Photo: Brian Bowen Smith
A compelling way to earn your eco-friendly stripes is to opt for mutual funds or exchange-traded funds (ETFs) that follow a green mandate. I fully appreciate how satisfying (and yes, important) it can be to align your investments with your principles. But here's what you need to remember: there can be a price to going green even when it comes to investing. Follow these rules to avoid the risky trade-offs:
• Devote at most 10 to 20 percent of your total investment assets to green funds or ETFs. Why so cautious? For starters, while green investments hold great promise, these are often new (small) public companies in emerging industries such as wind power and solar power. You need a well-diversified portfolio that isn't overloaded in one market segment or focused solely on small upstarts.
• Shop around to find the lowest baseline costs. Many green mutual funds have an annual expense ratio of 1.4 percent or more. Even green ETFs are more expensive than other kinds; many have annual expense ratios above 0.50 percent. That compares to just 0.10 to 0.20 percent for many ETFs that follow large index benchmarks such as the S&P 500. That may sound like a small difference, but it can add up to tens of thousands of dollars over a 30- or 40-year investment period.
• Learn more about green funds and ETFs at AltEnergyStocks.com. Type "green energy investing for beginners" in the search box for a solid tutorial.
Check out tips on how to go green for less or ask Suze a question.
Published on March 25, 2010