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Investing in an oil company is a smart way to diversify your investments. The demand for oil is not about to decline at any time soon and, if anything, oil companies have begun striking oil across new locations that they’ve never been before.
Investing in oil and gas is a good idea, but it can be difficult given how many different companies are available for investing. The main question that will be on every investor’s mind when considering a new investment is, “will the investment give me a return? Is this really the right decision? How do I know that? Why invest in something I don’t know about?”
Today we’ll be looking at the different reasons why it’s a good idea to invest in gas and oil companies, as well as the benefits that you can expect to get from such investments. This should hopefully make you more comfortable with investing in these industries and give you the confidence boost needed to go through the legal requirements and paperwork necessary for investing.
Diversify your Portfolio
Diversifying your investment portfolio means investing in things across different industries. Financial advisors will generally advise clients to invest in different industries at once. That way, if one of those industries goes through economic problems, the overall investment profile isn’t damaged too badly.
Diversifying your investment profile through investing in gas and oil is a good move to increase the overall health of your portfolio. The economy as a whole tends to go slow down when gas prices increase, but this will be countered by the increase in value of the oil and gas stocks you have. This protects the rest of your portfolio from any damage caused by the economical shift.
Potential Profits
Gas and oil investments have serious potential for profit. This alone makes investing in them a sound choice. You don’t need to invest a large sum of money upfront to make the investment either. When people invest in gas and oil, they are often helping the companies to establish new drilling sites. Depending on where the oil is located and how shallow it is, the initial drilling costs could be much lower than with a traditional deep oil well. This reduced initial cost brings with it an increased potential for profit. With the right location, just one well can generate a return on investment of thousands of times the original investment. Don’t forget that a successful oil well continues to generate plenty of dividends for years and years.
Different Ways to Invest
One major benefit of investing in oil and gas is all the different methods of investing in them. If you don’t like to take risks when investing, then choosing to invest in a mutual fund would be the safest way to make an oil or gas investment. Just keep in mind that you are required to pay taxes on dividends gained from mutual fund investments.
You can also invest in oil and gas through a partnership. You have the option of entering into a limited partnership with the oil company to reduce your liability in the operation to how much money you invested. Any money gained through a partnership investment is eligible for tax incentives and benefits.
Perhaps the most profitable method to invest in oil is through royalties. If you have land that is rich in oil, you could receive between 12% and 20% of the gross revenue gained from the oil wells. This investment method carries very little risk as the landowner has no liability for the wells or leases. Keep in mind if you go for this investment method, you are not eligible for the tax benefits you would receive through a partnership.
Making the decision to invest in oil and gas or not can be tough. There are times when the market is particularly unpredictable. However, investing in oil and gas is generally considered a safe bet. Depending on which company you choose to invest in and how successful they are when drilling for oil, you can see a strong return on investment and years of dividends paid into your account. Talk to your financial advisor about the necessary steps to invest in oil and gas.