Tips for Profitable Green Investing

Green investing may mean different things to different people. Having said that, most experts seem to feel a good working definition is investing in companies that produce, deliver or develop products and services which serve their market(s) without placing undo stress on the environment or using resources inefficiently. These companies may, for example, focus on sustainable alternative energy sources like wind farms. Another example would be something to improve the efficiency of resources (renewable energy or smart-grid technology).

This investment category includes a number of technologies and areas that many people would first think about as being “green.” There are companies which produce organic foods, recycling businesses and even electric cars. High efficiency appliances or energy saving windows (or other home improvements) also meet this definition. Clearly, this is a vast array of industries and an investing trend which is difficult to ignore.

Types of green investments

Investors have two broad options for green investing. The first choice is to look at individual stocks or companies. Such companies can be discovered in many ways. An investor may come across a business in their daily life and take notice of their potential as a green investment. There are a number of research publications and information lists designed to make people aware of potential green investments. One web site for this is: http://www.sustainablebusiness.com/index.cfm/go/progressiveinvestor.main

The second choice is to find a good socially responsible mutual fund which is specifically designed for green investing. There are plenty of these funds out there, and the number is growing. There are also a number of ways to find these green mutual funds. Many publications have started tracking the action in this area. Of course, there are also newsletters and web sites which focus on keeping investors informed on this topic. Another internet resource is: http://www.calvert.com/green.html

Getting started

There are a number of decisions which need to be made as one is considering starting out in green investing. An investor should always start out in any new type of investment with at least a good general understanding of their risk tolerance level and investment preferences. Someone who has been a die hard investor in equities should probably not consider getting involved in green mutual funds.

Tips for Profitable Green Investing

Start by selecting a green investing sector. Investors should allow their social, personal and environmental interests guide this decision. It does not really matter whether it is organic foods or renewable energy. Once this decision is made, it is easy to drill down into smaller and smaller sub-categories. The next step is to choose screening requirements. Every investor has a different method of evaluating stocks and mutual funds, but the goal is always to come up with a short list of possible investments.

If an investor is really serious about green investing, they will take the extra step of further research. This includes making sure the individual company really is truly “green.” Consider the technology that the business uses and whether it seems that they are really being true to this idea (or if it just seems to be a marketing ploy).

Fuel for “green” growth

However an investor determines which equities or mutual funds to invest in as they take advantage of the green revolution, one should ask the question of what is fueling the growth in these businesses? Additionally, what kind of profit potential is available?

One of the largest factors in the growth of green investing is government. Sometimes the government will use subsidies to help encourage the development of certain industries and companies. This is especially true with fledgling technologies they wish to help develop, such as solar or wind generation. Of course, there is no guarantee that these will remain in place, or even if the technology can be proven effective.

Another growth factor is simply the rate at which resources are being consumed. This can lead to global competition for scarce resources. As the planet continues to consume, the general consensus is that businesses will have no choice but to develop more environmental friendly options.

Given all of this, there is also a tremendous profit potential to be realized. One of the more basic ways to play this opportunity is buying smaller companies within the targeted area and waiting for it to be bought up by a larger company. Of course, there are risks in this type of strategy as well, as we have seen from the collapse of companies like First Solar.

The bottom line

The bottom line is that an investor interested in green investing should approach this area very cautiously. The real key here is to proceed slowly and only after doing the necessary research. Certainly, there is huge profit potential, and being right just several times could dramatically enhance a portfolio. Each investor should be sure to set up criteria and analysis tools and screens that fit into their own personal and financial value systems.

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