04-27-2020, 05:18 PM | #61 | |
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Location: Cape Cod, MA
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Re: oil price.
Quote:
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04-28-2020, 12:21 AM | #62 | |
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Join Date: Apr 2020
Location: Morrison, Colorado
Posts: 21
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Re: oil price.
Quote:
Now, why is there no practical way for most people to capitalize on oil's low prices at this very moment? 1) ETFs are junk because they are invested in futures from months ago when oil was $30/barrel. No wise person would invest in a stock that tracks oil contracts promising to sell oil on May 15th for $30/barrel when oil is currently trading at $11/barrel. He'd lose all his investment on May 15th. 2) Futures are one of the most risky ways to invest. Only the bravest or most careless will venture into that territory right now with the worldwide recession digging in its claws and with oil demand unlikely to rise greatly in the near future. 3) Big oil companies' stock did not follow crude oil's crash. If one were to invest in oil companies today, he will likely be very disappointed in three months when quarterly earnings come in extremely low and the stock tanks due to the lack of sales right now. 4) As with futures contracts, investing in small oil exploration and mining companies right now is extremely risky. The very company one invests in has a great chance of declaring bankruptcy in the next year should the global recession continue or worsen, which the vast majority of analysts expect whether we like it or not. As for oil being a safe investment, I beg to differ. It's one of the most volatile investments that depends on some wildly unpredictable variables such as global politics, war, gasoline/diesel demand, manufacturing demand, country oil production manipulation, country agreements, whether working from home becomes a popular, permanent option in companies, etc. Oil went from $20 to $-38 in one day and was back to $14 a week later. That's not safe; that's wild. You won't see financial advisers telling their clients five years away from retirement to "invest in oil, it's a safe investment." Oil is a great investment to help diversify one's portfolio by adding risk, not safety, but not right now. Many analysts suggest investors wait until oil stabilizes at around $30/barrel and sits there for 6 - 12 months. At that point, it's as safe as investors are going to get to invest in oil ETFs. Once oil hits $50/barrel and sits there for 6 - 12 months allowing the ETFs indexes to catch up and stabilize, it's time to sell. The issue is that as of right now it might take years before we see stable oil prices at $30, so it's the waiting game before even being able to invest let alone turn a profit. |
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04-28-2020, 01:59 AM | #63 |
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Join Date: Feb 2017
Location: Rochester Wa
Posts: 574
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Re: oil price.
For us little fish in pond what does ETF mean? Never studied econoics.
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04-28-2020, 03:10 AM | #64 | |
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Join Date: May 2010
Location: East Shore of LAKE HOUSTON
Posts: 11,113
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Re: oil price.
Quote:
They're "Exchange Traded Funds". DD |
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04-28-2020, 10:41 AM | #65 | |
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Join Date: Apr 2020
Location: Morrison, Colorado
Posts: 21
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Re: oil price.
Quote:
As V8Coopman said. Essentially, and this is very boiled down, ETFs function like mutual funds but trade like stocks. Scenario Example: You want to purchase stock in ten companies but only have $100 to invest. You have a couple common options: Option 1) Buy shares in each different company.
Option 2) Put your $100 into a mutual fund that holds stock in the ten companies you want. A mutual fund is like a group of people pooling their money, giving the sum to one person as a manager, and that person goes and buys shares in the ten companies. This way, you can own partial shares of a stock. Example: if PPG costs $100/share and 25% of the mutual fund's portfolio is invested in PPG, your $100 investment in the mutual fund means you own $25 in PPG. You wouldn't be able to buy just 1/4 of a share on your own, but you can in a mutual fund.
Back to ETFs. An ETF functions like a mutual fund in that you pool your money with other people to buy shares in multiple companies or futures contracts, but the ETF trades like a stock. If you buy one share of an ETF at $100/share, watch that stock's value rise to $150 in a couple hours, you can immediately sell that share. ETFs are cool in this way. Before the crash, I had stock in a lumber and a mining ETF that each owned shares of about 80 companies. Owning individual stock in 160 companies is way too much for me to keep track of since I have a job and trade in the morning and on my lunch break, so I let the ETF manager manage things for me. The issue with crude oil ETFs is that they do not invest in physical barrels of oil. They invest in what are called "futures contracts." Essentially, when you invest in an oil ETF, you are investing in a bunch of contracts signed months ago that are now, basically, worthless. You might as well burn your money--or send it to me. |
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04-28-2020, 11:10 AM | #66 |
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Location: Everett WA
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Re: oil price.
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04-28-2020, 10:23 PM | #67 |
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Join Date: May 2010
Location: MN
Posts: 7,053
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Re: oil price.
Thanks Annixter. How ever we got to this, it is great information you added.
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04-28-2020, 11:21 PM | #68 |
Senior Member
Join Date: Feb 2017
Location: Rochester Wa
Posts: 574
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Re: oil price.
Annixter. I'd like to thank you for explaining in laymans terms how this works. Despite yearly meetings with 401K advisors none have ever offered up a detailed explanation of how this complex gambling game works. Perhaps because knowledge is power? So a simple question. I invest $100 in a mutual fund, price goes up to $150. 401K Mutual Fund manager sells for me at a $50 profit (assuming no drop in price between sell order and actual sale). 401K guy gets a cut for managing. I profit the remainder. Am I taxed on the profit and if so how much? What is the typical cut a 401K manager gets and how much tax? Out of that $50 profit how much ends up in my Ford account?
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04-29-2020, 12:29 AM | #69 |
Senior Member
Join Date: May 2010
Location: MN
Posts: 7,053
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Re: oil price.
Most funds just charge a yearly management fee. 100$ or less. Having an advisor that you trust is worth it. Yes you have to claim dividend profit if traded, the forms will come in the mail. loss is another thing. Pay to play. Only way you get hit hard is by pulling it out too early, tax wise.
Last edited by Tinker; 04-29-2020 at 12:38 AM. |
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