As oil prices have continued to plummet and commuters across the country have regaled the resulting savings at the pump, investors in oil and gas related stocks, ETFs and master limited partnerships have been shocked by the crushing losses on their brokerage account statements.
With interest rates near all-time lows, some financial advisors with clients seeking income have strayed from the usual safe, reliable treasury bills, high-grade municipal bonds, and the like, instead recommending riskier investments in search of higher yield and more income. If such investment advisors recommended securities tied to the oil and gas sector, the last few months may have proven disastrous for their clients.
For example, financial advisors have been known to recommend “Master Limited Partnerships” (MLPs), which offer an investor the opportunity by into an oil/natural gas discovery, production and distribution enterprise. While MLPs offer typically higher rates of income than more traditional investments, investors are frequently not advised by their financial advisor of the significantly higher risks. Unfortunately, investors who were sold MLPs as safe, income producing investments, may only be learning of these previously hidden risks now that their investment has dropped significantly in value.