How to Invest in Natural Gas Stocks

The search for natural gas expands to new energy sources.

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Stock markets can be daunting -- the bells, the rush, the frenetic traders. Then there's the unbridled hope among investors hoping to retire on savvy investment picks, along with the threat of financial ruin. As epicenters of change and arbiters of trends, stock markets echo contemporary concerns, which is how natural gas stocks became such hot commodities. Energy-related issues headline today’s news, and activity in natural gas stocks reflects this.

Step 1

Determine your risk quotient. Financial planners and advisers often begin relationships with new clients by figuring out their risk tolerance. Do the same before diving into natural gas stocks. Ask yourself simple questions, such as: Am I a risk-taker by nature? How do I feel when facing financial loss? Am I likely to panic if my assets are on the line? Your reactions offer insights into your investing mindset and can help you decide whether you’re risk-taking, risk-averse or somewhere in the middle.

Step 2

Learn how the stock market works if you’re not already knowledgeable, and then turn your attention to the topic of energy reliance and the state of natural resources. Your education can take the form of classes, resource texts, e-books or financial publications devoted to the natural gas industry. Learn about drilling, technology and mining trends related to natural gas deposits. Based on your homework, decide whether you’re comfortable investing on your own or whether you need a fund manager to help.

Step 3

Affiliate with a broker specializing in natural gas stocks. If you can’t find a specialist, at least locate a broker who has some experience analyzing, buying and selling natural gas stocks. You can choose an online broker if you’re busy or if you don’t live in a major metropolitan area. But if you prefer to communicate by phone or in person, follow your instincts and pick a communication platform that’s comfortable. You relationship with your broker is extremely important.

Step 4

Diversify your holdings by starting your portfolio of natural gas stocks with between 12 and 20 picks, recommends Investopedia. Choose from firms finding and drilling for natural gas. Add those engineering the equipment, technology and methods necessary to retrieve gas deposits from myriad sources. Include stocks related to auxiliary industries that have been launched or are thriving as a result of regional natural gas exploitation.

Step 5

Proceed slowly and methodically. According to “Money Magazine," slow economic growth triggered renewed interest in fossil fuels in the 21st century – particularly in concert with expanding Canadian natural gas exploration efforts. Focus on advances made in horizontal drilling into shale. This method of natural gas retrieval, also known as hydraulic fracturing or fracking, is where the most money to tap new deposits is being invested.

Step 6

Follow the pipeline. This advice offered by “CNN Money” financial guru Ali Velshi is a succinct way of saying that as research and developments related to natural gas stocks emerge, your future financial success can rest on the back of projects such as the Keystone pipeline. Pursue stocks issued by companies closely aligned with this project. For example, Kinder-Morgan, a pipeline firm, might deserve a slot in your stock portfolio alongside Chesapeake Energy, United States Natural Gas and Encana Corp., all recommended by global stock analyst and commodities expert Arie Goren on Seeking Alpha.

Step 7

Invest locally; think globally. Investing in U.S. natural gas stocks isn’t the only path to wealth. Goren says that although Poland proved a bad bet for natural gas exploration, Siberia has taken its place, which is why Exxon Mobil is investing heavily in Russian oil shale. Prospects can change in a heartbeat, with new natural gas resources popping up as others prove disappointing. But if you’re diversified, you can weather the ups and downs of natural gas stock investing while pursuing your financial dreams.