It is said that the world economy cannot function without oil, therefore often times making it a good investment. As an investor there many alternatives for going into oil, and all these methods come with their advantages and range from indirect contact in oil through owning equities of such class, to directly investing in oil as a commodity. One can exchange traded funds on the internet or acquire an oil company’s stocks. Investing in limited partnerships is a good idea that potentially post higher returns. Below are a few points on purchasing an oil investment.
First you would have to open an online brokerage account, and providing the necessary information needed to open such account. From an online broker you can find many other oil companies, and not just the familiar names of large oil companies.
Before you buy an oil company’s stocks you must do a research on the company’s financial performance. It is available to the public at SEC’s websites. You also view the quarterly and annual report, then you look at the company’s revenue; net income; debt level; and earnings per share this would give u a better perspective on which company’s stocks to buy.
The next step is to place an order of which there are two types, market and limit order. Market order is buying oil stock at the best available market price at the moment. Limit order is used when the current price is too high hence you can instruct the broker to purchase the stocks when it declines and reaches your preferred price.
Making Investment Options
It is very important to consult a professional financial advisor no matter the option you wish you are going for.
If you are investing as a beginner, buying oil company stocks are often the easiest way to go. There are no complex accounting laws. Easy to resell and less complicated tax reporting requirements.
Master Limited Partnership (MLP)
This is a public traded partnership, basically you become a limited partner and will share in the profits but have no say how the business is run. One would have to make a proper research to know which company to invest in. The fees charged for MLPs are high and will cut into your share of the returns.
The energy sector often has uncontrolled price swings and this has greater effects on smaller companies that it has on larger ones. Investing in the stock of a large oil company is safer than purchasing ETF or MLP.
Exchange Traded Fund, is a solid way to have your money in multiple oil companies. If an ETF owns stock in many individual oil companies, they are well rounded and can weather the ups and downs in the market. Having all your money in one oil company’s stock could prove disastrous if for instance the company loses its reputation for accidents that happened. ETFs are also very good for quick trades within 30days and are not ideal for long term investments.