Let's use WTI.

I'd like to add oil to my portfolio, and I was wondering how much I should have. I'm in 60-70% index and 40-30% individual value stocks. I want to cut back on my value plays and add oil stock.

I know this question depends on risk tolerance; I'd like to maximize the risk adjusted return of my portfolio.

  • You probably don't really want to maximize the risk/reward. If you really did, you'd put all your investments in lotto tickets or something similar. – ChrisInEdmonton Mar 13 '15 at 14:39
  • What do you mean by "maximize risk/reward"? Taking all your money and put it on a single number at roulette will have a ton of reward and a ton of risk, but I suspect you want to maximize your risk-adjusted returns. – David Rice Mar 13 '15 at 14:44
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    Yes David, I want to maximize my risk-adjusted returns. Like using the Sharpe Ratio. Please excuse my noobness. – Matty Mool Mar 13 '15 at 14:55
  • @MattyMool there isn't a rule of thumb, and this question - worded as is - only invites opinion. Which we don't allow. It might be possible to reword it but I doubt it – CQM Mar 13 '15 at 15:01
  • Ok, I'll try to change it – Matty Mool Mar 13 '15 at 15:05

Oil as a commodity or investing in oil companies as a stock? As a commodity, I'd recommend none.

The article Commodities – They Have (Almost) No Place in Your Portfolio and The Case Against Commodities explain why commodities are not good investments.

  • I'd like to add stock, I have my eye on a specific company, lets call that company "CVX". I have the correlation for CVX to WTI. – Matty Mool Mar 13 '15 at 14:57
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    Nice articles, David, edited to cleanly show titles and links. – JTP - Apologise to Monica Mar 13 '15 at 19:55

Your question is a moving target. And my answer will be subject to revision. I disagree with the votes to close, as you are asking (imho) what role commodities and specifically oil, play in one's asset allocation. Right? How much may be opinion, but there's a place to ask if.

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I'm looking at this chart, and thinking, long term, the real return is zero. The discussion regarding gold has been pretty exhausted. For oil, it's not tough to make the case that it will fluctuate, but long term, there's no compelling reason to believe its price will rise any faster than inflation over the really long term.

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