America’s Retirement Accounts Heavily Invested In Oil, Gas
February 16, 2015 by Allison Dyer Bluemel, Greeley Tribune, Colo.
Feb. 13–The well-being of the oil and gas industry may affect the average American beyond what we pay at the gas pump. Many Americans may only have to look as far as their 401(k)s.
Non-insider individuals hold 65.5 percent of the industry’s stock weaved into their 401k retirement plans, according to a 2014 study conducted by Robert J. Shapiro and Nam D. Pham with Sonecon.
“The average American has quite a bit of exposure to the industry,” said Bruce Hemmings, senior vice president of wealth management at The Hemmings Group at Morgan Stanley in Loveland.
Sonecon operates as an economic consulting company that provides security and risk-management services to organizations such as the American Petroleum Institute, according to a news release from the API.
“The principal takeaway of this study is this: When oil and natural gas companies do well, so do millions of their owners all across America,” said Kyle Isakower, API vice president, in a news release. “It concludes that a large proportion of the benefits of oil and gas company stock ownership goes to middle class Americans.”
However, while the average American may be affected by the well-being of the oil and gas industry’s stock, Hemmings said recent volatility in the industry should not pose a large threat.
In the short term, investors can anticipate volatility in the market as global oil demand and geopolitical tensions continue to evolve, he said.
“The demand for energy will continue to grow over the long term, however, as economies improve,” Hemmings said.
Investors who hold stock through their company’s 401(k) plans, which are often managed by an analyst who spreads out investor’s holdings across multiple industries.
“Most retirement investors are diversified and have probably been insulated against the oil and gas market to some degree,” he said.
This means = individual investors will not receive a hard hit from the industry’s downtown if their portfolios are properly diversified and not heavily reliant on oil and gas.
“Anytime you have a sector investment, the portfolio tends to be more volatile,” Hemmings said.
As the stock-risk is unique to each company, Hemmings said investors need to do thorough analyses by looking at the Standard and Poor 500’s performance. The S&P 500 is a list of the 500 largest companies thought to be most representative of the U.S. economy.
As of Feb. 13, the S&P 500 had one of the strongest performance days on record, he said.
Potential investors also should look at the cash flow of individual companies to see what the company’s priorities are during the market’s fluctuation, he said.
The Sonecon study drew on 2014 data from the Securities and Exchange Commission of 201 publicly-traded oil and natural gas companies traded on one of three major U.S. stock exchanges: the New York Stock Exchange, NASDAQ and American Stock Exchange.
SEC data revealed = individual investors who are not company executives or directors hold 65.5 percent of the industry’s stock with most of their shares found in pension plans and retirement amounts. Of that 65.5 percent, public and private pension plans accounted for 28.9 percent and 401(k)s and IRAs held 17.9 percent. Additionally, individual investors managed 18.7 percent of the shares outside pension plans and retirement accounts.
“It’s not surprising,” Hemmings said. “Oil and gas has had broad investor appeal historically and continues to have good long-term growth and good returns on investments.”
Despite recent turmoil and price drops in the oil and gas industry, Hemmings said Morgan Stanley officials feel optimistic about the future of energy stocks, though the short-term activity will remain volatile.
“Investors in the energy sector should maintain a view of the long-term aspects of the economic growth in the worldwide industry,” he said.
The study estimates = private pension plans hold $327 billion in oil and gas shares, public plans hold $234 billion in shares and IRAs hold and estimated $348 billion in shares in energy stocks.
“These data … show that middle-class households dominate the ownership of U.S. publicly-held oil and natural gas companies,” according to the study.
“Where there is heavy oil and gas activity investors are more educated,” Hemmings said. “Good education is the key to good investing.”
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