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Diversifying a commodities portfolio typically provides more steady and safer returns in the long run. This is true whether you are simply buying a group of commodities to hold for a long-term investment or whether you are managing a commodities trading account.

Commodities can be volatile and they don’t always move together. There are five basic groups of commodities: energies, metals, grains, softs and livestock. Some commodities can be in strong uptrends, while other commodities trend lower. Therefore, investing in one particular commodity could make you a big winner or a big loser. It is better to be safe than sorry and spread your risk.

Commodity ETFs are a simple way to diversify your commodity investment. There are some good commodity ETFs like the iPath Dow Jones AIG Commodity Index Total Return (DJP) and the PowerShares DB Commodity Index Tracking Fund (DBC). They invest is a broad group of commodities that trades more like a stock or mutual fund.

Diversification is more difficult when you open a commodity trading account for less than $50,000. You can still take positions in a few commodities that are in different sectors, but you don’t have the staying power with futures contracts due to the risk of unlimited losses. Futures options are also a time sensitive asset, so you could be right on the market direction, but your options could expire before the market moves in your direction.

A commodity trading account is more speculative and only risk capital should be allocated for trading purposes. This is especially true for those who are new to trading commodities. A professional who has traded commodities for more than 10 years and consistently makes money, may consider commodities trading as an investment. New traders with no experience should not.

Managed futures funds are considered to be an investment that is typically well diversified in many futures markets. They have a large pool of money to trade from and that allows them to spread their risk across more than 30 futures markets. Many managed funds utilize a trend following program, where they make the bulk of their profits from markets that make big moves. Since they invest in so many markets, it is highly likely they will capitalize on any market that makes a big move.

You are normally much better off by investing in a commodity ETF or a managed futures fund if you are looking for a long-term investment in the commodities markets. They will be more diversified than buying one or two commodities in a trading account. Many investment advisors recommend investing about 10 percent of your overall investment portfolio in commodities. Commodity ETFs and managed futures funds are good vehicles to use for diversification.