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Even
before Hurricane Katrina caused its
almost incomprehensible damage to the
Gulf Coast, most of us shuddered when we
had to fill our cars' gas tanks. With
prices at $3 a gallon in some parts of
the country, and crude oil hitting $70
per barrel, we were already in uncharted
territory. Then, Katrina temporarily
knocked out about 12 percent of U.S.
refining capacity, along with a
significant part of the Gulf's natural
gas and oil production.
Although there was some
recovery and gas prices did dip, the
last few days have seen them head up
again with most regular unleaded selling
at or about $2.55.
You are getting no relief as
a driver. But how about as an investor?
Do you need to adjust your investment
strategy in response to high oil prices?
It is a difficult question.
If oil prices and energy costs continue
to remain high, it is probably not good
news for some areas of the financial
markets. Although businesses are looking
for ways to offset higher energy costs,
they will eventually be forced to pass
on these expenses to consumers or accept
lower profit margins, and either
development could hurt stock prices.
On the other hand, some
stocks or industries may actually
benefit from high oil prices. You might
hear that now is a good time to invest
in energy companies. And it may be true
that, in the coming months, some of
these stocks will do well. But you need
to be cautious about basing any
investment decisions on short-term
trends.
So, what can you do to avoid
being buffeted by forces and events that
you can not control? Consider these
suggestions:
Diversify The more
diversified you are, the less
susceptible your portfolio will be to
rising oil prices, higher interest
rates, political turmoil or other
factors. Spread your dollars among
high-quality stocks, investment-grade
bonds, Treasury bills and other
securities.
Know your risk tolerance
If your investments are keeping you up
at night, then you are taking on too
much risk. On the other hand, if
ultra-conservative vehicles, such as
certificates of deposit, dominate your
holdings, you may be limiting your
needed growth potential. You may want to
work with an investment professional to
create a diversified portfolio that
accurately reflects both your risk
tolerance and your long-term goals.
Look at the fundamentals
You will find it much easier to avoid
being influenced by short-term events if
you become familiar with the
fundamentals of an investment. For
example, if you're considering a stock,
you can take into account how it might
be affected by rising energy prices, but
don't stop there. Is it a stable
company? Does it seem to be priced
fairly? Do its products or services have
good long-term potential? Does it have a
solid management team? And, perhaps most
importantly, does it meet your specific
investment needs? By digging deep into
your reasons for investing in any
security, you'll position yourself to
make smart decisions.
Focus on the future
Today, high energy prices, and their
possible impact on the economy and the
financial markets, are making big news.
Next year, who knows? The fact is that
there will always be reasons to shake up
your investment strategies. But the
smartest investors are the ones who find
the course that is right for them and
stick with it. |
