Oil investing scares many people away from the commodities, stock, and ETF markets. They think that investing in oil will leave them broke, when the exact opposite often proves true.
I’ve been investing in oil for 30 years, and I’ve made studying the global energy market my bread and butter. When people tell me they think oil investing is too difficult, I’m usually able to help them see the upsides instead of the perceived risks.
Let’s look at some of the most common reasons people avoid oil investing and why they’re not as accurate as you might think.
1. Oil Investing Volatility
It’s true that oil is a volatile commodity. Prices can rise and fall in the commodities and stock markets seemingly for no reason at all, and enormous price jumps or drops frequently scare away investors.
Lots of people view volatility as a negative thing, but I disagree. It actually presents an opportunity for enormous gains.
Think about it: A low-volatility commodity doesn’t move much in either direction. You could pocket small gains or take tiny losses, but there’s no chance of taking home a big win.
Greater volatility, such as what you find with oil investing, creates the chance to profit enormously from a single play. There’s a risk involved, but if you follow my guidelines and experience, you mitigate that risk to enjoy more profits.
2. Inexperience With the Commodities Market
I’ve heard lots of so-called experts claim that beginners in the commodities market can’t possibly do well with oil investing. I disagree heartily. In fact, I’ve heard from dozens of people who are members of Energy Advantage Investor who have begun investing in oil with no experience at all, yet achieved gains of well over 100 percent.
Every investment carries with it certain risks and advantages. This is true whether you’re investing in oil, the stock market, mutual funds, real estate, or anything else.
You can succeed with any of these investments if you’re willing to learn as much as you can about the subject and gain experience through thoughtful plays. That’s what I teach people how to do.
3. Oil Investing Requires Daily Monitoring
It’s true that you need to monitor crude oil prices constantly if you want to make a quick profit on oil investing. However, that’s not the strategy everyone chooses to take.
A long-term position can yield even greater results as long as you know when to get out of a particular play. This is true if you’re not interested in taking advantage of short-term volatility, but would rather let your money work harder over time.
Demand for oil is not expected to abate. In fact, it will increase as the population grows and more energy is required to fuel daily lives. Additionally, investing in companies that might soon go public can yield gains of over 200 percent if you’re willing to pay attention to the markets and act quickly on potentially profitable investments.
4. Leverage Can Result in Huge Losses
It’s true that many investors use leverage in commodities trading to increase their positions without putting up huge amounts of capital. While leverage, when used correctly, can result in massive profits, it also magnifies losses.
There’s no rule that says you have to use leverage from your broker. In fact, unless you’re an experienced oil investor, I recommend you avoid leverage so you don’t put your wealth at risk.
Instead of using leverage, build your investment account slowly through well-placed trades. That way, you take much of the risk out of the investment and enjoy more peace of mind.
5. Oil Prices Have Scared Investors
What you have to understand is that oil prices are cyclical. They ebb and flow over time, creating numerous opportunities to profit. The same is true for oil and gas companies that sell stock on the major stock exchanges. Their valuations are often highly volatile.
As mentioned above, volatility can work in your favor both in the short-term and the long-term. You just have to adjust your investment strategy to fit your risk tolerance and the types of trades you make.
Oil prices have dipped in recent months, which can help any investor generate massive profits. This doesn’t mean that you should invest wildly in EFTs, stocks, or other oil-related investments, but that you should learn as much as you can about the industry and opportunities. That’s why I created Energy Advantage Inner Circle in the first place — to help simplify oil investing.
6. Investors Often Have Full-Time Jobs
Related to the point above about continuous monitoring, many investors avoid crude oil and related investments because they’re working full-time jobs. They believe they don’t have the time to keep up with the market and invest proactively.
I believe in a diverse portfolio, and it’s important to avoid letting oil take over your investments. Instead, use a small portion of your portfolio to invest in oil-related stocks, ETFs, and futures to maximize your long-term profits.
There’s no reason why you can’t work a day job while investing in oil. In fact, that’s how most people start out, and there’s nothing wrong with that. Get a mentor and take advice from people who have experience in this industry. They can help guide your investment strategy so you profit from your initial capital outlay.
7. Commodities Trading Seems More Dangerous Than Stocks
When I say “oil investing,” people automatically assume I’m talking about commodities. That’s not always the case. People can invest in oil in many ways, including the stock market.
I often talk about companies that are about to issue their IPOs or have gained traction in the industry. By watching market fluctuations and paying attention to fundamentals, it’s possible to make accurate predictions about how an oil company will fare in the stock market.
If you’re more comfortable with a certain investment market, such as stocks, stick with it. You can always diversify later as you learn more about commodities, but you don’t have to invest in the commodities exchange at all if you’re not interested in it.
8. Low Risk Tolerance
Like many investors, I hate to lose money. It comes with the territory, but when I put my money in a company or commodity, I assume I’ll profit from the play. You don’t need a huge risk tolerance for oil investing if you trade based on data and research.
Many of the people who join my various publications have low risk tolerances. That’s fine — even well-advised — especially when you’re starting with limited capital. By investing small amounts of money in companies and commodities, you can incrementally grow your wealth.
It’s also important to understand your risk tolerance and the reasons behind it. Does it have to do with your age, experience level, available capital, or other factors? Analyzing your approach to investing can help you overcome obstacles that have no basis in fact.
For instance, even if you open a brokerage account with a small initial investment, you can still trade. Don’t assume that you need to invest thousands of dollars in a single play to generate profit. Think of your long-term strategy when it comes to your investment portfolio, then diversify as necessary.
9. How to Overcome a Fear of Oil Investing
If you think that oil investing is too difficult, there are a few ways to overcome your fear.
- Find a mentor or expert who can help you learn about investing in oil safely.
- Study technicals and fundamentals religiously to better understand market patterns and potentially profitable plays.
- Invest only 2 to 3 percent of your portfolio in oil. Keeping your investment small helps mitigate risk.
- Look for stable companies. They can survive market downturns and rebound to rescue your investment.
Like anything else, investing in oil seems scary because it’s an unknown quantity. If you don’t have any experience, you might feel reticent about putting your money into the market. Once you realize the tremendous profits available to savvy investors, though, you won’t be able to resist the opportunity.
I understand why people think oil investing is difficult. I’ve been in this business for 30 years now, and I’ve worked with many people who initially believe they can’t make money in the market.
Don’t let issues like volatility, low risk tolerance, a day job, or lack of experience get in your way. Start by learning about oil investing, reading chart patterns, studying financial statements, and following experts. The more you learn, the more comfortable you’ll feel.
If you’re interested in oil price investing, I encourage you to join my Energy Advantage and Energy Inner Circle to start learning about how oil investing can improve your investment portfolio and potentially change your life. I’m constantly studying the market and sharing my observations with members.