Despite the clamoring of alternative energy providers, the simple truth is that oil and gas will continue to be the main power source for many decades to come. This makes investing in oil an extremely profitable business option and can lead to a great investment opportunity if you know what to look for. Like any other investment though, it can be disastrous if you fail to properly plan.
If you are really hoping to invest in oil wells for profits, you need to look beyond paper assets to make a real income. Stocks and mutual funds both have their advantages, but the simple truth is that a physical well will give you the best results in the long term. So, how do you get started?
The Three Major Options
When you decide to invest in oil wells, there are really three major options that you should be considering. First, and probably most obvious is stocks. Second, mutual funds are often advertised by investment gurus as a safer alternative to stocks. Third, you should look at the potential for private placements, which allow you to get a real piece of the action.
A stock is a great way to buy a small portion of a company without having to really do any of the work. When a company performs well and you own the stock, you can see great rewards. Many companies also pay regular dividends to their stock holders, which makes for a nice little bonus if you can buy enough shares. Of course, if the stock does poorly, you could lose everything, which is not an attractive concept for many new investors.
As opposed to stocks, mutual funds offer the ability to buy a single fund that invests in many different company stocks. This makes it the most indirect way to invest in oil wells, but also diminishes some of the risk associated with a stock. On the other hand, it has much less upper growth potential and also includes management fees. These fees can hurt your profits and ultimately slow down your progress towards real investment income.
The most direct way to invest in oil wells is to actually get a private placement. In this way, you become an owner of the physical asset and start profiting from all of the oil proceeds. This naturally caries the greatest risk, but if you invest with the right company you can help to all but eliminate this risk. Look for a company that will offer a good PPM (private placement memorandum) and make sure they look for working oil wells when they make their purchase. This ensures you avoid dry holes, and gives you much more profit potential in the long run.
The Secret to Investing
Of course, the real secret to investing is to actually invest in oil wells. If you decide to go and buy a mutual fund, then hold onto it. Investments are meant to be long-term vehicles for financial returns, not short-term trades. Whatever route you take, stay in for the long haul (while using common sense of course) and your rewards will be much more profound.