Savvy investors who compare the returns of diverse assets such as stocks, bonds, and real estate will soon discover that these often have little or no correlation to commodities. As a result, adding commodities to your investment portfolio is an effective way to diversify it, and reduce the odds that the market value of all your assets will fall simultaneously. This is great news when stock markets are undergoing a period of decline. But it also makes good sense: commodities represent a unique “basket” and you diversify by not putting “all your proverbial eggs in a single basket.” If you happen to be an investment guru, like Peter Lynch, then you don’t need to lose any sleep over this. For everyone else, diversification makes a great deal of sense. Because of the fact that not all assets zig and zag in unison, it shields your investments somewhat from inevitable occasional economic crises and declines in value.

It used to be difficult to participate in the commodities market. You had to to be either a wealthy individual (because of the large minimum investment amount demanded to establish an account), or comfortable with trading commodity futures and handle their high leverage. This is no longer necessary. Any average investor may now invest in commodities by investing in a commodity ETF. These exchange-traded securities can be bought on a stock exchange and are available through normal brokerage accounts. They trade intra-day, and are bought and sold just like stocks.

There are over a hundred different commodity ETFs and ETNs, so how do you decide which one to buy? You should consider a diversified commodity index fund. A widely followed commodity index is the S&P GSCI, which tracks a diverse group of 24 commodity futures contracts. With this single holding an investor can track the price of the most common physical commodities in the world, from crude oil and precious metals to wheat and live cattle.

Another advantage of commodities is that when traded as a diversified basket, commodities often have smaller price swings than other risky assets like equities. For example, during the global financial crisis in 2008, equities were more than twice as volatile as the S&P GSCI commodity index. A commodity ETF position is a non-leveraged way to benefit from rising prices of commodities. This is substantially different from trading commodity futures contracts, which contain a lot of leverage: a small change in price of the underlying commodity can wipe out your account. This makes commodity funds much more suitable for the average investor.

Aside from retail investors, who else participates in the commodity markets? Hedge funds are very active in trading commodities, as are pensions and other institutions like insurers. Even university endowments participate in this market. For example, did you realize that several Ivy League university endowments call for over twenty percent of investments to be allocated to commodities? And this is no anomaly, many other university funds invest in commodities or other real assets like wood and timber forests.

A common investing expression says you should “follow the smart money.” There is really no reason why a regular investor should not own some commodities. They nicely complement the stocks and bonds that are the cornerstones of typical investment portfolios. It would not be surprising if in another ten or twenty years, commodity investments will become just as commonplace as investing in stocks and bonds.

Even though commodity ETFs have become popular in recent years, a few investing experts advise against investing in commodities. The common critique is that commodities do not provide ownership in something that has inherent value, unlike say a stock, which is partial ownership in a potentially profitable and growing enterprise. Famous investment author and portfolio manager Bill Bernstein has likened commodity investing to “picking up nickels in front of a steamroller.” In his words, “the possibility of getting crushed is enormous.” Another well-known writer and advisor, Rick Ferri also disses them, saying investors should stick instead to a simple portfolio of equities and bonds.

Well, I guess everyone it entitled to their own opinion. As for me, I think it’s smart to consider adding a commodity ETF to your portfolio, if you haven’t already done so. But don’t just take my word for it. Do your own homework before you make any investment decisions…