Oil Investment : Best Way To Invest In Oil

You've heard it many times : oil prices are falling. You see an opportunity there and therefore want to know what is the best way to invest in oil. We will see what affects the oil price and a few different ways you have to invest in oil before it goes up.

The barrel is below $40.

# What affects the oil price?

• Supply and Demand

This is basic. The more there are, the less it is valued. The U.S production has almost double over the past years, cutting importations, and therefore, Canada's and Venezuela's oil need to find a new home. Even falling economies like Russia's keep pumping oil into the market. Thousands lost their jobs and many economies like Venezuela's are collapsing (96% of its revenue comes from oil).

• China

China is essential to the oil industry. In May it surpassed the US as the world's largest importer. As the surplus in the market makes the barrel cheaper, add to that a slowing China and you'll get a very cheap oil. The bigger the economy, the harder to keep a steady growth, as you can see today.

• OPEC (Organization of the Petroleum Exporting Countries)

This club is made of rich oil countries and some, as Venezuela, want it to cut production so it can balance its budget and not lost a lot of money. On the other hand, countries like Saudi Arabia are refusing to do, in order to put the US production under pressure and gain some market share over the long term.

 # How to profit from it?

• Invest in a mutual oil fund like :
• Vanguard Energy Fund Investor Shares, which is a risky fund, investing up to 80% of its assets, but investors keep a higher percentage of their return. 
• Fidelity® Select Energy Portfolio. Even if the fee are above average, it has returned 5,69% over the past three years.

• Avoid emerging markets. As the chart above shows, emerging markets are in turmoil, from Brazil with its political and economic problems, to Russia with its ruble and oil prices falling.
• Invest in airlines. Oil takes a large chunk of their expenses.
• Simply, buy the barrel and sell it when it's at $150.

Bond funds: Say What?

Bonding In

When you invest in a bond fund, you are investing in a basket of different bonds, which are payment promises of governments, corporations or municipalities in return of your money.

The par value (or face value or nominal value) correspond to the price of a bond when it was first issued, which are often $1000 or $100 for corporations and much higher for governments. If you buy it when it is issued, you are buying it at its par value, but its par value price will change thereafter in function of how the investors value your bond (the price will vary but your investment will stay the same, $1000). If you buy it later from an investors at a cheaper price, you are buying it at discount, or at premium if at a higher price. The par value determines how much you will get if you hold it until maturity, not matter the fluctuations of the market.

At its par value, your interest is determined by the coupon rate. For example, with a 10-year bond with a par value of $1000 and a coupon of 6%, you will receive $30 for 10 years twice a year as interest rates of individual bonds are often payed semiannually. Nevertheless, some bonds have a floating-rate, meaning that the interest rate will change along with the rate of some index. When the bond matures, you will get your principal (the initial investment you made), the face value of your bond, back.

The coupon rate is only meaningful when the bond is at its par value (when it is first issued). Afterwards, you must take in account the yield of the bond, which is the rate of returns based on the current price of the bond in the secondary market (between investors; see below).

What drives bonds up and down, among others, is the interest rate determined by the Federal Reserve. When the interest rate goes up, the value of your bond goes down. Why? Because new issued bonds have a greater coupon rate, therefore investors want them instead of your bond. Your bond will therefore be trading at discount. When the interest rate goes down, your bond value would be trading at premium (> par value) because new-issued bonds would have less value.

As the image above from Bloomberg shows, a 10-year bond of the U.S.A government has a coupon rate of 2% and a yield of 2, 21%.

CURRENT YIELD = (ANNUAL INTEREST * 100) / PRICE

The zero coupon rate bonds does not pay annual interests. Instead, those kind of bonds are issued at discount to be redeemed at par. You make money from the difference par price/maturity.

The yield shows the return you have on your bond in the secondary market.

Mutual Change

Things are a bit different with bond funds.

The lender of the money receives often monthly payments (instead of semiannually payments of individual bonds, as stated above) from the income earned by the fund. The bonds of a bond fund have different maturity dates, in order to keep the income coming at a regular pace. The fund manager, someone highly educated, replaces then the old bonds with new ones (when the issuer pays off the bond, for example). Therefore, there is no certainty that you will get your principal back (as the manager does not wait to sell the bond at maturity). As a golden rule in finance, asset allocation is what bond funds are about, therefore the returns should be greater, especially with high-yield bond funds.

Contrary to individual bonds, you can easily sell your assets, which unfortunately may cause a snow-ball effect (see next title). Bond funds have a large number of charges to cover marketing expenses, management fees, and they are not obligated by law to disclose all of them. You have to be sure of all the costs involved before stepping in a bond fund.

The Fear Factor

When the Fed pushes the interest up, you may want to sell your bond quickly, which is a bad idea because your manager, in order to keep the yield high, will sell the highest-earnings bonds of the fund in order to avoid further losses (as a bond fund is made of hundreds of different bonds) and compromise with redemption (which is the yield the mutual fund promise its investors). Even if you keep your bonds and wait to the storm to pass, you will feel it because the manager may cut dividends. At the end, you will earn less and your bonds will value less.

In a bear market for stocks, investors willing to protect their assets invest in sure securities like the U.S.A Treasury bonds, which have very little default risk. As scarcity is élémentaire in finance, as there is less bonds available, the prices will go up. If prices go up, the yield of your bond will fall.

Game of Interests

The Fed showed no sign this month of a willingness of raising interest rates, mainly because of concerns over China's slowing economy and the fact that the US job market is not yet "fully recovered". The US bonds were higher seconds after the leaked announce. It is still a great time to invest in mutual fund bonds, even higher yielding mutual fund bonds, before the Fed pushes rates higher.

Bad Credit Loans

A loan may be the best option you have right now to change your situation. Nevertheless, banks and other institutions are unwilling to trust someone with a bad credit record. You may first want to regain financial credibility, and one of the first steps is to use a credit card for bad credit, which will give you trustworthiness and financial responsibility and later, independence.

If you don't wan to get another " no ", you might read the following pieces of advice, which are to be put in action in the case of an interview with a financial institution.

# Doing it right

Do not present yourself in front of an adviser without having perfectly understood your project. If you want a loan for your business, you have to know perfectly the market situation and evolution, why your business model is good, you competitors, your product of service feasibility, etc. No matter the reason, this work includes having perfectly understood your why's (why this project, why now, why you, why here where you are), the needs you have and how much do you need; do not be afraid to state your need.

You must know your needs and the environment in which you are evolving à la pointe des doigts. It will tell the adviser that you are a wolf seizing an opportunity (for you and for institution) and not a sheep turning around without direction.

# Redeem yourself

It should not be too long and it always shows humility, self-awareness and intelligence when some of your first sentences clearly states why, how you ended up in this bad situation and how well you have learned the lessons. It spares the interviewer to say it to yourself, specially if he knows you for a long time. But do not try to put the fault on something or someone else, nor try to be pitiful, as these will put a shadow of ignorance and contradiction in the whole speech.

# Show your skills

You should convince the interviewer that you are a person capable of taking the responsibility for the loan; you should state how good at your field you are or how good your financial situation will be (show him numbers), because you have taken the necessary steps towards it.

# Show their interest

" If you want to make friends, don't talk good about yourself " applies here too. Do not tell them how good your situation will be and how happy you will be if they give you the loan, because they do not care. They care bout their interests.Tell them how much their will harvest on your efforts and how much the chances of success are high because you have done your homework (#1) and you are capable of undertaking the task (#3).

# The feasibility

The time, if you have some, you ask for a loan counts too. Taking into account inflation, being on a phase of progress for the country and when your special field is booming, puts points in your side. The most important factor will be your future capability to pay on your due date and the potential interests, so you should not make the same mistakes and be financially responsible.

# Misc

In respect to the tone you are going to use, never be familiar (" bucks "), nor too formal. Don't try to pretend you know finance by using financial terms, because if you really knew finance, you would not be in this bad financial situation. Use common terms precisely and with meaning.


Later will be published a paper telling how to choose the perfect institution to get a loan, even with great difficulties.

Image : © Kevin Dooley, CC BY 2.0.

Penny Stocks

Today, a " penny stock " is a small cap stock that is trading below $5. Even if you can find stocks trading below $5 on the NYSE or Nasdaq, as these markets require strict listing requirements, they do not offer the advantages of a " true " penny stock.

You buy penny stocks as you would with any power stock, through your stockbroker or any trading platform. More often, penny stocks trade on Pink Sheets or OTCBB.

What makes them interesting is their volatility : some of those stocks have gone from $0.5 to $7 in a few days.

Penny stocks are risky because they are not registered with the SEC (Pink Sheets ones) and when they are (OTCBB ones), the reports stay at a minimum.

Image : © KMR Photography, CC BY 2.0.

Payday Loans

Do you need money as soon as possible and don't want to go through all the usual bureaucracy ? You may then consider a payday loan. Before you go on with it, you may consider certain facts. You may consider also other alternatives for money, as a advance or help from family, as payday loans can trap you in a vicious circle.

First of, what is a payday loan ?

A payday loan is a short-term and high rates loan, usually between $15 and $500.

Who can obtain one ?

Almost everyone, even those with bad credit. If you're in this situation, check out our article " credit cards for bad credit ". Usually, but it depends on the lander, you will need your contact, banking and employment information. They may ask you some family information too, in the case you cannot be reached when the term of the loan ends (two weeks for the most cases).

Are there fees ?

Yes and it depends on how much you ask. 15$ for $100 asked is usual, as is $55 for $500. After two weeks (the common term for the loan), the lender cashes the check or you rollover it (see example below).

How does it work ?

1. You write a check to the lender of the amount you want to borrow + a fee.
2. The lender gives you the money (cash usually or straight to your bank account).
3. On the due date if you can pay, the lender cashes the check. 

If you want to expend your due time, you don't have to repay it, but the fees will accumulate.

For example : You borrow $100. The lender add a $15 fee. You cannot pay on your due time, so you rollover once (you get usually two more weeks to repay). When you can pay, you will pay $130 (100 + 15 + 15).

If you are interested in doing it, read our pieces of advice in this article.

Image : © Jason Comely, CC BY 2.0., re-sized.

Mutual Funds

What is a mutual fund ?

A mutual fund is a type of investment company that pools money from many investors and invests the money in different assets.

Have some examples ?

1. PIMCO Total Return 
2. Vanguard Total Stock Market Index Fund
3. American Funds Growth Fund of America

How does it work ?

Investors pull in money to form a mutual fund, and its managers invest the money to attain a certain goal.

What kind of shares ?

Mutual fund shares are "redeemable." Redeemable shares means that investors must, in a certain point in the future, buy the money back from the investors.

What is the frequency ?

The selling frequency depends on the goal of the fund.

Who manages mutual funds ? 

The investment portfolios of mutual funds typically are managed by separate entities known as "investment advisers" that are registered with the SEC. Trustees can ensure that investor's interests are safe.

What are the types of mutual funds ?

There are countless types of mutual funds : open-ended, debt/income, liquidity, growth, close-ended, etc.
Different mutual funds may also be subject to different risks, volatility, and fees and expenses, which are an important factor that investors should consider.

What should I consider first ?

• Goals and risk tolerance
• Charges and fees
• Evaluating managers and past results

What investment strategy should I adopt ?

It depends on your goals and capital. Nevertheless, the usual " do not put all the eggs in one basket " is wise. Each year, you should look at your mix of funds to make sure they still dovetail with your strategy of diversification.

Are there some known strategies ?

• Index funds : These funds are built to replicate the performance of they relevant market, so they should track that market's index.
• Actively-managed funds : The portfolio managers research the vast investment universe and then pick and purchase things that match their investment strategies. They are trying to outperform certain indexes.
• Lifecycle funds : invest in a combination of stock and bond funds. The fund's allocation to its underlying investments change over time as you near retirement.

Image : © Kevin Dooley, CC BY 2.0.