end statements and 1099s.

David Muhlbaum: Or you could have gone paperless, I just want to note.

Sandy Block: Right, exactly. Now, the things you should keep, we mentioned the IRS has three years to audit you. There is an exception that I'll get to in a minute, but because within that period, you should hold onto all of the documents that support any income, deductions, or credits claimed on your tax return for those last three years after the tax filing deadline. And that includes, again, your W-2s, which you're holding forever anyway, 1099s, if you have deducted mortgage interest, and again, a lot of these things are digital. 1098 forms, canceled checks if you made charitable contributions --and you still are able to deduct them.

David Muhlbaum: Okay, I want to challenge this for a moment because many of the forms that you've mentioned are ones that are already being reported to the IRS. If there's going to be a challenge to you, isn't it going to be more about something weird like some stock you sold with a tax basis that dates to 1955 that you got from Grandma?

Sandy Block: That's a good question, but I wouldn't assume that, if your information doesn't match theirs, maybe you were right. I wouldn't count on my brokerage to have them for one thing. What if the IRS comes back and audits you and your brokerage has gone out of business or something? You don't know. Those are just things that the IRS might want to see if you get audited. And the other thing I wanted to mention is you took withdrawals from a health savings account or a 529 plan, you went eligible expenses and contributions to a tax-deductible retirement savings plan, just a traditional IRA, because again, you are deducting these things on your tax returns. If you don't itemize deductions, and most of us don't, you don't have to hold onto as many of these things.

David Muhlbaum: What is it now, like 90% of people are taking the standard deduction?

Sandy Block: Yes. The caveat here is we've got this little break in the coronavirus legislation. We were allowed to deduct $300 of charitable contributions or $600 this year if you're married. So you would want to hold onto records of that. But in general, if you don't deduct, you don't need to hold onto all that stuff because you're not deducting it. If you're not deducting your mortgage interest, you don't need to hold onto documents for mortgage interest because the IRS isn't going to ask you about it.

David Muhlbaum: Right. Fundamentally though, and I guess I'm coming back to my point about which forms and what kind of recordkeeping matters. I agree with you on the principle, but I think one of the things people could almost inform themselves with when making these decisions about where they really need to pay attention to recordkeeping is another bit of Kiplinger content about 22 IRS Audit Red Flags because if you look at those and you look at those and see, is anything I'm doing in these categories? It doesn't mean you're doing something wrong, it just means your tax return has categories that the IRS likes to pay attention to. That's an additional warning that you better have your paper in order if you are filing that kind of return.

Sandy Block: And that's a really good point, because I think one area that I'll just touch on briefly. We could do a whole segment on it, is if you work for yourself. I used to interview a lot of self-employed people and almost all of them had been audited and the reason is when you work for yourself, you're self-reporting. Our taxes are withheld from our paychecks so it's hard for us to cheat or make mistakes really because the money just goes right to the IRS. But if you work for yourself, you are reporting your income. Basically, it's on you to report your income. It's on you to report your expenses and I think the IRS routinely audits a lot of those tax returns just because they don't have a backup like they do. So if you work for yourself, my advice is, keep just absolutely assiduous records. And I think that's a really good idea to put the audit red flags because it will show some other things that just sort of might get the IRS's attention and you do want to keep better records.

David Muhlbaum: And while I agree we should follow the numbers, fundamentally it kind of comes down to, are you a record keeper or not a record keeper? It's like the people who are early to the airport and the people who don't feel satisfied unless the doors shut on their behinds as they got onto the plane. People are just two different kinds.

Sandy Block: I'm the person who leaves the night before, so you can imagine my file cabinets are pretty full.

David Muhlbaum: I'm early to the airport, but I'm a mess at record keeping. I guess you can diverge. Thanks very much, Sandy. Feel free to bug me when it's October and I've really got to file those things.

Sandy Block: Okay.

David Muhlbaum: That will just about do it for this episode of Your Money's Worth. If you like what you heard, please sign up for more at Apple podcasts or wherever you get your content. When you do, please give us a rating and a review. And if you've already subscribed, thanks. Please go back and add a rating or review, if you haven't already. To see the links we mentioned in our show along with other great Kiplinger content on the topics we've discussed, go to kiplinger.com/podcast. The episodes, transcripts, and links are all in there by date. And if you're still here because you want to give us a piece of your mind, you can stay connected with us on Twitter, Facebook, Instagram, or by emailing us directly at podcast@kiplinger.com. Thanks for listening.

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Inflation is still low, but it’s rising. You can see it reflected in interest rates. The yield on 10-year Treasury notes soared from 0.52% in early August to 1.6% in early March. Investors demand higher rates when they worry that rising prices will mean the dollar will have less purchasing power when their bonds mature.

You can also see inflation in the prices of commodities, or basic raw materials. The cost of food rose 3.6% over the 12 months that ended February 28, reports the U.S. Bureau of Labor Statistics, and the gasoline index jumped 6.4% in January alone. About two dozen commodities—from corn to crude oil to cattle to copper—actively trade on U.S. markets. For some, price increases have been dramatic. Soybeans rose nearly 50% over the past six months; lumber nearly doubled in four months. In a three-week period in February, the price of copper jumped over 20%. (Unless noted, prices and other data are as of March 5; recommendations are in bold.)

Besides offering protection against inflation, commodities are good diversifiers in a portfolio because they are only about 30% correlated with stocks. When one asset is down, the other is often up, and vice versa. But when the stock market tanked last February and March because of the COVID-19 pandemic, so did most commodities—and for the same reason: plunging demand from consumers who lost their jobs. Of course, everyone has to eat, so food prices held up. But other commodities plummeted, before returning slowly but consistently as the economy began to recover.

A fork in the road. Stocks and commodities started to diverge significantly as 2021 began. That’s because businesses are allergic to rising interest rates, which increase their own and their customers’ borrowing costs, but the prices of staples are largely unaffected (unless rates get way out of hand and trigger an economic slowdown).

Despite recent price increases, however, commodities have been in a long-term bear market since the 2008–09 recession. A $10,000 investment 10 years ago in a popular exchange-traded security, iShares S&P GSCI Commodity-Indexed Trust (symbol GSG, $15), is now worth $3,878, according to Morningstar. By contrast, the same investment in SPY, the SPDR S&P 500 exchange-traded fund, would have grown to $35,657.

The problem for commodity prices has been sluggish economic growth in the U.S. and Europe, and a decline in the spectacular annual growth in China’s gross domestic product, down from double-digit percentages in the early 2000s to less than 7% today. Global inflation has dropped in major economies to below 2%, despite all the money that central banks keep injecting.

Is the decline in commodity prices long-lasting and the recent upward blip just temporary? Or, as analysts at Goldman Sachs recently predicted, is this “the beginning of a much longer-term structural bull market”? My definitive answer is that I do not know. Inflation is rising and the U.S. economy is getting a huge dose of stimulus. But a powerful low-growth/low-inflation trend is difficult to buck.

I do believe, however, that because accurate predictions about inflation are nearly impossible, all investors should have some exposure to commodities. That doesn’t mean buying them directly in the futures market, where you use enormous leverage to purchase, say, a contract for 5,000 bushels of wheat (recently valued at about $33,000) or 50,000 pounds of cotton (about $45,000).

In these transactions, an investor typically puts up only 3% to 12% of the price of a contract and borrows the rest. Unless you want your backyard filled with hogs or barley, you sell before the delivery date. Right now, you can control a wheat contract for about $1,700. If wheat prices rise by about 5%, as they did in the first two months of the year, you double your money. If prices fall by the same amount, as they did during the month of November, you’re wiped out.

Wise investing has nothing in common with that kind of high-stakes gambling. I had personal experience in commodities when I was in my twenties. It was exhilarating when my first contracts were wins, but then I lost my shirt. So stay away. Instead, try one of the following approaches.

How to invest. First, you can own exchange-traded securities that track broad portfolios of commodity contracts. The S&P portfolio cited earlier is not a standard ETF, but a trust that buys and sells indexed futures contracts, backed by collateral such as Treasury securities. It’s a good choice if you want a heavy energy weighting; crude oil represents 45% of assets.

I prefer the more balanced iPath Bloomberg Commodity Index Total Return ETN (DJP, $25), linked to an index whose target weights are: 30% energy, 23% grains, 19% precious metals, 16% industrial metals and the rest livestock and “softs” such as cotton and coffee. With an ETN, or exchange-traded note, you are actually lending money—in this case, to Barclays Bank—with no guarantee of repayment. The value of the note rises or falls according to the value of the underlying commodities.

Trusts and notes are slightly more risky than standard ETFs, but in these two cases the issuers are sound. The Bloomberg security’s 10-year annualized return is about two points better than the S&P fund’s, but both are negative. For index funds, both have steep expense ratios: 0.76% for the S&P fund and 0.70% for the Bloomberg fund.

The second strategy is to buy individual stocks. A good example is Archer Daniels Midland (ADM, $58), a large supplier and refiner of grains and vegetable oils, that carries a 2.6% dividend yield. Bunge (BG, $78), a smaller, 202-year-old St. Louis company in the same sector, also yields 2.6%. ADM has returned 54% in the past year, and Bunge, 65%, but both should be good values if inflation keeps increasing.

Investing in London-based Rio Tinto Group (RIO, $84), a mining and processing company with a $132 billion market value, is a way to play both precious and base metals—gold, silver, aluminum, molybdenum, copper, iron ore, uranium and more. The stock is yielding 5.6%. An even larger global minerals firm, BHP Group (BHP, $76) of Australia, has been on a tear but trades well below its 2011 high and yields 4.1%. BHP focuses on many of the same commodities as Rio Tinto, with the addition of coal and petroleum.

A smaller, U.S.-based firm that also combines metals with oil and gas is Freeport McMoRan (FCX, $35). Sales have fallen since 2018, but the stock has skyrocketed with rising commodity prices. Still, it’s below its record highs of a decade ago. Freeport pays no dividend. One of my favorite energy stocks is Oneok (OKE, $50), a natural gas processor and pipeline company whose stock is not as volatile as those of production and exploration firms. It yields 7.5%.

Or consider index ETFs, such as SPDR S&P Metals and Mining (XME, $38) and Materials Select Sector SPDR (XLB, $75). The latter has returned an annual average of 9.1% over the past 10 years, mainly on the strength of recent gains. Its top two holdings are excellent stocks on their own, both giant purveyors of industrial gases: London-based Linde (LIN, $248), yielding 1.7%, and Kiplinger Dividend 15 member Air Products and Chemicals (APD, $264), yielding 2.3%. Unlike other commodity stocks, Linde and Air Products have languished since last summer, making them all the more attractive.

The gold price reached record highs in 2020, a year that will be remembered for its unpredictability. With US election results now confirmed and positive news of a COVID-19 vaccine, how has gold been affected and what does the future hold?

Markets regained a sense of status quo after the result of the US election and assurance that Joe Biden will take the Presidency in January. News of vaccines that work effectively against COVID-19 has also propelled this sentiment: driving demand for risky assets while demand for gold levelled off.

Some of gold’s recent price movements, while large, were not unprecedented. Gold has seen approximately 16 single-day price drops of more than 4% over the last 15 years, the most recent this past August. In a particular case this November, gold’s pullback was primarily driven by positive market sentiment (risk reduction) following Pfizer’s announcement and aided by investor positioning (momentum).

What's next?

The key question facing gold investors now is whether this the start of trend reversal, a temporary move, or perhaps an opportunity to buy.

To understand gold’s performance, it is important to consider its four key drivers:

• Economic expansion: periods of growth are very supportive of jewellery, technology and long-term savings
• Risk and uncertainty: market downturns often boost investment demand for gold as a safe haven
• Opportunity cost: interest rates and relative currency strength influence investor attitudes towards gold
• Momentum: capital flows, positioning and price trends can ignite or dampen gold's performance.

Gold has regained some ground since it’s drop in November and early December, and while price volatility may persist in the short term, we believe this could be seen as a buying opportunity for many strategic investors. The reasons are three-fold:

Consumer demand may start to see signs of recovery. The price correction and slightly more positive economic outlook may revitalise gold’s consumer demand, removing – at least in part – one of the significant headwinds it has faced this year. Historically, Indian and Chinese consumers have often used price dips to buy gold. And we have seen similar behaviour among more strategic Western investors.

Investment demand is not likely going away. While news about the vaccine is definitely positive and rightfully fuelling optimism, there are still challenges ahead. These include further approvals and distribution logistics which may delay its rollout around the globe, thus maintaining a level of uncertainty over the coming months. And some significant risks that existed prior to the COVID-19 pandemic remain as contributors to heightened global uncertainty (for example, Brexit, political gridlock in the US, trade tensions, etc). But perhaps more importantly, the pandemic has already had a significant negative impact on the global economy that will take time – and a lot of stimuli from governments – to overcome.

Loose monetary policy will reshape asset allocation. In addition to the fiscal largesse, interest rates are set to remain very low for a long time. As we discussed in our mid-year outlook, this may not only result in high inflation but is likely to re-shape asset allocation strategies for years to come. Amid such an environment, gold could play an increasingly relevant role as a diversifier and source of returns.

Where do we go from here?

For many of us, this year has been overshadowed by COVID-19 and the US election. Looking ahead to 2021, there are questions over whether the record gold interest we saw in these unprecedented times will fade.

However, we don’t think so. There has been a noticeable shift in how investors see and use gold over the last few years, and with recent debate over the effectiveness of traditional asset allocation models, gold will likely retain its relevance.

Learn more about gold’s role as a strategic investment on Goldhub.

This content was provided by World Gold Council. Kiplinger is not affiliated with and does not endorse the company or products mentioned above.

Years of a strong dollar are expected to wind down, due to low interest rates that the Federal Reserve indicates will stay low for years to come. On top of that: soaring budget deficits, and increased money supply (due in part to recession-fighting efforts prompted by the coronavirus pandemic), will weigh on the dollar, too.

But a weakening dollar can be good for certain investments. U.S. investors in foreign stock funds benefit because when a foreign stock rises in price or pays a dividend in its local currency, that investment gain gets translated into dollars. Consider the performance of the MSCI EAFE index during the recent dollar decline. Over the nearly three-month period this summer when the dollar was weakening most, the index, which tracks stocks in foreign developed countries, gained 5.8% priced in local currencies. Converted into U.S. dollars, the index gained 10.9%.

And then there are commodities, whose prices tend to move inversely to the dollar. Because many are priced in dollars, a weak greenback typically means higher relative commodity prices. A lower dollar also fuels demand overseas, says Katie Nixon, chief investment officer at Northern Trust Wealth Management. “Foreign buyers purchase U.S. commodities such as corn, soybeans, wheat and oil with dollars. When the value of the dollar drops, they have more buying power.”

We've identified five funds that will let you profit from the dollar's decline. Returns and data are through October 9.

When you own shares in a foreign-stock fund, you essentially own stocks denominated in different foreign currencies. Most foreign-stock funds don’t hedge against the dollar, meaning that as the dollar weakens, their stocks become worth more in U.S. dollars. But some funds, such as FMI International (FMIJX) and Tweedy, Browne Global Value (TBGVX), make it a policy to hedge against the dollar so that their fund returns reflect the performance of their investment decisions, not currency swings.

Assuming comparable performance, however, unhedged foreign-stock funds will do better with a weakening dollar. “The currency exchange is working in your favor, so you should take advantage of it,” says Christine Benz, director of personal finance at research firm Morningstar.

Fidelity International Growth (FIGFX, expense ratio 0.99%) has beaten the EAFE index with less volatility over time, and without a hedge. Manager Jed Weiss focuses on high-quality, growing companies that dominate their industries and can maintain or raise prices, even in troubled times. Over the past decade, the fund’s 8.7% annualized return beat 81% of its peers (funds that invest in large, growing foreign companies) and the MSCI EAFE index. Nestlé, Roche Holding and SAP, the German software company, are top holdings.

Another one of our favorite funds is Vanguard International Growth (VWIGX, 0.43%). Two firms manage the fund with slightly different approaches. Baillie Gifford, which runs roughly 60% of the fund’s assets, is willing to pay up for stocks with explosive growth. At Schroder Investment Management, the ideal stock is underappreciated but growing fast. The team-up works well. Over the past three years, the fund’s 17.1% annualized return beat all but three foreign large-cap stock funds. The annualized return of the MSCI EAFE index over that time: 0.8%.

The dollar-conversion math works for investors in emerging-markets stocks, too. Over the past 12 months, those shares have blown past developed-country shares. The MSCI Emerging Markets index is up 10.5% over the past year; the EAFE, only 1.6%.

A weaker dollar is a boon to emerging economies. Emerging-markets countries are big buyers of commodities, which are usually priced in greenbacks. Such countries also tend to carry loads of debt denominated in U.S. dollars. So a weak dollar means that Thailand, for example, can spend less in baht to buy goods or to service its debt. Baron Emerging Markets (BEXFX, 1.35%) is our choice in this category. A member of the Kiplinger 25, the list of our favorite no-load funds, Baron Emerging Markets has beaten the MSCI Emerging Markets index by more than six percentage points over the past year, returning 22.2%.

Most commodities—oil, soybeans, gold—are bought and sold in dollars. A weaker dollar means it takes less foreign cash to buy a dollar’s worth of any commodity. This drives demand, pushing prices of commodities higher. Over the past six dollar-weakening periods, according to Wells Fargo Investment Institute, commodities outperformed U.S. and foreign stocks in developed countries, on average.

But over longer stretches, an investment in commodities can be volatile. Despite decent years in 2019, 2017 and 2016, the typical broad-basket commodities fund lost an annualized 2.8% over the past five years. In that time, the S&P 500 gained 13.8% annualized. Commodities can be great portfolio diversifiers, but we’d limit them to 1% to 2% of your overall investments. Since you probably don't want to worry about actually taking delivery of grain, oil, or even pork bellies, the best options for retail investors are diversified baskets of commodities such as mutual funds or exchange traded funds, ETFs.

First Trust Alternative Absolute Return Strategy ETF (FAAR, $27, 0.95%), which is actively managed, has been the steadiest in its peer group over the past three years. That has helped relative performance. The ETF has a three-year annualized return that beats 76% of its peers, albeit with an annualized loss of 1.3%. Its record over the past 12 months is more encouraging: The fund is up 2.1%, while the typical broad-based commodities fund has lost 5.9%.

Alternatively, gold funds have been less volatile than broad-based commodity ETFs in recent years. Over the past 12 months, iShares Gold Trust (IAU, $18, 0.25%) has gained 27.3%, in part because of the weaker dollar. But uncertainty about the global economy and the pandemic has fueled price gains as well. The fund seeks to track the performance of the price of gold. Each share represents 0.01 ounce of gold and is backed by physical gold bullion stored in vaults.

When investors think of mining stocks, they typically think of gold miners – the firms that search for and extract gold, and become popular whenever gold prices soar, like they have in 2020.

Gold mining stocks, often used as a hedge against disaster, can indeed be fruitful investments. Factors such as uncertainty and fear in traditional stocks, or a weak U.S. dollar, can drive gold prices (and in turn, gold stocks) higher, and because their prices aren't strongly correlated to the broader market, they can be a useful source of portfolio diversification.

But they're not the only ways to invest in extracting valuable commodities from the ground. Diversified mining stocks that produce ores such as iron and copper can be used to position portfolios to reap the riches of economic expansion and infrastructure spending. And companies searching for other elements that are powering today's newest technologies can provide high growth potential.

Today, we'll look at five of the best mining stocks to buy today. For the most part, we're targeting companies with strong financial positions that can generate gobs of cash – in other words, firms with the resources to ride out rockier periods for their underlying commodities. But we'll also examine one more aggressive pick that might not have the cleanest of balance sheets, but does boast explosive potential.

Data is as of Oct. 19. Dividend yields are calculated by annualizing the most recent payout and dividing by the share price.

• Market value: $49.6 billion
• Dividend yield: 1.6%

Newmont Mining (NEM, $61.71), an S&P 500 component, is one of the world's top gold mining stocks and its overall top producer. It operates in nine countries, including the U.S., across four continents, and it boasts the largest gold reserves in the world, at just more than 100 million ounces.

That said, it's not completely undiluted exposure to gold – it also produces copper, silver, zinc and lead.

Newmont offers significant upside potential as the company realizes the full breadth of two recent deals. In April 2019, NEM acquired major producer Goldcorp, targeting $365 million in synergies before any sales of as much as $1 billion in what the company determined were "non-core" assets. Newmont also entered into a joint venture with Barrick Gold (GOLD) in March 2019, combining both companies' assets in Nevada to create Nevada Gold Mines, with target synergies of up to $500 million.

"We think NEM is poised to unlock value at several underperforming assets in the legacy Goldcorp portfolio," writes CFRA analyst Matthew Miller, who rates the stock at Buy.

Meanwhile, Miller also lauds the company's "top tier" balance sheet, which includes $5.5 billion in long-term debt, but $4.1 billion in cash to counterbalance most of that. The company also has paid dividends for years, and it raised the stakes considerably in 2020 with a 79% hike to its current 25 cents per share.

• Market value: $48.0 billion
• Dividend yield: 1.2%

Barrick Gold (GOLD, $27.02) is primarily a gold-and-copper miner that has operations and/or projects in 13 countries scattered across five continents. That diversification pays off in gold mining, as gold is often found in places where governments are unstable, so political conditions might cause the occasional slowdowns or even stoppages in operations.

And Barrick recently surprised much of Wall Street by attracting the interest of one Warren Buffett, the CEO of Berkshire Hathaway (BRK.B).

It was an unexpected move given that Buffett has excoriated gold in his past. "It doesn't do anything but sit there and look at you," he has previously said of the yellow metal.

But gold mining stocks are another story.

What Buffett likely sees in Barrick is its ability to generate cash. Barrick has totaled roughly $2.2 billion in free cash flow (FCF) – the cash left over once a company pays expenses, interest on debt, taxes and long-term investments – over the trailing 12 months, up from $1.1 billion in 2019. You can thank both rising gold prices as well as its late 2018 merger with Randgold for the healthy bump.

Barrick has trimmed its long-term debt from more than $12 billion in 2014 to just about $5 billion today, and it has about $3.7 billion in cash to balance out most of that remainder. In the meanwhile, GOLD has also more than doubled shareholder equity from about $10 billion to more than $21 billion as of 2019. The takeaway is that Barrick is a considerably less levered company, which is good news for a commodity-driven business where prices can (and do) vary wildly.

In fact, Barrick's balance sheet is so strong that it's able to offer up a modest dividend – an 8-cent-per-share payout that has quadrupled in just four years.

• Market value: $13.4 billion
• Dividend yield: 1.5%

You can get a similar bundle of traits, but in a smaller package, with Kirkland Lake Gold (KL, $48.58).

Kirkland Lake, which is a fraction of the size of Newmont and Barrick, has operations in just two countries, but they're stable ones: Canada and Australia. The company expects to produce 1.35 million to 1.4 million ounces of gold in 2020; compare that to Barrick, which is modeling 4.6 million to 5.0 million ounces.

Financially, you could argue that Kirkland Lake is in even better position than both titans, as it currently sports zero debt against roughly $540 million in cash. Moreover, this gold mining stock should generate close to $1 billion in cash in 2020, and Credit Suisse analysts expect the figure to more than double, to nearly $2 billion, in 2021.

Investor enthusiasm for Kirkland lately has centered around its $3.7 billion acquisition of Detour Gold, which closed in January 2020. Detour's production costs were higher than Kirkland's, but this may have been part of the allure – Kirkland Lake might be able to lower costs for what already is a profitable operation. As of the most recent quarterly report, Detour already was contributing approximately 40% of KL's free cashflow. It's possible Kirkland could wring more productivity out of Detour's cost structure.

That's good news for shareholders, who are enjoying an explosive dividend. Kirkland Lake initiated a penny-per-share quarterly payout in 2017, which has grown several times since then, including this year's more-than-doubling to 12.5 cents per share. While it's a massive increase, it's just 14% of Credit Suisse's projected 2020 earnings, and 7% of 2021's estimate. That indicates it's not just safe, but that there's plenty of room for additional hikes going forward.

• Market value: $73.8 billion
• Dividend yield: 6.4%

Rio Tinto (RIO, $59.23) is one of the world's largest mining stocks, boasting 60 operations in 36 countries. And as it likes to point out, its variety of mined commodities are used in a wide range of end products – "iron ore for steel, aluminum for cars and smartphones, copper for wind turbines, diamonds that set the standard for "responsible," titanium for household products and borates for crops that feed the world."

But right out of the gate, investors should know that the company is going through a significant management shift. CEO Jean-Sebastien Jacques and two other senior executives stepped down under pressure in September after it was reported the company destroyed ancient Aboriginal heritage sites in Australia. That's one of the most significant corporate disruptions in the name of environmental, social and corporate governance (ESG) concerns to date, and it leaves Rio Tinto searching for a new chief.

But if Rio can find a solid successor, it could be one of the best mining stocks you can buy.

Rio Tinto has been shoring up its finances, trimming debt and capital expenditures. It has demonstrated stable operating margins – they've remained above 40% since 2017, and they hit an all-time high of 45.4% in 2019. For the prior five years, operating margins ranged from 30% to 37%.

Naturally, 2020 hasn't been as kind to Rio as it has its gold-focused brethren. Underlying earnings for the first half of 2020 dropped 3% year-over-year to $2.94 per share, and free cash flow was off 28% to $2.8 billion.

But Rio does stand to benefit from infrastructure spending in the wake of the pandemic. Investing in infrastructure remains a tried-and-true tool of injecting funds into flagging economies. China, the world's largest consumer of commodities, appears to be rebounding, and is engaged in stimulus spending. (The outlook for a broader global recovery isn't as certain, nor as robust, however.)

Also worth mentioning is a semiannual dividend that has grown for most of the past decade, and currently yields a whopping 6%-plus. Just note that the payout is tied to operating profits, so it can decline in weaker years.

• Market value: $1.2 billion
• Dividend yield: N/A

One of these things is not like the others.

Whereas the previously mentioned mining stocks stand out for their strong financial position and cash flows, Lithium Americas (LAC, $12.82) is a pure growth-potential play.

Lithium Americas is a development-stage lithium miner that is trying to bring a pair of mines – one in Argentina, and one in Nevada – to production. And the setup for the element could not be stronger.

Metals and mining research company Roskill estimates that the demand for lithium will grow at 20% per year to 2030. That demand is being driven by renewable energy, electric grid upgrades and, of course, lithium batteries for electric vehicles. Investors are particularly optimistic on the latter front, as various governments around the world are trying to curb production of gas-powered vehicles, which should boost demand for lithium batteries going forward.

As Tesla (TSLA) notes on its website: "To ramp production to 500,000 cars per year, Tesla alone will require today's entire worldwide supply of lithium-ion batteries."

Lithium Americas doesn't sport as solid a balance sheet as these other companies, with long-term debt of $158 million that's more than triple its $50 million in cash on hand. And rather than generating cash, it's burning it – about $86 million over the trailing 12 months, according to S&P Global Market Intelligence data.

And remember: The history of electric vehicles is rife with hype, which can spill into the fortunes (or misfortunes) of its suppliers. For instance, LAC shares tanked in September when Tesla CEO Elon Musk mused that his EV company might mine its own lithium. It has since doubled in value, then given back another 25%.

A long way of saying that this is a speculative and volatile stock, so handle with care.

The year 2020 hasn’t felt like the golden age of anything, except maybe for gold itself. Early August saw the shiny yellow stuff hit an all-time high of more than $2,000 an ounce. Prices have fallen back since then, but it has still been an excellent year for gold investors so far: The price of the metal has risen by 27.5% in 2020, compared with a 21.8% total return for the Nasdaq Composite stock index and a 4.8% total return for the S&P 500. Even longtime gold detractor Warren Buffett recently purchased stock in a gold mining company. (Prices and returns are through September 11.)

Gold’s glow-up has come even though it produces no earnings or income in the form of dividends, as would a stock. Unlike the case with other commodities, such as copper and tungsten, gold’s prices don’t rise and fall along with industrial demand.

So, why the gold rush? For one thing, basement-low interest rates mean that many bond investors currently earn yields lower than the rate of inflation. In such a climate, gold’s lack of yield is much less of a drawback, says Doug Ramsey, chief investment officer at the Leuthold Group. “Any competition gold had from fixed income has vanished,” he says.

Also contributing to gold’s rise: the Fed’s decision to flood the U.S. economy with unprecedented amounts of stimulus money in the wake of the COVID-19 pandemic. Gold is a classic inflation hedge, and investors have snapped up the metal on the premise that the stimulus will eventually drive up prices if the influx of cash causes consumer demand to rise faster than the supply of goods and services.

And because gold has been con­sidered a currency for millennia, investors may believe they can find a “store of value” in the metal when they lose faith in paper currency, says Brian Andrew, chief investment officer at investment firm Johnson Financial. The U.S. dollar has fallen 8% against a basket of other currencies since March due to the Fed’s drastic monetary policies, among other factors, and some market watchers are beginning to question the cur­rency’s pre­eminent status on the world stage. “Real concerns around the longevity of the U.S. dollar as a reserve currency have started to emerge,” wrote Goldman Sachs analysts in a recent note.

Finally, investors tend to flock to gold amid periods of uncertainty—in financial markets and in the world at large, says Andrew. To find more than enough uncertainty, consider the geopolitics of the Brexit transition and the U.S. presidential election, as well as the ongoing pandemic and its impact on the global economy.

Mixed track record. But gold has a spotty history when it comes to fulfilling investor expectations. Its record as a hedge against inflation, for instance, is only so-so. In successive 12-month periods from December 1973 through May 2020, gold outpaced the rise in consumer prices only 51% of the time.

And although the metal has proven its mettle in some market downturns, there’s no guarantee that gold will protect your portfolio when markets go bad. In the summer of 2011, when the S&P 500 slid 19% between April and October, gold hit a record high. But when stock returns struggled to crack 1% in 2015, gold prices fell 11%. Had you bought gold at its previous peak, in 2011, you’d have had to wait until July of this year to break even.

Nevertheless, investors looking to diversify their portfolios—a proven strategy to smooth returns over time—should add some of the shiny stuff, says Ramsey. He says investors should hold 2% to 5% of their portfolio in gold as a portfolio diversifier. Moreover, he believes that concerns that the Fed is devaluing the dollar by pumping unprecedented amounts of cash into the economy are justified.

How to buy. There’s more than one way to own gold, and the way you go about buying it should depend on why you’re investing, says Andrew. If, for whatever reason, you’re worried that the money in your wallet may become severely devalued, you’ll want physical gold, he says. The U.S. Mint doesn’t sell bullion coins directly to the public, but it does list authorized buyers of such coins on its website. Reputable sellers typically fold in a 6% to 10% markup over the current gold spot price, which you can find at sites such as www.kitco.com. In addition, you’ll likely have to pay to insure and store your gold, unless you’re comfortable stashing bullion in your sock drawer.

If you’re investing in gold as a portfolio diversifier, consider an exchange-traded fund, which makes trading gold cheap and easy. Funds such as SPDR Gold Shares (symbol GLD, $182) and iShares Gold Trust (IAU, $19) track the price of gold that the trustees hold in vaults and are forbidden from lending out. Though the SPDR fund is older and bigger, the iShares fund comes with lower expenses, charging an annual 0.25% of assets, compared with 0.40% for the SPDR fund. A caveat: Because the IRS treats precious metals as collectibles (the same as a stamp collection), long-term capital gains taxes on these funds are steep—up to 28%. (The same rates apply for physical gold, should you sell it.)

If you’re especially bullish on gold, you may be tempted to wade into stocks of gold mining companies. Because these firms have relatively fixed production costs, a spike in gold prices can supercharge the companies’ profitability, and their stocks often shoot up faster than the price of bullion. (A sharp decline in gold prices has the opposite effect.) Investors looking to gold in order to diversify their ex­posure away from stocks should avoid miners, whose returns are more correlated to the stock market overall than to movements in bullion prices, says Invesco chief global market strategist Kristina Hooper.

Still, miners (which, unlike gold, generate earnings and dividends) have their fans among stock investors, including the Oracle of Omaha. Berkshire Hathaway, Warren Buffett’s holding company, recently bought 21 million shares of miner Barrick Gold (GOLD, $30) for about $563 million. Matthew Miller, an analyst at investment research firm CFRA, also re­commends Barrick, as well as rival Newmont Corporation (NEM, $66). He’s optimistic about the two firms’ recently established joint mining project in Nevada, which he says should help both companies boost earnings for the next several years.

For a broad-based play on miners, consider VanEck Vectors Gold Miners ETF (GDX, $41), which holds stock in 53 companies from across the world that mine gold and other precious metals. The fund, which charges 0.53% in annual expenses, has returned 40% so far this year. A slightly top-heavier option, iShares MSCI Gold Miners (RING, $34), holds 36% of assets in Barrick and Newmont, compared with 26% for the VanEck fund. The iShares fund comes with a cheaper price tag, charging 0.39% of assets in expenses.

This spring, commodity traders and investors in energy stocks around the world looked on with astonishment at oil prices.

In April, West Texas Intermediate crude oil futures went negative for the first time in history, hitting -$37.63 on April 20, shocking global markets. One day trader ended up incurring a $9 million paper loss, as quote screens at brokerage firms like Interactive Brokers, were not programmed to go below $0. (IBKR's issues resulted in a $113 million loss for the firm, Interactive Brokers CEO Thomas Peterffy said.)

However, oil prices, like the broader stock market, did not stay depressed long; futures rebounded sharply, with West Texas Intermediate currently selling around $43 per barrel, and Brent (international) around $46 per barrel. Global demand is also normalizing at about 10% lower year-over-year, though the pace of recovery has been slower than the industry previously anticipated.

So what does this mean for investors in energy stocks?

Oil Prices Are at a Pivot Point for Global Producers

The good news is that between OPEC production cuts and reduced U.S. output, the crude market is broadly balanced.

The bad news: With Brent above $45 per barrel, OPEC might change course from a price-control strategy (production cuts) to a market-share strategy (pump more oil to keep U.S. producers from hedging forward).

A second risk to oil prices is if American producers find a forward curve at $45 attractive enough to resume drilling. The forward curve allows a producer to sell his oil out into the future at an agreed-upon price derived by the market today. But those barrels need to be stored until that future date, so the producer has to add those potential costs into the equation to determine if that future price is feasible.

An oil price high enough to allow American shale producers to continue to pump, store, and sell into the future is exactly what the Russians want to avoid.

As of June 2020, there were 5,729 drilled-but-uncompleted wells in the U.S.; in other words, a tidal wave of U.S. production is just waiting for the right price to rain down on this fragile market. Shale producers have debt obligations to the banks that financed their operations. But when prices are too low to cover costs of production and storage, shale producers can't use that forward curve to sell oil out into the future. That means making a difficult choice between shutting down production or possibly defaulting on debt obligations.

That's the outcome the Russians are hoping for: Keep oil prices just out of reach of shale producers' ability to sell forward, and force them to shut down production.

Russia's Warning

Russian officials have signaled that they would hedge above $45 per barrel. (Hedging is when producers sell their oil forward in the futures market to "lock in" a specific price.) Most likely, they were indicating to OPEC (specifically, Saudi Arabia) that they didn't want to see OPEC production cuts sponsor a recovery in U.S. shale.

In other words, this is an implicit warning from Russia to OPEC: "Kill shale, or we will hedge forward and turn up production, sending prices plunging."

The global oil market involves plenty of game theory for major producers. OPEC, non-OPEC and U.S. producers all work with and against one another based on their competing (but sometimes joined) interests. What one major producer like Russia does has domino effects for the others.

Russia signaling a major hedge at $45 could spook other large oil players such as Mexico, the 11th-largest oil producer, to move as well. Mexico desperately needs a stable oil income to meet its government expenditures. In Mexico's case, it might hedge to set a floor on their oil should futures contracts dip again like they did earlier this year.

Despite these headwinds, oil majors still look very attractive to those with a three- to five-year investment horizon. Even a hint of a working COVID-19 vaccine would see energy stocks fly higher. Eventual coronavirus relief, coupled with trillions of dollars in global stimulus, eventually will lead to inflationary pressures, which will make oil companies a must-have in any portfolio.

Additionally, regardless of who sits in the Oval Office come 2021, a large fiscal stimulus package seems likely, which will make energy stocks – along with agriculture and commodity plays in general – an attractive buy.

One Energy Stock for This Climate

Long ago, BP (BP, $21.14) changed its name from British Petroleum to Beyond Petroleum. It has heavily invested in renewables and is far ahead of its major peers in the renewable space. Thus, while it's still a major oil player, BP also is well-positioned to benefit from an inevitable move to renewable energy.

BP is, like most energy companies, reeling from 2020's plunge in oil prices. On Aug. 4, the company announced it had cut its dividend by 50% to 5.25 cents per share quarterly, pledging to use the remainder of its near-term cash flow to pay down debt. While the dividend cut is disappointing to investors, BP has pledged to keep the remaining dividend (which yields 5.9% at current prices) stable, and the move to reduce debt is a responsible one.

That announcement came along with second-quarter earnings that realized $19.06 per barrel, compared to $40.64 a year ago. But with oil prices back in the mid-$40s, BP should see a notable uptick in Q3 earnings that doesn't seem to be reflected in share prices currently.

One bright spot in BP's second-quarter report was its alternative energy unit. The company maintains 923 megawatts of wind energy capacity, as well as 2.2 gigawatts of solar capacity with plans to expand to 10 gigawatts by 2023. The Southeastern Pennsylvania Transportation Authority recently signed an agreement with BP to purchase 67,029 megawatt-hours of electricity that will be provided by two solar plants in Franklin County, Pennsylvania.

The alternative energy unit is much smaller compared to the company's oil and gas operations, and BP still will be largely reliant on fossil fuels for the foreseeable future. But BP's leading position in the renewables space makes it more diversified compared to its peers, shielding it from an uncertain future in fossil fuels.

A Biden presidency would only accelerate investments in renewables, benefiting BP. But regardless of who occupies the White House, an eventual move to renewables is a foregone conclusion.

The stock market closed out an up-and-down week with another very clear separation of the haves and have-lesses.

Big Tech ruled the day thanks to a trio of mega-cap earnings pops. Apple (AAPL, +10.5%) shot to new all-time highs after its Thursday evening report, where it said quarterly sales jumped 11% year-over-year and announced a 4-for-1 stock split effective in August. It did say, however, that it thinks iPhone supply will be delayed a few weeks this fall.

Amazon.com (AMZN, +3.7%) crushed revenue and profit expectations alike, and its grocery sales tripled year-over-year. Several analysts responded by revising their price targets higher, including Canaccord Genuity's Maria Ripps and Michael Graham. The pair see AMZN shares hitting $3,800 over the next 12 months, up from $3,300 previously.

"With consumer shopping behavior shifting online at an accelerating pace, structural competitive advantages around fulfillment and scale, and a reasonable ~2x multiple on eCommerce GMV driving most of our valuation, we still find AMZN stock very compelling and think much of this strength will persist beyond the current pandemic," they write.

Facebook (FB, +8.2%), meanwhile, reported Q2 revenues that improved by double digits. Also, active user figures grew more than expected, and average revenue per user was better than the Street forecast.

Other areas of the market didn't look so strong. Chevron (CVX, -2.7%) and Exxon Mobil (XOM, +0.5%) both reported quarterly losses, and the Dow finished with a muted 0.4% gain to 26,428 after being in the red much of the day. The S&P 500 was a little better at +0.8% to 3,271, and the small-cap Russell 2000 dropped by 1% to 1,480.

But the tech-laden Nasdaq cruised 1.5% higher to 10,745, where it's flirting yet again with new all-time highs.

Winners and Losers Are Separating Again

"The stock market isn't the economy," you've likely heard in recent months. It's certainly true, but the market is indeed starting to show signs of more accurately reflecting what's going on in the economy, as tech companies positively impacted by COVID-19 continue to climb higher while more economically sensitive stocks sag.

"There's people going on about the bubble in big tech, but my own personal take on that, which was only reinforced by last night (when Apple, Amazon and Facebook reported), is that it's not a bubble in big tech," says Will Rhind, founder and CEO of ETF provider GraniteShares. "It's a bubble in the rest of the market that arguably has been propped up way beyond fundamentals due to the financial intervention of the central banks."

"But these companies at the top, you can argue about whether they should be at the valuations that they are, but these are companies that are making incredible sums of money and been incredible beneficiaries of the coronavirus. I think there's been a dislocation that's happened between the virtual economy, where these companies thrive in, versus the real physical economy, where you have airlines, hotels, things that have been decimated."

If the U.S. recovery is indeed hobbled by extended Washington bickering over a new stimulus package and coronavirus flare-ups, among other headwinds, investors might need to tweak their portfolios to suit.

For instance, more people are clearly favoring gold, which rose another 1% to new highs at $1,985.90 per ounce Friday and extended the 2020 rally in gold-focused funds. Assets under management in larger physical gold funds, such as the SPDR Gold Shares (GLD) and iShares Gold Trust (IAU), have swelled by more than 70% in 2020, according to Ycharts data. Smaller funds, such as the GraniteShares Gold Trust (BAR) and Aberdeen Standard Physical Gold Shares ETF (SGOL), have more than doubled their AUM.

It also might be time to shake loose weaker positions that could sink in a broad-market selloff, such as these 14 vulnerable-looking stocks.

Another way to look for red flags? Short interest. By looking at how heavily Wall Street is betting against a stock, you can get an idea of just how negative the prospects might be for those shares going forward.

The bears don't always get it right, of course, and sometimes their targets are "squeezed" higher on good news, making heavily shorted stocks a playground for opportunistic traders. But if you're looking to play it safe, consider steering clear of these 18 stocks, which are among the most heavily shorted on Wall Street.

Kyle Woodley was long AMZN, BAR and FB as of this writing.

A loaded second-quarter earnings calendar flooded investors with fresh information about a host of blue chips on Tuesday.

3M (MMM, -4.9%) dropped after demand for its N95 facemasks wasn't enough to counter constrained demand elsewhere, leading to a 12% decline in revenues.

"The financial impact of the pandemic remained mixed across 3M during Q2," CEO Michael Roman said on the earnings conference call. "We continue to see strong demand in personal safety along with other areas, such as home improvement, general cleaning, and biopharma filtration.

"At the same time, we experienced steep but expected declines in other end markets, including medical and dental elective procedures, automotive OEM and aftermarket, and general industrial."

McDonald's (MCD, -2.6%) reported a 30% year-over-year plunge in sales, and earnings of 66 cents per share fell below analyst expectations. But Stifel analyst Chris O'Cull (Neutral) raised his price target from $182 per share to $195 on better-than-expected U.S. restaurant margins and expectations for improving same-restaurant sales.

Pfizer (PFE, +4.0%) also reported lower sales, off 11%, but adjusted profits of 78 cents per share handily beat expectations.

Kodak (KODK, +203.1%) set off some non-earnings fireworks Tuesday, more than tripling in price after it announced it has scored a $765 million government loan under the Defense Production Act that will see the diminished photography name produce "starter materials" and "active pharmaceutical ingredients" for generic medicines.

The broader indices didn't move nearly so sharply, but an afternoon selloff sent the Dow 0.8% lower to 26,379. The S&P 500 lost 0.7% to 3,218, the Nasdaq dipped 1.3% to 10,402, and the Russell 2000 declined 1.0% to 1,469.

Gold's 2020 rally continued, however, with August gold futures climbing 0.7% to $1,944.60 per ounce, yet another record settlement.

Can High-Growth Cloud Stocks Keep Rising?

We're sure your nose will be buried in corporate earnings for the next few weeks, but try to keep at least one eye on "the cloud."

Cloud computing, which effectively allows consumers and businesses alike to run powerful software and store virtually limitless information without having to house all the necessary hardware, has been growing like a weed for years, and many of the newer companies that have exploded in 2020 will be updating investors on their expansion stories.

Indeed, a recent Gartner report says the global public cloud services market is expected to grow 6.3% this year to $257.9 billion while many other industries contract. That's because the cloud has been able to address a number of needs that arose as a result of worldwide stay-at-home measures.

"When the COVID-19 pandemic hit, there were a few initial hiccups but cloud ultimately delivered exactly what it was supposed to," says Sid Nag, research vice president at Gartner. "It responded to increased demand and catered to customers' preference of elastic, pay-as-you-go consumption models."

The cloud is seemingly everywhere on Wall Street nowadays – if you've taken an interest in e-commerce stocks, work-from-home plays or artificial intelligence funds, you've come across some connection to the cloud.

But these 10 cloud stocks are the embodiment of just how far the technology has come … and if the pros are right, they'll continue producing robust returns for growth-oriented investors.