Oil Futures – This “Ass Ate” Your Retirement Funds

Oil Futures are not asses but Retirement Funds that treat them as Assets may be Asses. My play on words in the title of this post may be funny but it is likely to come to pass. This supposed Asset Class could eat your retirement funds if you are not careful.

I wrote an earlier post called, “You May be Speculating in Oil with your Retirement Money“, which explained the concerns with retirement funds investing in Oil futures. Then the market for oil was booming. Now the oil prices has crashed by 27% from its highs.

Here is an article written by David Cho in July 2008 called “Pension Funds Boosted By Oil“. He says in the article;

“Investors, including pension funds and Wall Street speculators, have sharply increased their commodity allocations since 2003, from $13 billion to $260 billion”

Do you think that a 2000% increase in commodity allocations has had an upward pressure on the price at the pump?

I think so. The article goes on to say,

“The increase in commodity prices has been so sharp that some pension managers are worried about a possible crash.”

The words of most concern here are, “possible crash”, which just happened didn’t it?

The price was almost $150 and is now down to around $110. That is a 27% drop from the all time high of only a few weeks ago.

I’m wondering how this will be reported in the next quarterly report by your retirement fund?

In this article by Matthew Perrone entitled, “Pension money boosts oil costs”, he says,

“Speculators put money into commodity markets simply to make money on their investments – unlike commercial investors, who are actually buying or selling orders for physical goods.”

Note the word “speculators” NOT retirement funds. Its an important distinction because speculators “trade” and most retirement funds “buy and hold” as stated further down in the article,

“If they’re going to be in the futures market, they need to trade rather than take this buy-and-hold strategy,” said Michael Masters, portfolio manager of hedge fund Masters Capital Management. “That is the worst possible thing for the futures market.”

There in lies the danger to your nest egg. Talk to your financial adviser. Find out what your exposure is to oil futures and try to protect yourself from the fall-out.

Leave a Reply

CommentLuv badge