The diversification strategy in investment holdings is the only way to keep risk down while still earning good returns. The old adage Dont put all your eggs in one basket is very true in investment portfolio. A canny investor will not put one hundred percent of the portfolio into a single stock or even into the stock market itself. Investors usually want to diversify their portfolio into different financial or commodity derivatives so that the risk is spread around. However, the most difficult thing is finding which investment vehicles can deliver the best returns.

For one reason or another, many investors do not consider community mutual funds as a good financial derivate to put their investments even though the returns are above average with acceptable levels of risk. Most people have a tendency to put their investments into the stock market especially if they have been working for the listed company at some point in their career. The stock market is quite accessible to most investor and easy for even the layman to pick up or check the stocks performance on a daily basis. On the other hand commodities and commodity mutual funds are a little bit more difficult to understand.

Although some of the commodities like oil and gold are widely followed, the rest of the commodities like cotton, corn or pig bellies are not widely quoted in the newspapers or on the internet. Unless you are familiar with commodities, you wont even know how to put into the investment portfolio. This is because the fund is mostly protected from stock market swings, inflation and foreign exchange disruptions. Over the last couple of year, the commodities derivatives market have seen increasing popularity as investors look for alternatives to the poor returns of the stock market. However investing in commodities themselves might not be for the person in the street as knowledge and experience in picking the right commodity at the right time is a challenge even for professional traders.

A better investment decision would be to put the money into commodity mutual funds as they represent a basket of commodities recommended by professional fund manager with the promise of above average returns. There are many mutual funds to choose from based on your risk appetite and investment objectives. It is for this reason that you might want to consider adding commodity mutual funds into your retirement portfolio as an alternative to equities.