When you look at your investment portfolio, you might wonder where to invest next. When considering their options, shrewd investors look at both profit potential and investment longevity — two benefits of investing in energy.
Global energy demand is up, making the industry a wise choice to consider for your next investment. Explore the possibilities of investing in oil and gas and renewables.
Exploring Oil and Natural Gas Investment Opportunities
It seems like the energy space is changing by the day, but one thing remains constant: oil and natural gas. Powering everything from manufacturing to electricity generation to transportation to home heating, oil and gas continue to be primary sources of energy, playing leading roles in the global energy mix. It makes sense that investments in oil and natural gas production remain attractive!
Looking to diversify? Investing in oil and gas opens a world of opportunity.
Publicly Traded Oil and Gas Companies
If you look across the stock exchange, you'll see so many ups and downs. Oil has recently performed well — with oil company stocks trending higher than nearly every other asset class in 2022 due in part to the war in Ukraine. And while it’s true that volatility is notoriously impacted by current events, global demand provides a foundation for long-term industry growth. This demand was very favorable to publicly traded oil and gas companies last year.
Investing in an individual, major oil company is a great way to get exposure to the broad oil and gas industry, while allowing you to invest in the particular success of a management team or a specific strategic advantage that the company has. There are a lot of research reports on large oil companies that describe the differences between companies, so an investor has plenty of resources available to pick and choose their favorites.
Sophisticated investors understand the ebb and flow of mature industries such as oil and gas. They have the discipline to do some research and the wisdom to understand the position of oil and gas at the core of global communities. Their long-term growth perspective is why so many allocate a portion of a balanced portfolio to energy investments.
ETFs and Mutual Funds
If individual stocks don’t fit your needs — or you want to expand your investment mix — exchange-traded funds (ETFs) and mutual funds can help. Mutual funds pool investments in oil and gas companies, while ETF securities may track stocks in oil and gas companies, commodity prices, crude oil prices, or crude oil futures contracts.
The biggest benefit from these two options is that they allow you to “set it and forget it.” That is to say, they’re considered to be indirect investments so you can broadly invest in the oil & gas industry without doing a lot of research on individual companies and you don’t have to be hands-on deciding when to buy and sell each of them. Investors in mutual funds and ETFs pay modest fees to the managers of those securities to compensate them for all of the research they do on behalf of investors.
Equity Direct Participation Programs
Maybe you want the keys to the kingdom. In equity direct participation programs (DPPs) — nontraded pooled investments in energy — investors can either acquire ownership of shares in an oil company or provide financing to receive partial ownership of the company.
It’s higher risk but has the potential for higher profits because you have a greater equity stake in the company. DPPs provide more shares, plus access to both company cash flow and tax benefits.
But it’s worthwhile to note that earnings are directly related to how well the oil company performs.
Renewable Energy Opportunities
When we talk about the changes in the energy landscape, renewable energy is one of the most significant players. Solar, wind, and clean energy sources may only account for 11 percent of consumption today, but they’re on the rise. So much so that for every $1 invested in fossil fuels, $1.70 goes into clean energy.
But you shouldn’t have to choose between investing in oil and gas or renewable energy because each has value. In fact, oil and gas are vital to growing the renewable space. This is because energy derived from conventional sources such as oil and gas will power the transition to renewables — you can’t just flip a switch. If you're interested in investing in renewable energy, your options are similar.
Clean Energy Stocks
Much like the oil and gas discussion above, there are a number of publicly traded companies that focus on generating energy from renewable sources. These research reports available to investors go into detail about the sources and the business models that make them profitable. Although the financial performance of these companies has ebbed a flowed in recent years, the recently passed Inflation Reduction Act has generated significant benefits for these companies in the last year with more to come. Further, costs for solar panels, wind turbines, and batteries for energy are declining, helping this sector gain in efficiency. This alone continues to make renewables an attractive investment opportunity.
Renewable Energy Development Projects
Another option is to get involved in the innovations surrounding renewable energy and the many individual development projects planned for the future. There are opportunities in raw material procurement, manufacturing, installation, and power production, both with companies that are in the public market (as described above) and with private ventures that are less well known. Although these opportunities are harder to find, they can be very lucrative when they work.
Harness the Potential of Investing in Energy
Not sure how to target your energy investments? Investing in oil and gas honors the tradition of supporting what remains to be our primary energy source. But there’s something to be said for the potential of renewable energy, too — the growth of which can only be propelled by traditional sources. Whatever you choose, you have the potential for significant income.
Eager to stay up to date on energy investments? Explore additional insights and resources on the Five States Energy blog!
