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This is the time of the year that most investors sit down and review their portfolios. And while the basic portfolio consists of a mix of cash, bonds and stocks, some investors are considering another asset class: futures contracts.

In bad times, their appeal can be seductive; for instance, managed futures accounts outpaced the S&P 500 by 35 percent this year. But it's dealing in the fluctuations of basic goods like corn and cattle often isn't as lucrative as some people may believe -- in fact, it can be just the opposite.

Futures contracts are agreements to buy or sell a commodity or financial instrument at a specific price by a specified date. Buyers and sellers establish the price on the floor of a commodity exchange, using the "open outcry" or dual auction method. Contracts can be sold to another party before the settlement date.

The major commodity exchanges specialize in certain areas. The Chicago Board of Trade, home to grain and treasury futures among others, is the oldest U.S. exchange (I started as a board marker for the CBOT in the 1970s covering Winnipeg Oats and Rye, and eventually moved to the silver pit). The Chicago Mercantile Exchange is the world's largest, trading livestock, currencies and stock index futures. The Coffee, Sugar and Cocoa exchange trades the commodities mentioned in its name. The New York Cotton Exchange is home to cotton and orange juice futures. Crude oil contracts are trarded through the New York Mercantile Exchange; its Comex division is the place to trade gold futures.

Keep in mind that commodities are not for people faint of heart or light of wallet, which is why most financial advisors don't recommend that individual investors bother with commodity speculation. It is extremely risky, much more than stocks or bonds. Why? For the same reason that it has made a few people very rich: leverage and speed.

The tech bubble crash taught many people about the dangers of buying stock on margin, which basically means you borrow money from your broker to buy stock; over the past three years, it has become much harder to buy stock on margin. But commodity futures have long been based on margin. Buying a futures contract only requires a fraction of the total price - usually 10 percent - but if you guess wrong, you absorb the full loss, meaning you can lose your entire investment and much more. And it usually happens very quickly.

If you guess correctly, you can make a bundle - George Soros made $2 billion in a week in 1992 by borrowing $10 billion to bet against the British pound. But even rich, supposedly savvy investors have been wiped out trading commodities when the market went against them.

Consider the extreme instance of the Hunts, billionaires that saw their fortune erased almost overnight when they tried to take over silver starting in the late 1970s. Texas brothers Nelson Bunker, William Herbert and Lamar tried to corner the market by buying so much silver that they could control the price. I was on the Chicago floor when the Hunts made their move, and let me tell you, it was very obvious. Their account was serviced by a trader who wore a distinctive jacket designed to look like a football field grid -- the 50-yard line was the back seam of the jacket. And the moment that green jacket appeared on the floor, the price of silver would jump 25 cents per ounce in anticipation of the Hunts' next purchase.

Cornering the market is illegal, but in the end, the market punished the Hunts almost as much as any law could. As quickly as the price of silver rose on their buying -- at one point, the Hunts controlled one-third of the world's silver -- it crashed even faster, plunging to $10 per ounce from a peak of $50. The Hunt brothers lost $1.3 billion, and many individuals lost millions as the price fell so quickly that they couldn't get out in time -- a problem that dogged precious metals trading for quite some time; in fact, the Commodity Exchange of New York on one day in April 1987 instituted shortened trading hours to deal with a backlog of orders that went "unmatched" as traders were unwilling to own up to trades that soured as the price of gold and silver fluctuated wildly.

Still interested in commodities? You can do your own homework or you can hire a Commodities Trading Advisor, or CTA, for a fee that will cut into your overall return. You can also invest through a managed futures account or fund. Managed futures accounts have outperformed the S&P 500 by more than 35 percent over the past year, but like the standard disclaimer says, past success is not guarantee of future performance. Part of futures accounts' recent success is nothing more than a function of the stock market's decline -- in falling markets, investors protect or "hedge" their cash investments by buying insurance in the form of a futures contract. An investor can buy the right to sell the corresponding number of futures contracts that equal to his or her cash position to maintain the status quo, or alter the number of contracts to increase return. The drawback to managed futures is their volatility, and the inability to respond quickly to dramatic market movements.

Futures funds are offered through financial advisors such as CTAs, as well as through brokerages. These funds are set up as limited partnerships, meaning your losses can't exceed your original investment. And by investing in a diverse basket of commodities, some funds have been able to minimize volatility. Managed futures funds are similar to hedge funds with lock up periods and windows for quarterly withdrawals. You must pass a suitability requirement, including being able to meet the minimum $10,000 investment requirement.

So investing in futures isn't for everyone, but if you are comfortable taking on more risk, they can be useful alternative investments.

For more information about futures trading go to the web site of the Commodity Futures Trading Commission, the regulatory agency for commodity trading at www.cftc.gov. You can also check on the quarterly performance of many domestic and international CTAs at www.managedfutures.com.