Hedging Your Bets – How Oil Investment Can Help You Win with Other Assets
To some extent, the key to successful investing is a bit of luck when it comes to picking winning stocks. But the key to smart investing is hedging your bets, and making sure that you can take advantage of rising markets, without losing your shirt if (and when) they fall.
If you’re looking to take advantage of rising markets, though, probably one of the most adaptable tools is not any kind of complex financial product, but rather direct investment in oil and gas.
Investing with the times
Probably the most basic example of this hedging approach is just splitting your portfolio between investing in stocks and purchasing bonds. Returns on these two investments tend to rise and fall opposite each other, making them useful for diversifying your portfolio.
There are other options as well, such as precious metals. Gold tends to rise opposite the U.S. dollar and the stock market, serving as an asset haven – though it increasingly fluctuates much more like a commodity.
The basic point, however, is that there are a wide range of assets with varying degrees of risk that respond to a range of different economic stimuli. The wisest course for investors is to tailor their portfolios so that they can always “sell high” when they need to have ready cash.
A truly liquid asset
No oil investment, and really no asset of any kind, can promise high returns year-round through any market conditions. And you’ll need a rate of return calculator to find what you’re actually getting out of any given oil well.
But there is something that direct investment in oil does offer that can be difficult to find in many other markets – a constant stream of almost perfectly liquid assets that retain relatively strong value even in down markets.
Obviously, there was the crash in oil prices during the Great Recession, but even Google and Apple stocks lost more than half of their value at the time.
What’s nice about owning a portion of an oil well is that you get a continual flow of cash, which can be spent on bills or reinvested elsewhere as you like. The long-term value of your investment doesn’t decline because you sold off some portion of it when prices were low. Your future profits are determined entirely based on how the market recovers – and ultimately, it always recovers.
That gives you the ready funds to invest in, say, Google, when stocks have plunged to half their recent value, even if the company’s long-term prospects remain bright. This stream of cash allows you to somewhat dispassionately survey the market and identify the best investments, because you don’t have to worry about all of your assets being reduced in value because of the general economic downturn.
In an industry that’s defined by the people who have the vision to find diamonds in the rough, and the backbone to dig for them, any little bit of flexibility can be huge.
Share this:
Category: Investing
