How to Invest in Oil & Gas

Energy investing can be in oil and gas commodity prices or stocks of companies that produce the energy.

Crude oil and natural gas are two of the primary sources of energy. After refining, they provide fuel for cars and trucks and can also be used to produce electricity. Exchange-traded funds -- ETFs -- allow investors to invest directly in the prices of oil and natural gas or in the stocks of companies that produce, process or transport oil and gas. A portfolio of selected energy ETFs can provide broad investment exposure to oil and gas values.

Instructions

1. Open an account with a discount online stock broker. If you already have an account, fund the account with your oil and gas investment money. "Smart Money" magazine provides and annual ranking of the brokers. A link to the 2010 Broker Survey is provided in the Resources.

2. Review and select the energy ETFs that meet your investment goals in relation to oil and gas investing. Here are some of the major energy ETFs and their type of energy investing:

   Direct crude oil or natural gas prices: United States Oil ETF, symbol USO and United States Natural Gas ETF, symbol UNG.

   Major oil and gas companies in the S&P 500: Energy Select Sector SPDR, symbol XLE.

   Energy exploration and production companies: iShares Dow Jones U.S. Oil & Gas Exploration & Production, symbol IEO.

   High dividend energy stocks including natural gas transport: J.P. Morgan Alerian MLP ETN, symbol AMJ.

3. Purchase shares of your selected energy ETFs using the stock purchase screen of your online brokerage account. ETF shares are purchased the same way as individual stock shares. Enter the stock symbol for the ETF and the number of shares you want to purchase.

Tips & Warnings

• The listed ETFs are some of the largest and most liquid funds for energy investing. There are approximately 30 different energy ETFs if you want to research other options.

• Use a stock price chart to time your investments. If the share price is in a down trend, wait for the price to bottom and turn upward before investing.

• The value of energy ETFs can decline significantly based on the commodity prices of oil and gas as well as stock market conditions. Do your own research and understand the risks before investing.

References

• Seeking Alpha: A Guide to Commodity ETFs and ETNs
• Seeking Alpha: A Guide to Sector ETFs
• Index Universe: Analyticis and Data

Resources

• Smart Money: 2010 Broker Survey