Rebecca Dawson

As an investment, there are many ways that you can buy oil commodities. You can also buy various securities that give an indirect exposure to oil. You can even buy actual oil by the barrel.

Crude oil is the world's most actively traded commodity. It trades on the New York Mercantile Exchange (NYMEX) as light sweet crude oil futures contracts, as well as other commodities exchanges around the world. Since oil is a commodity that is produced and in large quantities that are costly to transport, it trades in futures contracts. Futures contracts are agreements to deliver a quantity of a commodity at a fixed price on a fixed date in the future.

Oil options are another way to buy oil. Options are contracts which give the buyer or seller the option to trade the oil on a future date. Options often have cash settlement, meaning that on the exercise date of the option, the buyer and seller just pay each other off based on the current price of oil rather than delivering the real physical oil to each other. If you choose to buy futures or options directly in oil, you will need to trade them on a commodities exchange. You can open a managed account at a brokerage firm. With a managed account you can ask your broker to make the trades for you and advise you in the various risks associated with trading commodities.

The more common way to invest in oil for the average investor is to buy an oil Exchange Traded Fund (ETF). An oil ETF is a fund that trades in real time price changes on major stock exchanges. It is designed to closely track the movements of the price of crude oil. What the fund does is maintain various investments in the above mentioned oil futures and options markets, and then sells shares of its fund to smaller investors. Some common oil ETF stock ticker symbols are OIL, USO, UCO, and DBO. You can buy into or out of these funds any time during normal market hours, and you can buy shares in small quantities as opposed to the hundreds of thousands of dollars you need to invest in futures and options.

Finally, you can invest in oil through indirect exposure by owning various oil companies. These companies tend to own large amounts of oil and therefore their stock prices move in approximate correlation to oil's price.

There is no cookie cutter method for asset allocation; each individual has their own risk tolerance, income needs, etc. It is best to visit with a Financial Advisor and have a recommended allocation for you specifically after going over all of your personal financial information.

Keep in mind that portfolio construction can make a significant difference in performance, particularly during the retirement drawdown phase. By having your assets allocated to stocks, bonds, cash as well as alternative investments may increases performance over time. With a smaller allocation to alternative investments that are non-correlated to the stock or bond market especially in volatile times.

Private equity is the investment capital invested by any high net worth individual in a firm with the aim of acquiring equity ownership in the firm. These capitals are not quoted on a public exchange. The capital can be used for expanding the working capital of the company, to strengthen the balance sheet or to bring new technology in the company to increase output. Institutional investors and accredited investors are the major part of the private equity in any company because they have the ability to commit a large sum of money for a longer duration of time. Often, private equity is used to convert a public company into private one.

Whereas a Hedge Fund is another name for an Investment Partnership. The meaning of the word ‘hedge’ is protecting oneself from the financial loses thus Hedge Funds are designed to do so. Although a risk factor is always involved but it depends on the return. More the risk, higher is the return. Hedge funds are alternative investments done by pooling funds involving a number of strategies to earn high returns for the investor. Hedge funds are not regulated by SEC and can be used for a range of securities as compared to mutual funds. Hedge Funds work on the Long-Short strategies which mean investing in long positions i.e. buying stocks as well as short positions which mean selling stocks with the help of borrowed money and then buying them again when the price is low.

The rule of thumb is three to six months of living expenses so that would include you and your wife for now, and if and when you have a family then that amount may be recalculated to reflect your larger family. 

You could keep those cash reserves in your bank or brokerage account. Some financial institutions will pay minimal interest but with interest rates as low as they have been that is your best option in order to be 100% liquid.