[Posted on June 13, 2014 by Michael L. F. Slavin]
Successful investment is a balancing act between risk and reward. In many ways, making intelligent oil and gas investment decisions is the biggest difference between gambling with your money and investing it. If you want to make the most out of your investments and level risk, what you need is a well-diversified portfolio.
Portfolio Diversification Explained
The ultimate goal of diversifying your portfolio isn’t boosting the performance of your investments, nor is it a means of promising you gains or guaranteeing protection against losses. It is, however, one of the best tools that investors have to manage the risk of their investments and make appropriate decisions for their individual financial goals. In the simplest terms, diversification is about not putting all of your eggs in one basket. It means spreading your money into several types of investments in a way that will reduce the overall risk of your portfolio by diminishing the impact of the ups and downs of market trends on your oil and gas investments.
One way to diversify your portfolio is to spread your holdings into several diverse types of investments, like stocks, bonds and GICs. This type of diversification works because these different investments generally don’t move in the same financial direction at the same time. That means even if the stock market takes a serious blow due to some unforeseen crisis, your bonds or GICs holdings are still liable to continue growing.
The best way to create a diversified portfolio is to identify assets that historically speaking haven’t moved in the same direction as the assets you’re currently holding. That way, even if one aspect of your portfolio is in decline, the remainder of your holdings will to continue to grow. Essentially, diversification allows investors to offset the risk of poor markets on their investments.
It’s also important to consider diversification inside each type of investment. For example, in your stock holdings, concentrating your holdings on one stock can create another all your eggs in one basket type of scenario. Many brokers suggest that it’s not a good idea for any one stock to compose more than 5% of your total portfolio. Similarly, diversifying with bonds means selecting investments with a range of maturity and sensitivity to inflation or changes in interest rates.
Diversify with Oil and Gas
Choosing the right investments to complement your existing portfolio can be a complicated and technical process. But almost regardless of the shape of your existing portfolio, if you’re looking to diversify your investments, it’s worth considering investing in oil and gas. No matter how volatile markets become, there’s a constant and steady international need for energy. Demand for oil continues to rise as many nations in the developing world have only begun to enter the industrial age, and there are currently no alternatives that can sufficiently meet those demands. This means that continued global demand is all but guaranteed.
As investments, oil and gas are almost impervious to many of the risks that other types of holdings must endure. Stored safely hundreds of feet below the surface of the earth, it’s all but impossible for oil and gas to be destroyed or damaged. Due to their crucial importance in the economy, there are also special tax incentives in place to encourage investments in oil and gas. Many of the costs of drilling are deductible, and as much as 15% of income originating from oil investments can be claimed tax free.
In a world where markets can be thrust into chaos by changing technology, international deregulation, and the development global multinational organizations, oil and gas have proven to be one of the most reliable investments a person can make. If you want to learn more about investing in oil and gas, consider enlisting the aid of industry experts with decades of experience, like U.S. Emerald Energy. Utilizing the latest technological resources to reduce risk and maximize monthly profits, U.S. Emerald Energy can help individuals make intelligent invests in the oil and gas industry without any need for extensive personal knowledge or expertise.