Fi Seekers: Investment Strategies

FI people invest in a variety of things. This includes stocks, bonds, mutual funds, exchange-traded funds (ETFs), real estate, precious metals, and even cryptocurrencies. Some FI people also invest in collectibles, such as Pokemon and Magic the Gathering cards, comic books, and vinyl records. However, these are not considered stable investment tools due to their diminishing marginal returns.

When it comes to investing, FI people tend to focus on the long run. They believe in making their money work for them and are willing to take on minimal risk to achieve their financial goals. This means that they may invest in low-cost mutual funds and blue-chip S&P 500 stocks, rather than taking on more risky investments with the potential for higher returns.

Additionally, FI people may also utilise robo-investing apps, which use complex algorithms and forecasting models to optimise their investments. These apps can be a great way to automate investing and remove some of the emotional aspects of decision-making.

Overall, the key to successful investing for FI people is to have a long-term mindset, do their research, and utilise the tools and strategies available to make their money work for them.

Natural resources and infrastructure

There are several reasons why investing in natural resources is a good idea:

• Rising incomes in developing countries lead to an increased demand for precious metals, building materials, and other natural resources.
• Developing countries have a high demand for materials needed for infrastructure development, such as gravel, lumber, and steel.
• Political buying by nations to ensure a consistent supply of crucial raw materials.
• Natural resources act as a store of value, especially metals, which become more attractive during inflation.

Natural resource investing covers anything mined or collected in raw form, including lumber, coal, gold, oil, and water. It also includes more specialized types of investing, such as oil and gas investing, precious metals investing, and minerals and base metals investing.

One popular way to invest in natural resources is through mutual funds. Some of the biggest natural resource mutual funds include:

• Fidelity Select Chemicals Portfolio
• Allianz Global Water Fund
• Icon Natural Resources and Infrastructure Fund
• BNY Mellon Natural Resources Fund
• T. Rowe Price New Era Fund

In addition to mutual funds, there are other ways to invest in natural resources, such as direct investment, futures and options, exchange-traded funds (ETFs), and buying individual stocks.

When it comes to infrastructure, nature-based solutions are effective, economical, and sustainable. They can provide clean and reliable water supplies, improve and maintain harbors and inland waterways, and reduce risks from floods, droughts, and fires. For example, natural infrastructure like sand dunes, marshes, and reefs can reduce wave heights and absorb storm surges along coasts.

Infrastructure policy that includes nature-based solutions can support robust economic development, improve the quality of life in communities, and sustain natural resources for future generations.

Private equity

There are several types of private equity deals:

• Buyouts: Acquiring an entire company, whether public, closely held, or privately owned.
• Carve-outs: Buying a division of a larger company, typically a non-core business.
• Secondary buyouts: Buying a company from another private equity group.

Some common private equity strategies include:

• Minority investments in startups: Funds invest in many businesses with unproven business models, hoping for a few major successes to make up for high failure rates.
• Minority investments in more mature companies: Funds invest in companies that need capital to grow, commercialize, or professionalize.
• Majority investments in mature companies: Funds invest in well-established companies and restructure their finances, governance, or operations to maximize returns.

Real estate

There are four main ways to invest in real estate: residential rental properties, commercial real estate, real estate investment trusts (REITs), and real estate investment groups (REIGs).

Residential Rental Properties

Residential rental properties are homes that have one to four units, such as a single-family residence (SFR), duplex, triplex, fourplex, townhome, or condo. Investors can finance these homes through a traditional bank, similar to a primary residence. There are three primary ways to invest in rental properties: retail, turnkey, or distressed.

• Retail: Buying a home off the MLS using a realtor, which was likely not a rental before but will be turned into one.
• Turnkey: Homes that an investor has converted into a rental property and already has a tenant in place.
• Distressed: Homes that need repair and are unattractive to most buyers, so investors take on the risk of the unknown and then rehab the home to create value and attract tenants.

Commercial Real Estate

Commercial real estate (CRE) investors look to invest in apartments (five or more units), office buildings, strip malls, storage unit complexes, and more. The cash flow of CRE properties determines the value of the property and the terms of the loan.

A REIT is the real estate equivalent of a mutual fund. Like a mutual fund, REITs have multiple investors and focus on a particular sector of the market, such as shopping malls, commercial properties, or retirement homes. REITs must distribute 90% of their taxable income as dividends to shareholders. They are bought and sold on major exchanges like stocks and can be publicly traded or non-traded.

REIGs are ideal for people who have some capital and want to own rental real estate without the hassle of managing it themselves. REIGs are similar to small mutual funds, pooling money from multiple investors to invest in rental properties. A company operating the REIG collectively manages all the units, handling maintenance, advertising vacancies, and interviewing tenants. In exchange, the company takes a percentage of the monthly rent.

Energy

The energy sector is a challenging one for investors, especially when it comes to oil and natural gas companies. Energy prices can change very quickly, and volatility in this sector can have a massive impact on the global economy.

However, the energy sector is vital to the global economy, producing and supplying the fuels and electricity needed to keep things running.

Renewable Energy

Renewable energy companies manufacture components to produce electricity using renewable resources such as solar, wind, hydroelectric, and geothermal power. They also include companies that operate and develop renewable energy-generating facilities.

Examples of renewable energy stocks include:

• Solar energy stocks: manufacturing solar panels and components to generate electricity from the sun.
• Wind energy stocks: manufacturing wind turbines and blades.
• Hydrogen stocks: producing hydrogen, a potentially emission-free fuel that could replace fossil fuels.

Oil and Natural Gas

These companies focus on finding, producing, transporting, storing, refining, and exporting fossil fuels.

Examples of oil and natural gas stocks include:

• Oil stocks: companies that locate, produce, transport, and refine crude oil.
• Natural gas stocks: companies that find, produce, transport, and export natural gas.
• Liquefied natural gas stocks: companies that develop and operate facilities to liquefy and export natural gas.
• Refining stocks: companies that process crude oil into refined petroleum products such as gasoline, diesel, and jet fuel.
• Pipeline stocks: companies that operate pipelines and infrastructure to transport, process, store, and export energy products.

Utilities

Utility companies generate and distribute electricity and natural gas to customers.

Examples of utility stocks include:

Electric utility stocks: companies that generate and distribute electricity to customers.

Factors to Consider

When investing in the energy sector, it is important to keep in mind the risks involved and not allocate too much of a portfolio to one energy stock or the entire industry.

Factors that increase an energy company's durability include:

• A low-risk business model: for oil and gas producers, this means having diversified operations and low production costs. For energy infrastructure companies, this means having stable revenue with minimal exposure to fluctuations in volumes or pricing.
• A strong financial profile: a high investment-grade credit rating, high liquidity, and minimal near-term debt maturities.
• Manageable capital spending programs: financed primarily with post-dividend free cash flow and prudent use of debt.

Oil and gas

Direct Investment in Oil Wells

Also known as direct participation, direct investment in oil wells has two categories: working interest ownership and limited partnership ownership. With working interest ownership, investors own a portion of the oil well and have more obligation. With limited partnership ownership, working capital is used to further empower general partners.

Investing in Oil and Gas Companies through the Stock Market

Investors can gain exposure to oil by investing in publicly traded companies such as ExxonMobile, ConocoPhillips, and Phillips 66, many of which are involved in oil exploration. In addition to ADRs and large-cap stocks, there are also micro-cap stock opportunities. When evaluating companies to invest in, look at the company's return on assets, operating cash flow, balance sheet liquidity, and their earnings growth on the income statement.

Investing in Oil Futures

Oil futures are contracts in which two parties agree to exchange a set amount of oil at a set price on a set date. When trading futures, you are actually trading the contract itself, not the oil or underlying commodity. If the price of oil rises, the contract may become more valuable, and the owner of the contract could sell it for a profit. If the price of oil falls, the contract could lose value, and the owner could lose money.

Other Considerations

Before investing in oil and gas, it is important to conduct thorough research and understand the potential risks. These risks include commodity price volatility, the possibility of accidents during production, high liquidity, dividend cuts, and risks associated with machines and equipment used in exploration. It is also important to evaluate market conditions for oil prices and production costs, as global supply and demand drive crude oil prices.

Additionally, there are tax benefits associated with oil well investments, including deductible tangible and intangible drilling costs on federal taxes. To qualify as an accredited investor and participate in oil and gas private placements, individuals must have a net worth of at least $1 million or an annual income of over $200,000.

Frequently asked questions