As An Investor, What Should You Do About Oil Prices?
No one can consistently predict where stocks will go in the short run, but everyone can predict, with reasonable confidence, where stocks will go in the long run: Up. If your time horizon is long enough, you can be reasonably confident (though of course not 100% sure) that a diversified portfolio of stocks will make money.
But oil is a different story. No one can consistently predict where oil prices will go in the short run or the long run. Demand spikes, prices go up. Exploration companies increase their drilling activity to meet demand, and prices stabilize. Demand drops due to a recession or any number of other factors, and there is a glut. Prices drop, and the cycle begins again.
So how should an investor think about oil?
As volatile as oil prices can be, it still makes sense for investors to at least consider investments in oil majors such as ExxonMobil or Chevron--especially if dividend income is important, as some of these companies have historically been very consistent with their dividends regardless of what happens to the price of oil.
An investment in an oil company should be considered using the same set of criteria as any other investment, taking into account your goals, time horizon, and risk tolerance. If you decide an oil company investment is right for you, simply stay the course, almost regardless of what oil prices do. Don't try to game the market or guess where oil prices will go. And remember the "diversified" part in the first paragraph above: Don't let oil become an outsized portion of your portfolio.
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