Exchange-traded funds: Time to jump in?

By Money Matters Editors

Exchange-traded funds, which issue securities backed by the item invested in, have become a popular way for typical investors to play the commodities market. The question is, should you invest in an ETF?

In a word: no. Exchange-traded funds do give investors access to commodities, but the premise is flawed: typical investors should not be investing in commodities at the source, to begin with.

And the reason is obvious enough: commodities are a highly-volatile, unpredictable investment class. Consider the U.S. gasoline market: there are more than 20 variables that can affect the price of regular unleaded gasoline. Natural gas has almost as many variables. ETFs do very little to change the above. Don't misunderstand: ETFs are not gimmicky, but they are quirky.