Save your money and save your planet: Bruce Dannenberg breaks down how you can green your investment portfolio.
If you're a "greenie," there are many choices and purchases you can make that represent your values--from buying organic produce to driving a hybrid vehicle. Today, your options also include making eco-friendly investments: an opportunity to literally speak with your dollars.
Our current environmental situation--a world facing a dwindling supply of fossil fuels and high oil prices--has created the need for inexpensive, non-polluting, renewable energy. And these technologies provide great opportunities for forward-thinking investors. With oil now around $115 a barrel and not the $30 it was five years ago, energy technologies like solar, wind, fuel cells, geothermal, ocean (wave) power and biofuels are a lot more competitive. Eco-minded investors can help to both develop these companies that produce sustainable and efficient energy and potentially make money at the same time. The same holds true in terms of redirecting investment capital away from "toxic" companies and industries and into sustainable endeavors.
The easiest way to add some green consciousness to your investment portfolio is to invest in alternative energy mutual funds and exchange traded funds (ETFs) and un-invest in the mega-billion dollar fossil fuel industry in which many of today's big name funds are heavily invested. There are also several ETFs that focus exclusively on clean water technologies. Water is still an undervalued resource that may be trading on a commodity exchange in a few years like gold, silver, oil, natural gas, corn, rice and wheat do now.
Historically, investing in a portfolio of companies involved in alternative energy and energy efficient technologies as well as dean water resources and other green areas has been challenging, but it's much easier today. Several promising green mutual funds and ETFs have been created over the last few years and months, and ones that have been around for several years and even decades are starting to get renewed focus with rapidly accelerating asset bases as investors redirect their capital. There are even some brand new ETFs that focus exclusively on solar power or wind power, as well as some that invest in biofuels and carbon trading related areas. Clean Edge, Inc., a research and strategy consultant firm, predicts that the total clean-energy market will grow to $92 billion by 2013--that's many times its current size. "The investment community is starting to see real opportunities," says Ron Pernick, the firm's co-founder.
But, buyers beware: a lot of the companies supplying green technologies still aren't profitable. As was the case with the computer industry in the 1980s, no one knows who the ultimate winners will be. Green investing is a developing, technology-intensive and very competitive arena. It's also an area of high stock price volatility. That's why many analysts and fund managers recommend investing in a basket of companies, in diversified mutual funds, or in ETFs that focus on renewable energy and other green technologies. Other investors will rely on professional investment advisors to direct and manage their portfolios. Knowledgeable investment professionals can pick companies positioned to be winners and implement strategies, such as hedging, to reduce overall portfolio risk and volatility. If you're interested in obtaining the help of a professional advisor to make green investments, it's always a good idea to ask how long they've been involved in the area of eco-friendly and socially responsible investing and why they became involved, as well as to make sure they are officially licensed by the U.S. Securities and Exchange Commission and hold the appropriate state insurance licensees if they offer mutual funds, variable annuities or variable life insurance products.
Investments with potential, implemented along with risk management strategies, can make an ideal addition to your retirement portfolio or as part of a Coverdell Education IRA or other college funding vehicle. Some of the best mutual funds are affirmatively socially responsible and select companies that produce something that benefits our environment, in addition to alternative energy, like recycling, clean air and water, pollution prevention and conservation. Some funds use socially conscious federally insured banks and credit unions for holding cash, such as those that focus on helping the less affluent build affordable housing.
A few of the more interesting technologies and bioresources that provide opportunities for today's investors are:
Solar energy: including silicon-based, thin film technologies; future nano-technologies, and building-integrated photovoltaic (BIPVs) and light-concentrating photovoltaic technologies (CPVs)
Wind energy: including companies that are focused on refurbishing and upgrading existing installations, T. Boone Pickins/GE alliance (The Pickins Plan), and a focus on the U.S. wind corridor from the panhandle of Texas to Wyoming
Geothermal energy: on both the residential and utility scale
Turbine technology: or "backwards electric motors" that turn mechanical energy into electricity (wind, wave, hybrid vehicles, etc.)
Wave power: including turbines and underwater buoy systems
Fuel cell technologies: or the electricity created when hydrogen gas and oxygen combine to produce water; pond-sludge/algae can be used to free hydrogen gas from water
Biofuels: including research into the Jatropa fruit, a small green tropical fruit with oily seeds, as an oil source; extracting oil from algae is also a promising technology
Clean water resources: including desalinization, new wastewater treatment technologies, and engineering water infrastructure technologies
Carbon trading/carbon credit offsets ("Cap and Trade"): a greenhouse gas reduction strategy that essentially rewards companies for reducing their emissions levels below government-set limits with carbon credits paid for by the polluting companies with emissions levels that exceed these limits
Green and socially conscious investing has demonstrated that it can earn a profit in today's world. Although funds or companies offering stock can't predict a particular result for the future, many investment analysts, fund managers and leaders in the alternative energy area and other green industries are optimistic.
Together, we can work to change the world. If enough people put their money where their values are, and with a little bit of luck, there will be fresh air, fresh water, organic and sustainable agriculture, affordable and sustainable housing, and light (and heat!) at the end of the tunnel for all of us.
Eco-friendly in vesting (or sustainable investing) is the term used for investing in environmentally fnendly stocks, either directly or through funds.
Socially responsible investing (or ethical investing) describes an investment strategy that seeks to maximize both financial return and social good (sometimes referred to as "the double bottom line"). Socially responsible investors favor corporate practices that promote environmental stewardship, consumer protection, human rights and diversity. Some, but not all, avoid businesses involved in tobacco, alcohol, gambling, weapons and the military.
A mutual fund is a financial intermediary, or firm, that allows a group of investors to pool their money together with a pre-determined objective. The money is invested in stocks, bonds or other securities. The net asset value (NAV) of the funds' shares is determined once a day after the securities markets have dosed.
An exchange-traded fund (ETF) is an investment vehicle that is invested in a group of securities, such as stock or bonds. This group of securities is typically focused on a specific market index (such as the S&P 500 or the Dow 30 Industrials) or a specific market sector or geography (such as solar or wind energy companies or companies based in specific countries/geographies like India, Brazil, the Far East or Europe). ETFs trade on a stock exchange throughout the day at approximately the same net asset value (NAV) of its underlying assets.
A Coverdell Education Savings Account (formerly known as an education IRA) is a savings plan for higher education. Parents and guardians are allowed to make non-deductible contribution to these plans for a child under the age of 18. The funds can be withdrawn tax-free when they are needed for educational purposes.
Bruce Dannenberg is president and chief investment officer of Green Alpha Capital Management, LLC, a carbon-neutral company specializing in the design and management of environmentally friendly investment portfolios. Bruce has a master's of Business Administration from the University of Vermont and a Master's of Science Degree from Clemson University, and has been involved in finance and investment for 25 year. Green Alpha Capital Management, LLC, and Bruce can be reached at 828-651-8234 or email@example.com.
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|Publication:||New Life Journal|
|Date:||Oct 1, 2008|
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