Investing in Coal – Things to Consider

Coal mining has had an extensive history on our planet. The Industrial Revolution of the 18th century was directly based on the ability to mine coal in massive quantities. Modern techniques involve surface mining, which takes advantage of exposed coal seams on the surface, area mining, which blasts open earth to get to the coal, and the controversial mountaintop removal mining, which essentially cuts off the top of a mountain to get to the coal. Although labeled a dirty source of energy that alternative energy industries seek to replace, coal is still a major part in modern everyday life. This could make investing in coal a lucrative option.

The filthiest of all energy sources, coal emits hazardous pollution when it is burned, but energy is scarce around the world and gas and oil prices are always on the rise. Coal is proving to be a cheaper, more reliable energy source and is being used all over the world. In the United States, coal accounts for as much as 45% of generated electricity which is nearly twice the electricity that natural gas produces. Recent legislation even encourages clean-coal technologies, which means that the demand for coal will stay around, at least for a while.

Coal ETFs come with plenty of advantages. ETFs are cost-effective, they come with lower capital gains taxes, there are derivatives involved, and an ETF can be purchased with a single transaction. Coal ETFs have plenty of flexibility and prices are updated throughout the day just like stock market equities. The passive management and strong accountability factors make ETF investments attractive, and the immediate dividends are almost irresistible. Coal ETFs can be used as a hedge to cut down on portfolio risk. With any investment, it’s a great way to diversify your portfolio and exposing you to the energy sectors, which could lead to diversification into the alternative energy sector.

Of course, with any investment, coal assets are potentially risky. Buying opportunities for coal currently exist because people are becoming more energy conscious and coal has gone into a surplus, meaning that supply outweighs demand right now. This could mean buying coal investments at rock-bottom prices, or could be an indicator of a bear market. It’s up to the individual to decide and go with his or her intuition. Consider other energy ETFs if you are in the market for investing in energy, and consider renewable energy sources as demands rise.

About Richard Wilson