Investing in Oil with the Oil Fund

Investing in an oil fund can provide you with a way to speculate on the price of oil without worrying about the hassle of a futures contract. There are several will funds that you could consider and all of them can provide you with some benefits as an investor. The oil fund is a type of investment that holds a large number of underlying securities related to the oil industry.

Oil Fund

The fund is usually an ETF, or exchange traded fund, that focuses on the oil industry exclusively. The oil ETF could invest in stocks of oil companies, futures contracts, or stocks of companies that make equipment for oil companies. Regardless of the actual underlying investment, this fund seeks to provide returns based on how well the oil market is doing. With this type of investment, you will be able to speculate on the price of oil indirectly. Instead of your returns being based specifically on the price of oil, they may be based on the price of the stocks of the companies that produce oil.

Scarcity

One of the big benefits of investing in this type of fund is that you have scarcity on your side. Oil is a limited resource which means that the price of it is only going to increase over the long-term. Oil companies want to make oil prices generally affordable for the masses, but at the same time, they want to increase profits. The price of oil will be based on the demand for it in the market place. The demand for oil continues to increase which means the price will continue to increase as well. For investors, this means continued profits for many years into the future. 

At the same time, oil scarcity could work against you as an investor. At some point, the oil is going to run out and all oil companies will go out of business, or be forced to change over to other forms of energy. At that point, your investment in these companies could be rendered worthless.

Convenience

One of the primary benefits of investing in an oil fund is that it is convenient. In order to get involved with this form of investment, you only need to have a standard stock brokerage account. You can buy and sell shares of the fund anytime that the market is open. This gives you a very simple way to speculate on the price of oil. Prior to this type of fund, the only option that investors had was to invest directly in company stocks or purchase futures contracts on oil. When you invest in futures contracts, you have to open a special type of brokerage account and learn about an entirely different kind of market. Many investors are scared of this type of investment because of its complexity. Investing in an oil ETF is extremely simple and is no more complicated than buying shares of stock.

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