Alright, I'm going to diverge somewhat from core personal finance issues in this post and devote it to our other big problem in the economy besides the credit crisis--President Bush...oops, I mean the oil crisis. I figure I should talk about it before gas prices plummet, and yes they will...sooner than you think. Don't worry, I'm not going to subject you to a long rant about whether the high price of oil is due to speculation or supply and demand. It seems like everybody has an opinion, and who knows who's right. I'll just leave it with the observation that in our last oil crisis, we had long lines at gas stations due to a TRUE lack of supply, and it's hard to believe demand in the last 6 months increased parabolically. Anyway, let's take a look at how one can productively deal with the problem of high gas prices. I'll talk about ways to save on gas, increase the gas efficiency of your car, and even potentially profit from this whole oil mess.
I'm from LA, and if there is one part of the country where gas prices are hurting the most, it's LA. Los Angelans luuuvvvv their cars. This is the place where people drive 2 blocks to the supermarket, where we have a total of 4 subway lines, and where we possessively refer to our freeways as "the 5, the 405, the...." OK, I may have been guilty of some of these qualities...but at least I'm passed the stage of denial. Anyway, for Los Angelans you can imagine that gas is a major expense. It's easy to tell people to take public transportation instead of driving. Really? That saves you gas? Let's think beyond that, and if for some reason you can't escape driving, here are some ways to lessen the financial pain.
My first tip is to consolidate your driving. Every time you take your car out, think of how you can accomplish all your outstanding errands in one spin. On your way back from work, if you drive past the supermarket, take that as a chance to do your grocery shopping. But make sure that your stops are on the way. You won't be saving gas if you're going off your way, even if you do everything in one trip. Fortunately, I've been adhering to this tip even before this oil crisis. I live in an apartment with a small garage, and getting in and out of it is not the most convenient. Maybe the tip should really be to find an apartment with a tiny, overcrowded garage.
Tip number two is...have you noticed all those credit cards that give you gas benefits? All you have to do is google 'gas credit cards,' and there are multiple web sites that direct you on how to get a credit card which can give you gas rebates. As with any credit card, you want to make sure you read the fine print, and avoid silly things like annual fees, ridiculous interest rates (not that you're going to miss your payments), and certain other restrictions like you can only use the card at specific gas stations.
Tip number three and probably the most important--be a gas efficient driver. Now there is a slew of ways to do this, but the bottom line is try not to be Jeff Gordon. If you don't know who he is, that's ok...I don't understand the appeal of car racing either. On most cars, there is a gauge that tells you how many RPMs (revolutions per minute) your engine is doing. The idea is to keep the RPMs to a minimum, and the ways to do that are to 1) Drive more slowly. Unlike most people, you can actually obey the law, and drive the speed limit. 2) Don't accelerate rapidly. Avoid cutting in front of other drivers or stepping fully on the throttle when accelerating. And 3) If you have a manual transmission, to upshift quickly. Being in a higher gear results in less RPMs.
Believe it or not, wind drag or resistance makes a difference. Most people think turning on the air conditioner uses more gas, which is usually true. But if it's a hot day, having the air conditioner on will actually save you gas on the freeways compared to rolling down your windows. This is because of the amount of wind resistance you create with the windows open.
The weight of your car matters as well. The heavier your car is, the more gas your engine has to consume to move the car. Hence, it'll help your miles per gallon if you emptied your trunk of unecessary things such as the case of bottled water, the bowling ball, or the suitcase of extra sticks of beef jerky just in case you get stranded in the middle of nowhere.
How about selling your car and getting another more gas efficient one? That is a calculation you must do for yourself. If it results in immediate savings, then it's worth it. I personally don't understand the appeal of SUVs and pick-up trucks anyway. In a way, high gas prices may serve the beneficial purpose of making us all more energy responsible. I know I'm not making any friends saying that...especially in LA. Anyway, but one thing is certain about changing cars--don't go out and buy a hybrid vehicle, because they still cost substantially more, and will take an average of at least 3 years just to recoup your additional cost.
You've seen some ads for gasoline additives that increase efficiency. One word--SHAM, don't believe them. There have been no studies showing that any additives work in that manner, and we don't know yet how they could potentially harm your engine. Along the same lines, is it worth getting high octane fuel? High octane fuel does NOT increase gas efficiency, but some studies have shown that it does help with engine performance, e.g horsepower, torque. Nonetheless, if you have a luxury car that is built for premium gas, to date there have been no conclusive studies showing that regular gas would harm the engine. In fact, I drive a BMW and when I bought the car, the dealer revealed to me that's he's owned BMWs for a while and he's always bought 89 octane without any noticeable negative effect. But again, this is anecdotal and you decide what's comfortable for yourself.
Alright, here comes the juicy part of this post. How can you actually MAKE money with high gas prices? The surest way is to invest in alternative fuels. We don't know if there really is a supply and demand issue with oil, but we know that the concern for energy has come to the forefront, and it is a certainty that we'll eventually run out of oil. When that happens, we will have to depend on something else, and the usual suspects these days are natural gas, wind, and solar energy.
There is also ethanol, coal, and nuclear power, but these for various reasons are not as attractive. Can you really imagine shoveling coal in your car?...enough said about coal. Regarding ethanol, it's a very controversial issue, but the bottom line is it's not as efficient to produce as the first alternatives I mentioned. Lastly, nuclear energy still scares the sh*%^ out of people, so that's not coming along anytime soon.
Natural gas is probably the best prospect to replace oil, as there is an abundance of it, especially in the US, and it is the cleanest burning fossil fuel. Wind and solar though should play signficant roles. The Department of Energy forecasts that by 2030, wind power should contribute about 30% to the country's energy needs. So how do you invest in these alternative fuels? For natural gas, you can invest in the fuel directly, by buying the US natural gas fund, symbol UNG. Another way is to invest in natural gas companies, a few of the good ones being Chesapeake, XTO, Apache, and Anadarko. In terms of wind, there is an exchange traded fund (ETF--we'll talk more about these funds later in my stock market posts) with symbol FAN, representing a pool of wind companies all around the world. There is no public company that purely specializes in wind power, but a few who have substantial exposure are Trinity, Kaydon, and Owens Corning. To invest in solar, there are only two companies worth looking at, which are First Solar and Energy Conversion Devices. They are the only two companies that specialize in thin solar films, which is the best in solar technology these days. Be aware that all these investments are for the long term, probably at least 5-10 years, as it will take time for these alternative fuels to emerge.
Waiting 10 years to make money doesn't sound too sexy, right? Well, if you are more risk averse, an option would be to bet that oil prices will indeed fall and there are several ways to play that. There is an ETF with symbol DUG that inversely correlates to how well the major oil companies do. A better way may be to invest in oil refining companies, the best being Valero. High oil prices are usually harmful to the oil refiners because that cuts into their profit margins. As a result, refiner stocks have done very poorly in the last year, but when oil prices decline, they should be one of the best beneficiaries.
Wow, that's a lot of gas in one post! I'm gonna go and get myself a bean burrito now. Until next time, may you make some moolah.
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