While many investors steer clear of investing in oil and gas for various reasons, there is still a lot of money to be made there. One common misconception is that soon oil and gas will be replaced by alternative energy sources. There are some that could begin to encroach on the sector in several decades, but for now, other sources of energy only amount to a tiny fraction of the entire industry. Here are some tips to investing in oil and gas in the near future and beyond.
There Are No Real Secrets
If you run a search online for information on investing in nearly any niche, you’ll find there are a lot of websites devoted to “secrets” of investing in each sector. These people are usually selling a method or other information that they only deal with. For the most part, nearly every single one of these will be scams and should be avoided.
If they did have a “secret” to investing in anything, they would use it to earn money, just like they say you could, and keep their “secret” a secret. It’s like selling maps to a gold mine, why not just mine the gold instead? Still, there are a lot of things you can learn from almost any program as long as you don’t spend too much time or money in the process. Plus, you have to keep in mind that most plans that are selling some secret are not viable.
Best To Go With Sound Investment Strategies
When the websites you visit practically guarantee you’ll make millions, you’ll have to keep telling yourself the adage that if it “looks too good to be true, it is” and why don’t the sellers of these strategies work on their own and earn the money they promise to others? Beware of big promises, like 50% returns in a couple of years.
There are huge oil and gas investing companies with decades of experience in the industry, and if there were returns that could be made of 50%, they’d already own it and it wouldn’t be for sale. On the other hand, you can earn a nice income from dividends by buying the stocks of some of those companies right now with far less risk.
The key here is to avoid smaller high-risk oil and gas investments and stick with a larger company that has a proven track record. Or, even better still, buy into a fund that spreads the risk, monitors the fund for you, and gets a better return than the market average. They have rooms full of analysts that spend all day reading the news, contacting companies, and measuring boots on the ground in the industry, so they have a leg up on the rest of us.
How Oil Mutual Funds Work
If doing hours of research on a daily basis sweating over whether you should stay in or get out of each stock isn’t for you, then oil and gas exchange-traded funds might be the answer. They would each have a large group of stocks that they carefully choose after plenty of research. Then, if any one of those stocks has a problem, it would be dropped from the group.
These funds are very good at managing their portfolios with highly educated managers watching the industry every hour of the day. They have leads they keep an eye on several levels deep that give them indications of trends weeks in advance that the average person wouldn’t know about. This helps them stay ahead of any changes or trends that most investors would miss.
You’ll need to read up and do your research before you get into any particular fund since they are not all the same. Some of them invest in oil futures, or the most likely price of oil in the future, rather than the stocks of current companies. Some of them will also use leverage when buying shares which can significantly increase the risk involved.
Using leverage can also increase the return on investments as well if the market is generally trending upward. But for the past few decades, there has been lots of volatility in the oil and gas markets, so that is something to be aware of.
There are many different funds and you need to do some reading to find the one that best matches your investment strategies and the amount of risk you can handle.
Many Investors Like Oil and Gas Futures
Think of futures like actually buying the barrels of oil or tankers of gas and storing them yourself while waiting for the right prices. That’s what futures are only you don’t have actually to take possession of your commodity. There is a commodity exchange, like the New York Mercantile, where these futures are bought and sold daily.
You can buy a specific amount of oil or gas in the future and then wait until that time to sell it at a higher price than when you bought it. You’ll make a profit if the price rises or lose money if it falls. It’s a tough way to earn a living, but some investors are very good at predicting the markets.
You have to know precisely when to buy, and exactly when to sell to make the most profit. It may seem like that’s twice as much work, but with that can come twice as much profit. People in the industry are better equipped to earn money this way because they usually have access to better information that gives them an edge. They may know of some political move that will have a profound impact on the market that others are unaware of.
In the long-term, the best oil and gas investments for the average person are probably the funds. They are managed by experts that work full-time in the industry and know hundreds of key indicators that they keep an eye on. They know how to pick the better investments and avoid the losers without listening to the hype released in the media. Either way, the oil and gas industry does offer investors of all types an opportunity to earn money safely and securely.