There are many new investors who want to start with the oil industry. After all, this is an in-demand commodity and it is traded daily on exchanges around the world. It also offers the possibility of substantial returns. However, oil isn’t the right investment for everyone. Before buying a futures contract of finding out about spot prices, it is a good idea to get a bit more information about the process and what to expect.
Make it a Small Part of the Overall Portfolio
Even for the most experienced investors, oil should only make up a small percentage of the entire investment portfolio. The reason behind this is because of diversification. It is never a good idea to put a person’s entire portfolio on just one, volatile commodity that may halve or double overnight, which is something that happens with commodities frequently.
Having about 20 to 30 percent of a person’s portfolio in the oil industry would be great if the prices were to skyrocket. While that is obvious, what happens if the Iranian government is suddenly overthrown and extremely low oil is flooding the market, resulting in oil prices falling? This means the person’s portfolio is also going to fall – significantly. By keeping about two to five percent in oil investments, investors can benefit from the upside, without experiencing significant losses when there is a downturn in the market.
Oil Investment Strategies
There is no single “right” method of investing in oil. Several options that are popular are listed here.
- Purchase oil stocks directly
- Make an investment into an Oil ETF
- Invest in oil futures
Get Professional Advice
Before investing in the oil industry, it is a good idea to seek professional advice and guidance. There are tons of experienced oil investors who can provide invaluable advice to those new to this investment strategy. Using this information can help ensure a person makes smart investments.
When it is done properly, investing in oil can become a valuable part of any long-term investing strategy. Learn more about this process and the oil industry by reading my blog comment. Being informed is the best way to make smart investments.