TEXAS, USA — Today, in Texas in May 2021, oil and gas account for roughly 9% of the state's GDP. That is down from nearly 35% in 2019 as the sector took a big hit last year.
So is this an investment opportunity for you? Certified Financial Planner Neil Vannoy urged some caution considering last year's performance.
"Energy was the worst performing sector last year, so it might be tempting to make a bet on it recovering, but there's no way to predict that in advance," he said.
It is especially tough to predict with the large green energy push in America this year. Also, many have blended funds in retirement accounts, so the question is: Do you have enough exposure to the sector? Or should you expand in the highly volatile market?
"The S&P 500 currently has a 2.3% weight in energy, so if you hold a diversified portfolio, you likely already have exposure to the sector," Vannoy said.
Vannoy said if you're going to go heavier in gas and oil, make sure to protect yourself. He explained how.
"I prefer to get market exposure though diversified index funds as opposed to picking individual investments, and that's especially true for a volatile sector of the market like energy," he said.
Again, it's fine to have oil and gas in your portfolio and when the sector is booming, you'll do well. But Vannoy said diversification is the key.
"I think most people would be better off avoiding sector bets, but if you do want to invest in oil and gas consider using a low-cost sector mutual fund or ETF over the stocks of individual companies," he said.