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Posted: May 09, 2012

The century’s most important commodity?

It's wet and wild

Julie Stone

The most important commodity story of this century?

Water, says Edward Kerschner, CFA and Senior Strategy Consultant with Morgan Stanley Smith Barney.

“Current global water-usage levels are unsustainable," says Kerschner, who spoke in Denver recently. "Scarcity of freshwater is most acute in Africa and western Asia, scarcity also has become an economic constraint in major economies such as China, India and Indonesia, as well as in the commercial centers of Australia and the Western U.S."

Kerschner says urbanization may cause the demand for water to increase five-fold beyond the essential water requirement needed for personal hygiene, cooking and cleaning.

"This does not include water used in power generation or other industrial activities that typically accompany urbanization," he says. "(And) climate change is shrinking the available supply. In the face of progressively growing demand for water, companies are investing in ways to increase water availability.”

Kerschner says the key to profiting from the growth in the sector will be to understand the technological, climactic, governmental and population trends affecting the water industry.

“The winners will be those who can grasp those trends and discover the underlying opportunities.”

The question for advisors is how to incorporate a new area of growth such as water in an investment portfolio and control the volatility associated with it. Consider having part of your investment portfolio remain static (long term) and part to remain tactical (shorter term) which can allow the flexibility needed for change as the economy and the global world markets ebb and flow. One of the best safeguards for your portfolio is to have a wealth management advisor who understands how to combine individually managed accounts with other investments to achieve a broader diversification.

Also, you must be a committed long-term investor in order to protect your lifestyle for your lifetime. To remain in the market long term - think “time in the markets” rather than “timing of the markets." 

Stick to your asset allocation and your diversification plan - this is essential to accumulate wealth.  Find a well-seasoned investment advisor who will remain close to the needed information on an ongoing basis - this allows you to be more comfortable with enjoying your life while the Capital Markets and economy bring opportunities.

Most investors want to grow their investment portfolios; they just can not suffer another “Lost Decade” of poor equity returns. This puts the responsibility of good “Beta Management” in the hands of the Advisor to manage the underlying risk in their client’s portfolios.

Julie Stone, CIMA is a vice president and senior investment management consultant at Morgan Stanley Smith Barney in Denver. She has been building solid portfolios for over 22 years.

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