Best Oil ETFs To Buy

Best oil ETFs to buy in 2017. Best online brokerage firms for oil investing. Top ETF funds for oil trading.

About Oil ETFs

The new way of investing in oil is to invest in an oil ETF or exchange traded fund. One look at the price of gas when fueling up for the weekly commute should provide great incentive for most investors to consider oil ETFs. After all, we all have to have gas and oil, right? With the skyrocketing of gas prices, ETFs are performing well and are a sound investment for a number of different investors. With an oil ETF, you do not actually own oil. Instead, the fund is made up of forward contracts, futures, and options for oil, gas, and petro-based fuels without the need to have an oil well pumping in the back yard.

An oil ETF allows the investor to invest in oil commodities without the risk and cash layout required to purchase a direct oil contract. The ETF works by pooling the dollars of multiple investors so that the smaller investor can participate in the losses or gains that follow the rise and fall of the price of oil.

How Does the Oil ETF Work?

The oil ETF is not a stock, since there is no “company” to buy into, but is traded very much in the same way that stocks are traded. Essentially, an ETF trades like a stock but is setup almost like a mutual fund. ETFs have a lower expense ratio than mutual funds, however, and are a more affordable alternative for the average investor. Mutual funds do not offer the flexibility of the ETF, although both are managed funds that can help to diversify an investor’s portfolio while hedging against volatility and risk. For long term investing, no investment exceeds the potential of the oil ETF. Most ETFs are traded on the stock exchanges and have their own ticker symbol.

Why Buy Oil ETFs?

One of the best things about buying oil ETFs is the simplistic nature of the trade. Purchasing individual company stocks in oil companies (and choosing which to invest in) can be time consumptive and risky. Even if you choose to invest in an oil index, there is another challenge to overcome: purchasing the equities in the basket to target a particular price. Commissions can make it difficult to achieve your objective. With the purchase of an oil ETF, you will make just one purchase that will save you commissions. The ETF is pre-bundled ahead of time, giving you automatic exposure to oil prices without the heavy research.

Advantages of Oil ETFs

Investing in an oil ETF give the investor a tax benefit. Capital gains tax is not incurred until the fund sale, which gives the ETF a huge tax advantage over other types of investments, including mutual funds. Moreover, this type of ETF allows the investor to hedge their portfolios against risk while adding stability to the portfolio, even in uncertain market conditions. In fact, even for short-term protection, oil ETFs can be the answer.

Choosing an Oil ETF

When choosing the right oil ETF for your portfolio, professional help is advised. Your broker will best know your risks and can analyze the ETF options for you in a way that most investors cannot. Once you decide to invest in an oil ETF, you will need to decide in which category you want to put your dollars. Some ETFs are invested in oil direct through futures contracts, while others may invest only in the stock of oil companies and oil industry-related companies. You should also research each individual oil ETF to determine which the best is for you.

Best Oil ETFs

When considering an oil ETF, think about the following top-performers:

  - United States Oil Fund LP (USO). Among all oil ETFs, USO is the most actively traded with nearly nine million shares in circulation. Even though USO is not the most efficient oil price tracker, it is super liquid for investors who make short-term investments.

  - Pro Shares Ultra Crude Oil (UCO). This ETF is runner-up only to USO when it comes to liquidity and has around 4.5 million shares trading each day.

  - iPath S&P Total Return (OIL). With around 3/4th of a million shares trading daily, this oil exchange traded fund tracks the Goldman Sachs Commodity Index.

Best Online Brokerage Firms For Oil Investing

Historically, only well-heeled or institutional investors traded in oil, but financial products such as oil ETFs have opened the door to smaller investors. The ETF’s more affordable price, ease of use and liquidity make it a popular financial product and gives investors more ways to buy and sell this commodity.

Investors now don't need to overpay for oil ETFs and stock transactions. For trading oil ETFs we recommend brokerage firm called TD Ameritrade, that charges just $6.95 for stock or ETF trade. Read full TD Ameritrade review under this link.

Best Gold ETFs

Gold has been a popular investment for thousands of years. It can be spent anywhere in the world. It can be used to diversify a portfolio or as a hedge against inflation. It’s traditionally a stable, safe-haven investment when market volatility is high. And enthusiastic gold consumption by China and India means that it’s currently in demand.

But buying gold -- at least in its physical form – is a pain. Transferring gold coins or bullion is inconvenient and risky. Commissions can be steep. Storing gold safely often means additional expense. Gold ETFs offer an easier way for the average person to invest in this precious metal.

ETF stands for exchange-traded fund. An ETF tracks a specific index or commodity, roughly like an index mutual fund. But it’s more convenient than a mutual fund, because while mutual funds can’t be traded until the end of the trading day, ETFs can be traded at any time of the day. They can also be bought on margin or sold short, making them a more versatile investment.

A gold-backed ETF is an exchange traded fund that tracks the price of gold, with gold as the underlying asset instead of stock.

There are three kinds of gold ETFs -- all of which track the performance of gold in different ways. They may be gold-backed, which means that the fund actually owns the gold bullion to back its shares. One share of a gold-backed ETF represents a fractional interest in the fund’s trust. But it’s important to note that investors who buy shares of gold-backed ETFs do not receive any actual gold – just the ETF shares.

Other gold ETFs track the performance of gold using options and futures contracts. A third kind of gold ETF consists of stock from companies closely associated with gold, such as mining companies.

Three best gold ETFs in 2017 that are most recommended are SPDR Gold Shares (symbol GLD), iShares Gold Trust (symbol IAU), and ETF Securities Swiss Gold Shares (symbol SGOL). At the end of 2011, these three gold ETFs had annual returns at or near 20 percent -- crushing the overall market.

Read GoldMoney review »

Each of these ETFs is a gold-backed fund, and each has its own peculiar strengths and weaknesses. Which one you consider “best” depends on your circumstances and investment goals. Since all gold-backed ETFs track the price of gold, the determination of which is “best” will depend on diverse factors – things such as a fund’s liquidity, its expense ratios, or even the physical location of its gold bullion.

The gigantic SPDR Gold Shares, or GLD, is the largest gold ETF at $63 billion in assets. In August 2011, it was, briefly, the largest ETF in the world, surpassing even the SPDR S&P 500 ETF. The GLD trust holds more physical gold in reserve than some countries. GLD's share price represents about 1/10th the price of an ounce of gold.

At time of publication, The website rated GLD a “buy” and the Zacks Investment Research website named it first in a list of “our favorite products in the gold ETF space.” Analysts who recommend GLD point out that its huge volume gives day traders the liquidity they need to make their trades easily and quickly. However, trading GLD requires some capital – at time of publication, it was trading near $160 a share. GLD also charges 0.4 percent in fees a year, more than some other ETFs.

The second gold-backed ETF is iShares Comex Gold Trust, or IAU, coming in at a much smaller, but still formidable, $8 billion in assets. IAU shares are much more affordable than GLD shares, but represent a smaller amount of gold: the price of IAU represents about 1/100th of an ounce of gold, rather than 1/10th the price of an ounce, like GLD shares. Analysts who recommend IAU say that it’s more cost-efficient, charging investors only 0.25 percent in expenses a year. At the time of publication, IAU was trading near $16 a share.

The third most recommended gold ETF is ETFS Physical Swiss Gold Shares (SGOL). This smaller ETF has only $1.8 billion in assets, but is attractive to some investors because all of the fund’s gold is held in secure vaults in Switzerland. This may appeal to those who want to diversify the locations of their gold investments, or because they perceive Switzerland to be a safer repository for gold than the U.S. or the U.K. This ETF has an annual expense ratio of 0.39 percent, comparable to GLD, and at time of publication, it traded near $160.

Updated on 9/20/2017.

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