An article in today’s WSJ covers new ETFs that can diversify your portfolio, including two of our favorites:

Commodities.  ETF sponsors have unveiled a slew of commodity funds, such as iShares S&P GSCI Commodity and PowerShares DB Commodity. Also, check out iPath Dow Jones-AIG Commodity and iPath S&P GSCI Total Return, two “exchange-traded notes” from Barclays Bank that trade like ETFs.

“A lot of people will buy energy stocks and commodity stocks and think they’re getting diversification,” says Nelson Lam, an investment adviser in Lake Oswego, Ore. “But you want to go for the commodities, not the commodity stocks.”

GSG and DBC both gapped higher this morning (”gapping” = opening higher than last close), possibly as a result.  In any case, looks like these holdings aren’t our little secret anymore.

Mr. Lam owns PowerShares DB Commodity, which charges 0.83% a year, including brokerage expenses. To avoid tax hassles, he advises holding the fund in a retirement account.

Crap.  What “tax hassles”?  Most of my GSG and DBC are in regular accounts.

Intrigued? Remember, we’re talking here about volatile investments. My advice: Don’t stash more than 10% of your total portfolio in any of the funds mentioned above. In fact, a 5% allocation is probably plenty.

I’m currently at 16% and targeting 20%.  Is that higher than 5-10%?  :)