An Investment Idea That’s All Wet

Water is a scarce commodity – and scarcity means an opportunity for you to profit.

Water covers nearly 70 percent of the earth’s surface, but most of it is saltwater, unfit for drinking, agriculture, and (with rare exception) industrial uses. In fact, far less than 1 percent of the water on our planet is suitable for human consumption. Already, 1 billion people lack safe drinking water. The UN says that by 2025 that number will go up to 2.7 billion.

Water shortages are occurring not only in countries like China and India (where you might expect it), but even in the United States.

You can track the fate of water as a commodity by following these two indices:

The Palisades Water Index (ZWI) is a global index of 36 companies in the water-industry sector. Started in 2003, the index is already up more than 57 percent.

The Dow Jones Water Index (DJUSWU), which follows 23 stocks, is the oldest of the water indices. Last year, it was up 60 percent.

A good water investment opportunity is PowerShares Water Resource ETF (PHO), which made its debut last year. It’s up nearly 17 percent since being introduced in December.

Remember that water – like all commodities – can be extremely volatile. I’ve just looked at the Palisades Index, which PHO follows. (All ETFs track an index.) Although its long-term trend is clearly up, it’s heading down. Wait until after the price has turned up again to jump into this ETF … and then, don’t put more than 5 percent of your savings into it.

Check every three months or so to see how your investment is doing – but resist the temptation to sell low! For every 2-5 percent dip this ETF takes, there’s a 7-10 percent hike. I expect this zig-zaggy climb to continue all year.

(Ed. Note: Andrew M. Gordon and his staff, along with Dr. Erik Epp, have created a new free e-letter called Money Insight: Useful Ideas for Growing Your Money Quickly and Safely . Every week, they decipher the best safe-money strategies from the deluge of mainstream financial news and uncover undervalued opportunities for quick profits. Check it out.)