Why Invest In Energy?
By Luke Burgess | Thursday, March 11, 2021
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Top Two Reasons Energy Is a MUST-Own for Any Investor

If you asked a dozen energy analysts, “Why invest in energy?” you’d get 13 long-winded answers involving supply and demand.

They’d tell you that as our energy needs increase amid a rising global population, demand is projected to continue rapidly growing over the next several decades, and likely beyond that.

Then they’d talk with you about production capacity, OPEC, and the limited global supply of fossil fuel resources.

They’d show you charts like this:

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And that’s all great…

But the supply and demand dynamics of the energy sector really don’t answer the question.

Every other market on the planet also has supply and demand dynamics. What’s so special about energy?

Why Should YOU Invest in Energy?

What is investing in energy going to do for YOU?

Well, I hope to clear that up today.

There are two main reasons you should invest in energy. But before I get into them, let’s back up for one moment…

When most people think of the “energy sector,” they immediately think of oil. And there’s a good reason for that: Oil is the most traded commodity in the world.

But oil is really just one part of the energy industry.

It’s one branch (albeit a major one) on the global energy tree.

The energy sector at large covers all natural energy resources used as feedstock (oil, natural gas, coal, etc.), pipelines, petroleum refining, electricity production, utility services, and even extends to batteries for technologies such as solar panels.

It covers a lot.

And that’s beneficial to the investor.

The energy sector is so large that there are investment types for just about any kind of investor. There’s everything from low-risk dividend-paying stocks to speculative high-yield penny plays. Every possible investment flavor you can image is available at the energy store.

So… why should you have energy in your portfolio?

Two main reasons everyone should invest in energy:

Profit potential amid relative safety
Inflation hedge

Let’s talk about them…

Profit Potential Amid Relative Safety

Let’s not beat around the bush here: You invest to make money. Everyone does. That’s the point.

And I’m guessing you want to make a lot of it. Well, the energy sector is here to help you do that.

Businesses in the energy sector have among the highest ROIs, relative to other major sectors, for companies and their investors. There’s a good reason things like oil are often associated with vast wealth.

Other major sectors like health care, consumer staples, and technology also tend to have very good ROIs — depending on the product or service being offered, of course.

But energy has historically provided investors with some of the biggest returns over the longest period of time.

And along with big profit potential comes safety.

Energy isn’t a fad. Sure, sources of energy change… the way we use energy changes… what we use energy for changes… but using energy isn’t ever going to go out of style.

Nor will it be replaced.

Again, the technologies will change and replace older sources of energy generation, storage, and distribution. But the core product, the energy, will have constant demand. It’s simply fundamental to life.

Just consider this: Name one time you aren’t using energy.

Even when you’re sleeping, your house is using power. HVAC systems, refrigerators, alarm systems, clocks… if it’s plugged into a wall, it’s probably drawing some amount of power all the time.

Now, name something else you use as often as energy.

Health care? Transportation? Education? Food? Water?

I think you get the point.

So why should you look to invest in the energy sector?

Because there’s incredible precedent for you to make a lot of money in energy: an extremely broad and diversified market that accommodates all types of investors and that is fundamental not only to the global economy but also to life itself.

There aren’t too many other major sectors that can boast such a claim.

Now for the second reason you should invest in energy…

Inflation Hedge

First, we need to understand inflation.

Inflation is simply a general increase in consumer price levels. Another way to look at inflation is as a general decrease in the purchasing power of a currency.

There’s nothing you can do about inflationary pressures other than shield yourself from them. Traditionally, investments like gold and real estate are well known to be inflation hedges. But the energy sector’s natural resources (oil, natural gas, coal, etc.) can also act as very good inflation shields.

Inflation can be the result of a few things. The most well known is an increase to money supply.

An increase in money supply decreases a currency’s value. That decrease in value (a.k.a. purchasing power) leads to higher consumer prices.

But inflation can be the result of a few more things.

For example, we live in a globalized world with a very active currency market. Changes in those markets can have direct or indirect ripple effects on any individual currency, which can also lead to inflation.

There’s also what’s known as “demand pull,” in which the demand for goods and services outpaces their supply and pulls up the level of prices.

Then there’s “cost-push,” in which the rising cost of commodities — like oil, natural gas, coal, etc. — pushes up other prices.

What that means is the energy sector’s natural resources are fundamentally tied to money and inflation — and are often inverse to each other in real life. The USD and oil are well known to trade inverse to each other.

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So by having ownership of those natural resources, investors get a pretty good hedge against inflationary pressures of fiat currency, particularly the USD.

And that’s important for any investor.

Energy is not only one of the best sectors to be involved in as an investor, but it’s also a must if you want to make money safely.

The energy industry provides investors solid profits with a very large and diversified market that accommodates all types of investors and is often an intrinsic hedge against inflationary pressure.

Why should you invest in energy?

To make a lot of money safely.

And we’re here to help you do that.

Every day, Energy and Capital will bring you new energy investing ideas. We keep up with and cover all the latest developments from the energy industry and investing world. And (sorry for tooting our own horn) we make our readers a lot of money at it.

We are very happy to have you, and we look forward to helping YOU make money in the energy sector, too.

Best,

Luke Burgess Signature

Luke Burgess
Editor, Energy and Capital