Best Way to Make a Long-term Oil Play

Buying into falling oil prices may not at first seem like a long-term investor’s idea but it can be done in a smart, strategic and sound way.
You don’t need to be a trader or short-term investor to buy into what may be an outstanding buying opportunity amidst the current oil price volatility. In fact, it may be best to stay away from technical charts and market timing moves with the price of crude. It’s the long-term investors that may be best-suited to benefit from falling oil now.
The reason I say this is that long-term investors don’t need to worry about catching the proverbial falling knife, nor do they need to pick (or I should say guess) a low point to buy shares of energy stocks. Long-term investors don’t even need to pick stocks!
How can long-term investors do this, you ask? It’s simple: Just start buying shares of a diversified energy ETF or an index mutual fund that holds quality energy companies.

The Best Time and Best Price for Long-term Investors to Buy Into Oil

And now for the next question: When is a good time to buy energy funds and at what price? For the long-term investor, as the saying goes, the best time to buy was yesterday, the second best time to buy is today, and the worst time to buy is tomorrow. The price doesn’t matter much and waiting until later is usually a bad idea.
To give you something more meaty to chew on, now is as good of a time as any to buy into energy funds. While the price of oil is not correlated perfectly with the price of energy stocks, it can be used as a barometer for choosing purchase points. For example, I started making purchases into energy funds for client accounts once oil dropped below $50.  I may make more purchases at lower points, such as $45 and $40.
The general idea is to average the price lower but don’t chase oil prices down indefinitely. In different words, a smart strategy for long-term investors to take advantage of falling oil prices is the time-tested dollar-cost averaging strategy.
Also, there is no need to make big bets. Choose a set target amount, such as 5% of the portfolio, or a dollar amount, such as $10,000, and you may leave more available for other purchases if the price of oil continues to slide and energy stocks slip along with it.
In fact, to remove all of the price-watching and anxiety that can come along with it, a smart investor can simply buy an energy fund now for as little as $3,000 and start dollar-cost averaging a set amount every month with a systematic investment plan, which is available at any reputable discount broker or mutual fund company.

Best Energy Funds to Buy Into Falling Oil

And now to address the final question on your mind: Which energy funds are best for taking advantage of the current oil crisis? The answer is just as simple and smart as every good long-term investment strategy: Buy the funds that hold a diverse mix of high quality, large-cap energy stocks that are likely to survive low oil prices, even below the feared $40-per-barrel mark.
A solid energy sector ETF is Energy Select Sector SPDR (XLE), which is one of the most widely traded energy funds on the planet, and for good reason. Top holdings include large-cap value energy bedrocks like Exxon Mobil Corp. (XOM) and Chevron Corp. (CVX).
For a high quality, low-cost mutual fund that has similar holdings as XLE, look at Vanguard Energy (VGENX). The expense ratio is only 0.38%, or $38 per $10,000 invested, and the minimum initial purchase is $3,000.
To summarize, keep things simple and don’t try to outsmart the markets. Dollar-cost averaging into a good ETF or mutual fund is a smart way for long-term investors to buy into falling oil.
As of this writing, Kent Thune did not hold a position in any of the aforementioned securities. Under no circumstances does this information represent a recommendation to buy or sell securities.

Cheap Oil Here to Stay – For Now 

Crude hasn’t been this cheap since March 11, 2009. And it’s likely to stay low for a while. OPEC refuses to cut production. And US production is expected to increase – not decrease – an additional 600,000 more barrels a day. The Saudis have played this one wrong – and you could profit from their blunder. Top analyst Tyler Laundon’s found what he considers the best way to play this new, cheap oil boom. Click here for all the details.