Why Invest in Energy Commodity ETFs?

Investing in energy ETFs has become more common in recent years due to the rise of energy prices. Many people want to find a way to benefit from these increases in energy costs and the energy commodity ETF is a great way to do so. Investing in an energy commodity ETF can provide you with a good hedge against inflation and currency fluctuations. When you invest in oil, for example, you will be investing in a physical commodity. The oil retains its value, regardless of what happens in the rest of the economy. When inflation occurs, the value of the oil is going to increase. When you invest in a stock or something else that is not tangible, it may not increase in value with inflation. 

Participate in Global Growth

Another reason that you might want to consider investing in this type of security is that you can participate in global economic growth. Instead of investing in something that will only do well if the domestic market does well, you can invest in something that is needed in all parts of the world. With areas like China growing at a rapid pace, they are consuming more oil than ever. Because of this, the prices of oil are bound to increase, and when they do, you can profit.

Diversification

By investing in energy commodity ETF's, you can also diversify your portfolio. Many people have the majority of their holdings in stocks and equity mutual funds. While these investments are solid, you also need to diversify into some other types of investments. Putting money into commodities can be a nice alternative because it gives you something tangible in your portfolio. When it comes to choosing a commodity to invest in, you would be wise to invest in energy. Energy is something that we will always need and it will continue to rise in price. If the stock market starts to perform poorly, you will still have your holdings in the energy market to keep your portfolio afloat. By investing in a general energy ETF, you can also gain diversification because the ETF will invest in different types of energy.

Treasuries

With an energy commodity ETF, the majority of the money goes towards purchasing Treasury securities. These securities are then used as collateral to purchase futures contract on oil and other sources of energy. As the futures contracts get closer to the delivery date, the ETF has to sell them and get newer contracts. When this happens, the new contracts are cheaper because the delivery date is farther off. When you do this repeatedly, you can realize the benefits of these small price differences and the profits will start to add up. 

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