How To Invest Into Oil Stocks

How To Invest In Oil Stocks As A Small Investor

Even though the last couple of years have been largely dominated by an economic crisis, it is clear that the demand for energy is still increasing. In fact, it seems the world’s hunger for energy is growing leaps and bounds. The implication, when it comes to investments, is that investing in oil still warrants serious consideration. But how can the average investor gamble on rising oil prices?

Nowadays, it is easy for small and novice investors to get started with investing in oil stocks and stocks in general. Cheap, online brokers give investors the possibility to start up with limited capital and see if they can make their money grow. Small investors can even get a diversified portfolio of oil stocks by buying shares in an oil ETF.

Choose The Right Broker

The first step a small investor needs to take is to choose a broker. The fastest, easiest, and cheapest option is to choose a discount, online broker. Setting up an account usually takes less than an hour. Funding the account is also simple; it can be done through a bank wire or PayPal. Popular online brokers include E-trade, Ameritrade, Schwab and Fidelity.

Buying Oil Stocks

When you have set up and funded your broker account, you can start investing your money. Buying a simple oil stock is a high-risk, high-reward proposition. Good news can make the value of the stock increase drastically, but bad news will have the opposite effect.

Before choosing stocks, you need to do a lot of research. Identify the key characteristics of the company. How much do they make, what is their debt, what regions do they operate in, and what are their growth potential. You need to get the whole picture of the company and see if it matches your profile as an investor.

Smaller oil producing companies tend to see their value increase more than the proportional increase in the oil price. On the flip side, they also tend to see a larger fall in value when the oil price goes down. For the investor willing to tolerate significant risk, this presents the intriguing option of investing in oil companies. If the value of oil does indeed increase, a diversified portfolio of oil company stocks, should more than mirror that increase.

An easy way to invest in a diversified portfolio of oil companies is to invest in an oil mutual fund. Compared to piecing together a diversified portfolio yourself, this will save time and commissions. Compared to investing in just one oil stocks, this will drastically reduce risk. See Oil Stocks For 2012.

Buying Shares In An Oil ETF

If you want to reduce the risk, buying shares in an oil ETF can offer a diversified portfolio picked by experts. ETFs vary greatly in what they are trying to accomplish, some oil ETFs try to track the price of oil, while others simply want to offer investors an already diversified portfolio of oil companies. Oil ETFs attempt to accurately mirror the price of oil through various instruments, mainly by trading in futures contracts and by investing in oil companies. The value of companies producing oil is closely correlated with the oil price, it is not a perfect correlation by any means, but there is a tendency of the value of oil stocks to rise, when the oil price does. Popular choices of Oil ETFs include United States Oil and Select SPDR Energy.  See ETFs for 2012.

Keep in mind that buying shares in an ETF reduces the risk but doesn’t offer the same potentially very reward scenario, as investing in, say, a few small-cap oil companies. In fact, for some companies, the value of the stocks tend to rise proportionally more than the oil price.

Exchange traded funds attempting to track the price of oil abounds. To invest in them, you simply buy shares, as you would with a company. Shares in Oil ETFs are traded on most, if not all, major stock exchanges.

Oil investments are very risky you should read our entire disclaimer and get independent advice.

This is not an offer to buy or sell securities. Oil investment carries with it very high risks. The information contained within this site has not been nor will it be verified by Envestor First and is subject to change at any time. We are not a United States Securities Dealer or Broker or United States Investment Adviser. Do your own due diligence and consult with a licensed professional before making any investment decisions. Please read our full disclaimer before making any decisions.

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Oil Projects & Oil Investment Consulting

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