How Will Declining Stockpiles Impact Natural Resource Funds?

Investing in natural resource funds offers investors with the opportunity to diversify traditional forms of investments. Natural resource funds represent a good opportunity for investors. Before getting involved, you should consider the impact that declining stockpiles of natural resources will have on these funds.

Natural Resource Funds

You will need to have a basic understanding about the natural resource fund. A natural resource fund is like a mutual fund that invests in natural resources. For example, a natural resource fund could focus on oil companies and companies that provide equipment to the oil industry.This allows investors to speculate on the price of oil, without getting involved in confusing futures contracts or investing in a particular oil company. Almost any natural resource that you can think of is part of a natural resource fund somewhere. As an investor, this gives you many options to take advantage of in the natural resources market.

Declining Stockpiles

Many natural resources are nonrenewable. Therefore, this type of investing has a limited supply. For example, there is only so much oil in the world today. No one knows for sure exactly how much oil is left, but we do know that at some point it will run out. As an investor, you want to take into consideration the potential impacts of the scenario unfolding in the market.

Impact

Declining stockpiles of natural resources could impact a natural resources fund in a few different ways. First, when it is discovered that a natural resource is becoming limited, this could have the effect of raising the value of the natural resource fund. According to supply and demand, when the supply of something lowers the demand stays the same or continues to grow, the value of the asset will go up. Therefore, as oil supplies continue to decrease, and the demand for oil continues to grow, this will result in higher oil prices. Since the price of oil is the underlying factor in the success of the oil natural resources fund, you could expect the value of your shares to increase during this time.

With this in mind, there are other factors to consider as well. As oil starts to deplete, other sources of energy will inevitably be enhanced and used more often. If a source of energy is discovered that is more efficient and less expensive than oil, oil could become obsolete. At that point, your investment value would plummet. The value could also disappear once the oil runs out. This creates a very risky scenario for investing in natural resources because you never know when something better could be discovered or invented.

Investment Considerations

As an investor, you will want to pay special attention to the natural resources that you are considering investing in, before investing your money. Try to determine how long the resources could last and whether it matches with your investment goals. This can help you avoid any scenarios where your holdings would become obsolete.

Equally important is diversification. A diverse portfolio will be able to sustain a few rough economic times. Try to keep your portfolio well rounded by investing in stocks, mutual funds, retirement accounts and other types of investment tools.

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