Uncertainty regarding world affairs threatens the value of most stocks. However, the energy sector is an exception to this rule. In any likely scenario, the United States is expected to need more oil and gas. By making educated investments in domestic producers and explorers, you can reduce stock market risks while providing probable prospects of gain. In this article, Adam Ferrari talks about this investment strategy to give you some ideas about how this sector can work for your portfolio.
Why Invest in Oil & Gas
Many investors are abandoning mainstream investment strategies that produce low yields in search of unique options that provide the opportunity for high investment returns. Direct participation in oil and gas joint ventures meets a wide variety of investment objectives, including long term passive income, high ROI potential, significant tax benefits, and portfolio diversification.
Lower current oil pricing has made some inexperienced investors shy away from participation in the oil and gas trading market. However, there’s more to the story than just the price of oil. New technology allows for more improved success rates in producing oil from fields, making the investment less risky than ever before. By investing in domestic producers and explorers with an established infrastructure, you can set the stage for strong investment performance over time.
Energy Investments Protect Your Portfolio
Oil and gas is a hard asset with low correlation to stocks and bonds. Therefore, this investment could protect your portfolio from short-term market fluctuations and ultimately deems itself recession-proof. Direct energy investments have a low correlation with traditional assets and generally enjoy a positive correlation with inflation.
By investing in energy such as oil and natural gas, you are protected from inflation movements and potentially volatile market conditions. This diversification strategy is foundational for many high-level investors, and you can have a share in the benefits.
Oil and Gas Investments Provide Attractive Tax Incentives
The IRS gives tax incentives to those willing to invest in domestic oil and gas production. Drilling program investments allow 60-80% of well costs to be fully deductible as intangible costs. The remaining 20-40% are classified as intangible costs and depreciated over 5-7 years.
15% of a property’s gross cash flow is tax-free. This comes in the form of a depletion allowance, which allows for a 100% deduction of property lease costs, sales expenses, and administrative/legal accounting expenses.
Investing in domestic producers and explorers in the oil and gas industry can serve to diversify and protect your investment portfolio, as well as grant you tax deductions that are highly beneficial to your bottom line.
While oil prices have dipped in the past, there is more to consider. Better technology is allowing for more accurate drilling procedures, reducing the risk of investment. If you are looking to mitigate recession-based fears in the market, investing in the energy sector through oil and gas might be a good option for you.
About Adam Ferrari
Adam Ferrari is the founder of the mineral acquisitions company Ferrari Energy. He is a chemical engineer by degree and is an accomplished petroleum engineer by profession. He also has experience in the financial sector through his work at an investment banking firm. Under his leadership, his company has supported numerous charitable organizations, including St. Jude Children’s Hospital, Freedom Service Dogs, Denver Rescue Mission, Coats for Colorado, and Next Steps of Chicago.