Investing in energy stocks
Weigh the benefits and risks of investing in oil, gas, coal and natural gas.
Sector-specific investing can help you broaden and diversify your portfolio. But each sector comes with a unique assortment of benefits and risks.
What are energy stocks?
Energy stocks fit into the energy sector of the stock market — one of 11 sectors defined by the Global Industry Classification Standard (GICS). Companies in the energy sector focus on the location, mining and production of oil, coal and natural gas.
What subcategories are included in this sector?
Companies that fall within the energy sector can be sorted into the following subcategories:
- Oil and gas. At the start of the supply chain, we find companies responsible for drilling and producing oil and natural gas.
- Pipelines. These mid-stream providers transport oil and natural gas from the drilling site to their respective refineries.
- Mining. Mining companies produce coal that helps fuel power plants.
- Renewable energy. Those that produce wind and solar energy are considered renewable energy providers.
- Chemicals. This subcategory is comprised of companies responsible for refining oil and gas into specialty chemicals.
How to invest in the energy sector
There are 2 ways to invest in the energy sector: individual stocks or exchange-traded funds. Individual stocks are highly liquid but offer limited exposure. Sector-tracking ETFs are less risky than stocks and offer portfolio diversification but typically pay lower dividends and have higher fees.
You’ll need a brokerage account to invest in stocks and ETFs. Here’s a quick look at the process:
- Select a platform. Explore your brokerage account options to find the platform that best matches your investment goals.
- Open an account. Most brokerage accounts can be opened online. You’ll need to fund your account before you can make trades.
- Pick your securities. Use your platform’s research tools to search for stocks and ETFs by sector.
- Place an order. Once you’ve found a security you’d like to purchase, place your order.
- Track your investments. Monitor your investments by logging into your brokerage account.
Compare online trading platforms
What stocks are in the energy sector?
What ETFs track the energy sector?
Popular ETFs in the energy sector include:
- Energy Select Sector SPDR (XLE)
- Vanguard Energy ETF (VDE)
- iShares Global Energy ETF (IXC)
- VanEck Vectors Oil Services ETF (OIH)
- iShares U.S. Energy ETF (IYE)
- Alerian MLP ETF (AMLP)
Why invest in energy stocks?
Energy is a resource the world depends on. The energy market is massive, and for good reason — this resource has been in high demand for many years. And even accounting for the shift towards clean energy, the world is still decades away from being free from oil, coal and gas.
Profitability in the energy sector is largely tied to the price of crude oil, but stock prices are typically stable and frequently pay dividends. Income from energy stocks may also be tax-sheltered — an attractive incentive for investors.
What unique risks does the energy sector face?
Politics play a sizable role in the energy sector. If companies explore for energy resources in unstable territories, projects are at risk of being sidelined or halted in the face of political turmoil.
Incorrect geological reports, oil spills and accidents can be costly for investors. This sector isn’t without its risks and investors should weigh the benefits against the drawbacks before allocating funds.
The energy sector offers the opportunity for profit but carries a unique set of risks. The best way to invest depends on your portfolio and your investment goals. Review your trading platform options to find the brokerage account that best meets your needs.
Frequently asked questions
More guides on Finder
500+ online stores that DEFINITELY accept American Express
A list of online shops that welcome American Express cards, as well as details on how to get an AMEX card of your very own.
Can you open an IG Markets account in Canada?
You can’t open an IG Markets account if you live in Canada – but that doesn’t mean you’re not out of options.
How to find the best stock trading platform for online investing
Research and compare the best stock trading platforms to find the right one for your financial needs.
How to invest in fractional shares
Fractional shares are a low-cost way to invest in company stocks. Find out what fractional shares are and how to buy some.
Best exemplified by Warren Buffett, value investing is an investing strategy that tries to find value in undervalued stocks on the market.
Cloud stocks | Top cloud companies to invest in 2020
Cloud computing stocks have skyrocketed during 2020, in this article we look at the best performers, how to invest in them, and also take a quick look at cloud computing ETFs for you to invest in too.
A walkthrough of the Apple Stocks app
Find out what the Apple stocks app on the iPhone is, how to use it and what everything means. This guide breaks down the numbers.
How to buy Palantir stock (PLTR) from Canada
This renowned software firm is opening up to public investors. Canadian investors can buy stocks through a Canadian broker that provides access to US stock exchanges.
How to buy JFrog stock (FROG) in Canada
It’s possible to buy JFrog stock through a Canadian trading platform that offers access to international stock exchanges like the Nasdaq.
How to buy stock in Snowflake in Canada
Learn how to invest in Snowflake from Canada when the company goes public.
Ask an Expert
You must be logged in to post a comment.