You can probably guess what kinds of companies make up the energy sector of the S&P 500. Companies like Exxon, Chevron, Kinder and Morgan all make up the energy sector’s stocks. As you’re building a well-rounded, diversified retirement and stocks portfolio, it’s important to start looking at sectors like energy to bring in other pieces of the puzzle.
Energy’s Impact
The energy sector alone makes up about 6% of the S&P 500. Many times, as our clients engage in retirement planning and approach the move to retire, they begin looking into sectors like energy to offer some stability to their retirement and stocks.
The only problem: in early 2020 we saw some volatility in this part of the market. If you think about it, this makes sense: with everyone quarantined indoors, many people were not traveling anywhere, which meant no one was buying gas.
The Future of Energy
While a unique scenario like this is unlikely to happen again, no one knows the future. In any case, it damaged many retirement portfolios centered around the energy sector, resulting in loss.
So, should you invest your retirement and stocks in the energy sector for 2021? We recommend that if you’re going to build a well-rounded portfolio, you need to start looking at some of these companies. Kinder and Morgan, Chevron, Exxon, and more are going to build diversification into your portfolio, which can offer stability across portfolios you manage in the long run.
The other scenario to consider is energy is unlike many S&P sectors because energy is evolving. While we still rely mostly on fossil fuels today, that may not always be the case down the road. New forms of energy are a potential untapped resource in many ways, which means the potential for growth in stocks of the energy sector is large.
If you’re retirement planning, but still have a ways to go before retiring, the energy sector could be a moderate-risk bet for growth in the long-run. But no matter your risk tolerance, the energy sector is a great way to balance out a retirement portfolio and diversify your stocks to enhance your financial and retirement planning.