Energy is valued at $7 trillion.
Nine out of the top ten revenue companies worldwide deal in energy.
There are so many reasons why investing in this industry is lucrative. Everything runs on energy, therefore, it is always needed, and the energy sector is diverse. Energy is diverse in that there are several forms of crude energy: oil, gas, nuclear energy, electricity, wind energy, solar energy, coal, and bio-fuels.
To capitalize on the energy sector, you need to invest responsibly. Responsible investment is all about ensuring you are well versed with yourself and with the investment you want to venture into. Being well versed with yourself includes having an understanding of: who you are, what you want, your level of risk tolerance, as well as your strengths and weaknesses.
Ensure you know yourself well before attempting to know about the business you want to venture into, in this case the energy sector.
Study the energy sector diligently to ensure you get a full understanding of how the energy industry operates. Generally, energy investors operate in four categories. Some companies specialize in the exploitation and production (E&P Companies) of energy, others specialize in the storage and transportation of the energy, others provide services such as building, installation, and servicing of energy equipment, while others deal in the energy stocks and bonds. Evaluate yourself and see where you feel you can perfectly fit.
Make a decision on whether you want to start up an individual firm alone or through partnering with established companies. Your level of risk tolerance should really come in at this point. How willing are you to adjust to changes in the business environment? How much risk are you willing to take? Investing in well established companies is less risky than small start ups. However, starting up has more returns in the long run.
Study the technological aspects of the energy sector. Compare investing in the alternative energy against investing in the traditional energy. Energy production systems have been diversified. In the recent past for instance, there has been a shift towards the sourcing of energy from renewable sources such as wind and solar as opposed to sourcing it from the conventional or traditional energy sources we are used to – coal, hydro-electricity and oil. Consider what your goals are. Should you want to get into the energy sector for the long term, then the traditional sub-sector is the best because it is low risk, and well established. However, the alternative energy sub-sector has more growth potential. If you are in for the short term, then you should opt for energy stocks.
Ensure you know the return on investment (ROI) of the energy sub-sector you want to venture into. The different sub-sectors have different returns on investment. How vulnerable is the sub-sector to price fluctuations? How long does it take to get substantial returns? The oil industry for instance, is more vulnerable to price fluctuations than the hydro-electricity sub-sector. Also, it will take a longer period to realize substantial returns from the hydro-electricity sub-sector compared to the oil sub-sector. Therefore, once again, ensure you really know what you want before you get yourself into the business.
Get an understanding of the laws and issues governing and affecting the operation of the various energy sub-sectors. What policies are in place regarding energy? Are there any corporate social responsibilities (CSP) that will bind you as an investor? What are the environmental and political issues that affect the operation of the energy companies? Ensuring you get answers to these questions will enable you get to know if you will be able to cope with the operation conditions for the various sub-sectors.
Set up your brokerage account. This is more important if you will venture into dealing in energy stocks and bonds. A brokerage account will help you buy and sell energy stocks , bonds, and mutual funds by paying professionals to buy or sell the specific items you tell them. You can opt to have an account with Futures Commission Merchant (FCM), with or without an Introducing Broker (IB) or a Commodity Trading Adviser (CTA). FCM, IB, and CTA all help in managing your brokerage account. When you choose to open a brokerage account, ensure you carefully read the user agreement and terms to ensure you know which types of exchanges you will have access to and what their returns are.
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Connect with and consult other people who are involved in the same field you want to venture into. Get to know people in the specific sub-sector and make them give you hands-on ideas of what to expect in the energy business. It will be easier if you consider consulting professional insurance or investment advisors. Loaded with experience, they will help you get a finer understanding of specific sub-sector and give you tips on how to get the most out of it.
That is it. You are now well informed about the subject of investing responsibly in energy. Make use of the information you now have effectively and you will be glad you did when you finally reap the fruits of your responsible investment in the lucrative energy sector!