Friday, November 1, 2013

Investing In Energy

By Cleveland Jernigan


Energy, in whatever form it may be, is an essential resource for everyone. It powers our cars, trains and planes. It provides the power for heat and air conditioning, as well as power for our computers and other electronics. Countries need energy, and this high need creates some excellent opportunities for investors. Considering an investment in a particular form or energy can produce solid results.

There are thousands of energy-related companies in which you can invest. You can select one or two companies and buy stock in them, or consider something broader such as a mutual fund or exchange-traded fund that focuses on holdings that relate to energy or natural resources. Each investment has its advantages and drawbacks.

The stock market has rebounded somewhat from its instability of a few years ago, but it still can be a risky venture. There is great potential for high profits or just solid and steady growth, but there is always the possibility that your stock could plummet in value at some point. This is why it is important to research any company in which you hope to invest and perhaps speak with a financial planner or advisor.

Funds include many different companies or holdings, and because they are diversified, the risk of loss is lower. This is true of both mutual funds and exchange-traded funds (ETFs). Of course, you can still lose a good amount of money, as no investment is every entirely safe. But generally a fund will produce some steady growth and makes a great long-term investment. You aren't always guaranteed a profit, of course, but you will have the comfort of knowing that one company in your fund can drop in value without significantly affecting the total value of the fund.

There are some key differences between ETFs and mutual funds. Mutual funds have been around longer and often are better managed than ETFs. ETFs, on the other hand, have some important tax advantages, and when you sell your shares, the fees associated with ETFs usually are lower than mutual funds. The way the value of these two funds types is set also differs. During the trading day, stocks rise and fall in price and you can sell at any time. ETFs are just like stocks in that regard, which means if your ETF value is high in the middle of the trading day, you can sell it off for a better price than it might be worth at the end of trading. With mutual funds, the value is set at the end of trading, so even if you sell the shares during trading, you will sell at the rate set at the end of trading on the previous day.

There are hundreds of energy stocks, mutual funds and ETFs to consider for your investments. You can invest in a traditional type of energy, such as oil or coal, or opt to invest in an alternative energy stock or alternative energy fund or ETF. Alternative energy would include solar, wind and hydroelectric power.

You also can invest in energy companies in a specific region. For example, you might find a China fund or Asia Pacific fund that concentrates its holdings in energy-related companies. Perhaps you would prefer to invest in the natural resources of Africa or South America. Of course, you can also invest in American energy companies as well. There is definitely something out there for every type of investor.




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