Should I invest in the energy sector?
The energy market is vast and spans the globe, offering many opportunities to invest in a whole range of energy sources.
Given the volatility of the sector, it’s not easy to find the best energy provider or suppliers to the industry to invest in, so the first suggestion would be to get to know more about the various parts of the sector.
Research pays dividends
Nobody should go investing in anything, no matter what the industry sector says, without carrying out research to explore the many different possibilities for investment. A good start would be to look for newspaper stories about energy, either in main news pages or in the business section, finding out what the big companies are currently doing as well as looking to the future.
Monitoring share prices is useful to get a feel for where successful energy investments could be made, and it’s important to remember that it’s not just the companies that supply energy that could be considered but also the chain of suppliers of specialist equipment, the construction industry for when new power stations will be built – and they will be – and commodities that provide the raw materials for everything.
Knowledge and advice
Understanding the energy sector takes time, and would-be investors can develop their knowledge by reading more widely and taking advice from a professional investment team. A book such as Fisher Investments on Energy, available from Amazon, which is part of a series from Fisher Investments on the financial sectors, offers a comprehensive guide to the energy sector.
The book is not just for new investors but will be of benefit to experienced investors too. It covers everything from the basics of the energy sector to specific industry insights as well as highlighting practical investing tactics and pointing out common pitfalls. With plenty of practical advice and many detailed graphs and charts, the book provides a solid foundation to investing in the energy sector.
Investments to consider
If there is one thing certain in this world, it’s that there will always be a demand for energy. The demand may fluctuate in relation to what is happening in the global economy, but as the growing economies of countries such as India, China and Brazil require vast amounts of energy for continuing to develop their infrastructure, there are opportunities to look at a variety of energy and energy-related investments.
Most specialists would advise not putting all the eggs into one basket – if something goes wrong and a stock drops value significantly there is nowhere else to turn to in order to try to recoup some money.
This is where the portfolio approach comes in, spreading the risk but in the hope that everything will, in the end, make money.
Oil has recently been in the news due to plummeting prices and some might argue that buying into companies at a low price could be good value, as it would appear likely that prices will rise again in the future. Investing in oil exploration carries high risks but equally it provides high rewards if things go well. It’s a volatile area where shares can soar on news of striking a large new field or drop if a predicted well is dry.
Natural gas extracted from shale fields – fracking – has been a successful business especially in the US and Canada and there are many countries that have reserves as yet unexploited. One problem is that the technology and techniques used for extraction are controversial, and countries such as France and Holland have banned this technique.
Nuclear power and companies related to the nuclear industry are an option. France, for example, supplies the majority of its energy needs through nuclear power and is expected to build a new power station in the UK.
Alternative energy sources such as wind and solar power are likely to continue to develop, providing clean energy and opportunities for long-term investment. Fossil fuels are not going to run out immediately, but there will come a time over the next few decades where they will be unable to supply global needs.
Investors who do their research and take advice will have a better chance of choosing where to put their energy investment money and mitigate their exposure to risk.
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