Energize Your Portfolio with Energy ETFs

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Energy crisis, financial crisis, world crisis. Seems like the word crisis is thrown around a lot on the news. So how does one protect their investment portfolio against these negative implications? Enter ETFs. or more specifically Energy ETFs.

If your portfolio has exposure to the energy sector or needs exposure to the energy sector, energy ETFs might be solid investments. And even a portfolio that just has general inflation risk can reap the benefits of energy ETFs. Here are five reasons why energy ETFs can be considered for your investment strategy .

1. Energy ETFs Allow Exposure to Energy Companies

Does your research indicate that companies involved in the energy sector are a bullish investment? An oil industry ETF can give an investor exposure to oil companies without purchasing a plethora of oil stocks. Thats a lot of buy orders and a lot of commissions. With just one trade, an oil ETF like the OIH can instantly add 13 or more oil stocks to your portfolio with one simple transaction.

2. Energy ETFs Allow Exposure to Energy Commodities

Maybe you want to buy an ETF that gives you exposure to energy as a commodity instead of energy companies. Not a problem. An energy commodity ETF like UNG consists of natural gas futures giving the owner exposure to the actual commodity and not the companies involved with it.

As an added bonus, some funds like UNG list options on the ETF giving an investor more weapons for his or her investing arsenal.

3. Hedge Energy Exposure with Energy ETFs

If you have a portfolio that includes a lot of energy companies or even energy commodities, an energy ETF can provide protection for your downside. When you sell an ETF. your energy investments may lose on a decline, but your short energy ETF position will create gains to help offset those losses.

If you have difficulties selling ETFs for reasons like margin or limitations, you can still put on a short position by purchasing an inverse ETF. Inverse ETFs move in the opposite direction of their correlating investment vehicle. However you dont have to sell them, they are designed to create a short position on the buy transaction.

4. Diversify Your Portfolio with Energy ETFs

If your portfolio is heavily invested in only a few areas, an asset like a solar energy ETF or coal ETF can help reduce portfolio risk by creating a nice diverse investment. You dont need to go out and buy a lot of commodities, futures, or energy equities. Get started by purchasing an energy ETF and track the performance. Its always an intelligent decision to have a diversified portfolio, so that all of your risk isnt tied to one sector. A bad year for that sector means a bad year for you, with nothing to offset losses.

5. Energy ETFs Can Help Hedge Inflation Risk

For over 50 years, energy has shown steady growth. For example, oil prices have risen 6.5% yearly. The Consumer Price Index over the same period grew at 3.9%. As you can see, energy is a sound commodity even during times of crisis. But as with any investment, be prepared for ups and downs.

Energy seems to have an inverse relationship with the U.S. Dollar. And though currency ETFs can be a good hedge for the dollar, energy ETFs may work as well.

So there are multiple reasons energy ETFs, could be valuable assets for your portfolio. Not to mention the ETF tax benefits as well. So whether you have minimal energy investments or a lot of energy investments like mutual funds. there are many ways to implement energy ETFs to your advantage.