For some folks, they think that investing in oil and gas is only for millionaires. This is not true since the reality is that anyone can invest in these assets, even with little capital. Also, you don’t even have to possess special industry knowledge or own barrels of dark gold to get started. All you need is a solid understanding of your options and your ability to make smart decisions.
It is no secret that investment in this sector can be very profitable. This is why, Understanding Oil and Gas ROI is necessary to make profits. This understanding will help you choose the best investment option that aligns with your financial goals. If you’re wondering how to start investing in oil and gas, this guide is for you.
Start with the Basics
There are different ways you can invest in these assets. Each option comes with its own risks, rewards, and costs. Below are the most common ones.
Buy Oil and Gas Company Stocks
These stocks are shares in companies that find, drill and sell oil. Some of the biggest companies with profitable stocks include BP, Chevron, and ExxonMobil. With stocks, you can easily get into the industry, and it’s even easier if you use a broking app.
Pros
- Easy to buy and sell.
- Potential for long-term growth.
Cons
- The company’s performance can cause the prices to drop or increase.
Invest in Oil ETFs or Mutual Funds
ETFs are practically several stocks in a single package. If you have an ETF, it might contain shares from different energy companies. This is similar to mutual funds, except a fund manager manages this option on your behalf.
Pros
- Diversified, which spreads out risk.
- Good for beginners.
Cons
- Contract rollovers and fees can cause it to lose value.
Trade Oil Futures and Options
This option is not for beginners due to the risk involved. As such, it requires some level of knowledge and experience to venture into. Futures are contracts allowing you to buy or sell oil at a particular date for a set price. On the other hand, options do not obligate you to buy or sell futures, but they give you the right to do so.
Pros
- High reward potential.
- Direct exposure to oil prices.
Cons
- High risk, not for beginners.
How to Choose what’s Right for You
There are three main factors that influence the right investment method for you:
- The amount you want to invest.
- The level of risk you want to take. You can read this article to find out why risk matters in investing.
- How involved do you plan to be?
Here’s our recommendation based on your experience:
- For beginners: Choose oil ETFs or energy mutual funds because they are safer and simpler.
- For long-term investors: Go for energy stocks since they have the potential to grow in value over time.
- For experienced traders: Futures and options would be best for you, due to the higher risk and reward they offer.
Since we are talking about just getting started, ETF shares are the best option. This option allows you to diversify your investment. Furthermore, it’s easy to understand and keep track of.
How Much Do You Need to Start?
As we said earlier, you don’t have to be a millionaire to begin investing. After all, many of the stocks for these assets are less than $100 per share. ETFs such as XLE or USO trade for $30 to $80. If you want to invest in futures, you’ll need a special brokerage account and a few thousand dollars upfront.
Where to Buy Oil and Gas Investments
All the investment methods we have discussed require a brokerage account. You just need to go online, and this can be done within a few minutes. These are the steps to take:
- Research reputable brokers.
- Choose one and then visit their website or download their app if they have one.
- Set up your account.
- Deposit money into the account.
- Search for a stock or an ETF. You can visit https://money.ca/ to see the best oil ETFs. Make sure you research any asset you are considering properly before you invest.
- Click “Buy,” and then choose the number of shares you want.
The above steps apply mainly to ETFs and stocks. If you want to invest in futures or options (assuming you’re not a beginner), you need to ask the broker to grant you special access. You might have to take and pass a short quiz or review to gain access.
Conclusion
Starting to invest in oil and gas doesn’t need to be hard. You can begin with stocks or ETFs and learn as you go. Whether you’re looking for short-term trades or long-term gains, there’s a method that fits your goals.
Don’t be in haste to start investing, take your time to research. Once you are sure the method and asset are best for you, go ahead and invest. With the right approach, you’ll make profits and not losses.
