Is Crude Oil a Good Investment?


Whether or not crude oil is a good investment is dependent on one's specific investment goals, risk tolerance and investment experience. Given that these characteristics vary greatly among investors, crude oil can be a good investment for one individual and a bad investment for another individual.

There are several crude oil options for various types of investors. Advanced investors who are willing to take risks can invest in volatile oil futures and options. Alternatively, an advanced investor can even invest directly in a particular oil well or oil drilling company. This is the riskiest investment scenario involving crude oil, but it pays the highest potential reward. While it may prove to be a good investment for the risk-taker, it is too risky for conservative investors and/or investors with low risk tolerance.

Investors with low risk tolerance can mitigate some of their risk by investing in an oil exchange-traded fund or investing in integrated oil-traded stocks. This creates a diversified crude oil portfolio that is unlikely to experience dramatic swings in its worth. While these crude oil investments would please conservative investors, the potential profit would not be sufficient for investors with a high risk tolerance who are seeking a significant reward.