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Natural gas has been a reliable source of energy since the mid-19th Century and currently makes up nearly a third of America’s annual energy production. As a result of its availability and necessity, it has become a mainstream commodity on the financial markets.
There are plenty of ways to invest in natural gas, and we’ve pulled together the main ones here.
Exchange-traded funds are a way of investing your money in a wider selection of assets rather than trusting just a few firms.
Most ETFs are simple and accessible, and trading them works in a similar way to regular stocks. As well as being relatively straightforward, ETFs are also seen as less risky. By investing in a basket of assets, you insulate yourself to some of the daily fluctuations of the market.
If you are new to the world of investing, then ETFs may be the best choice for you; natural gas is an incredibly popular commodity with a range of companies and ETFs to choose from. Some of the most popular include:
Master limited partnerships (MLPs) offer tax advantages in that profits are only taxed when they are distributed to the general and limited partners of the company. Many MLPs are attractive to long-term investors because their business structure is designed in a way that requires them to return profits to investors quarterly through high dividend payments.
There are risks that come with MLPs, however; those include variations in demand, market volatility and the fluctuations of prices, new legislation, environmental disasters or hazards, and political and social shifts.
Conduct due diligence on these popular options:
Stocks are one of the more conventional ways to invest in a commodity. Being as popular and necessary as it is, there are multiple natural gas companies to choose from. While many are big oil names you’re familiar with, others are smaller names of specialty companies. Stocks are simple to buy through brokerage accounts and financial advisors. Here are a few to consider researching:
Buying stocks takes some knowledge of the market and its fluctuations but can be safer than investing in futures due to buying stock at the price displayed. While ETFs may be considered diluted in a sense, they’re still generally considered a safer option as you aren’t relying on the performance of one or two companies.
Futures are a direct but more advanced and risky investment that’s subject to both the fluctuations of the market and the knowledge of the buyer. A high-risk, high-reward system, newcomers may want to gain some experience in the field before purchasing futures. To trade futures, you’ll need one of the handful of popular brokerage accounts that support futures; not all mainstream brokerages do.
Futures, as the name suggests, are a way of buying natural gas directly at a later date and an agreed-upon price. They’re a staple for big natural gas producers or utilities that buy vast amounts of natural gas, though seasoned investors and speculators can also trade them; depending on market movements, you may end up making a solid return on your investment or just as easily losing money.
The world relies on natural gas for energy that’s cleaner than coal, and its abundance makes it quite a reliable commodity on the stock market. However, the market is never completely safe, and natural gas is no exception:
There are several ways to invest in natural gas, including gas futures, shares, ETFs and MLPs. But keep an eye out for pipeline incidents and dividend cuts.
Not sure natural gas is the right addition to your portfolio? Review your investment options across additional trading platforms and commodities.
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