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Green Investing: How Your Investments Can Help The Earth


Green investing: Socially responsible mutual funds can ensure your investments help the environment, not harm it.

Earth Day is an annual reminder of things we can do as individuals to help preserve our habitat and the resources that sustain us.

When we think about living green, recycling, buying locally, or trading in the SUV for a Prius usually come to mind. Not coincidentally, these green practices may result in having more green of another kind…the money saved by reusing products and reducing consumption.

But there’s another way to influence your environmental footprint that gets less press: how you invest.

Green Investing

According to the Forum for Sustainable and Responsible Investing, one out of every 10 dollars are invested in socially responsible funds, a sum totaling over $25.1 trillion.

Socially responsible investing is a wide umbrella, but it usually means avoiding the stocks of companies in vice industries like gambling, tobacco, or firearms, or companies with dubious business practices like poor factory conditions or a spotty environmental record.

A variant of socially responsible investing, green investing strives to limit investments in environmentally irresponsible companies and seek out companies that take proactive environmental measures or are involved in ecofriendly businesses like renewable energy.

Getting Started With Green Investing

I don’t recommend average investors pour money into individual stocks. But without stock picking, it can be difficult to avoid stocks that don’t meet socially responsible criteria. Major mutual funds (like those in your 401k) invest in dozens of companies and are frequently trading. And one of my favorite types of investments, index funds, follow entire markets comprised of hundreds or thousands of stocks, including plenty that are not socially responsible.

What’s an eco-conscious investor to do?

Some mutual fund companies offer socially responsible and green funds. At least two fund companies, Calvert Funds and Pax Wolrd Investments, specialize in sustainable investing strategies.

The Catch

Choosing investments is tricky business. Among thousands of investment choices, many can help you reach your goals, but choosing the wrong investments can be devastating. High fees and investing objectives misaligned with your goals will cause your money to go nowhere fast.

When you incorporate values into your criteria for choosing investments, the field of eligible investments shrinks but picking the right investments gets harder. Many socially responsible investments, for example, have higher expenses than average; something I caution investors to avoid. Many green investments also have loads (sales charges, or commissions, of four or five percent)—a no-no for most investors.

Five Green Mutual Funds

As an example, here are five socially responsible mutual funds with no sales charges and minimum investments under $5,000. I like the Vanguard Social Index as a low-cost index fund and the TIAA-Cref Social Choice Equity fund for its low expenses and low minimum investment.

Natural Investing, an investment advisory company focusing on green investing, provides a 5-heart rating system for the social responsibility of the funds’ investments. Note that the rating considers only how socially responsible the investments are, not the fund’s financial performance.

Fund Symbol Heart Rating Expenses Minimum
Vanguard Social Index Fund VFTSX 0.29% $3,000
TIAA-Cref Social Choice Equity Fund TICRX 0.41% $250
Green Century Equity GCEQX 0.95% $2,500
PAX World Global Green PGRNX 1.40% $250
Domini Social Bond DSBFX 0.95% $2,500

Here’s a list of more socially responsibly mutual funds.

Learning More

If you’re interested in green investing, there are plenty of communities and publications to help you learn more. The Forum for Sustainable and Responsible Investing offers lots of information, and the Green Money Journal is a quarterly publication providing well-written features articles and lists of mutual funds and green investing events. Annual subscriptions are $25 and many articles are available online for free.

What about you? Do you incorporate green values into your investing strategies? How do you do it?

Photo credit: Ironrodart.

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About David Weliver

David Weliver is the founding editor of Money Under 30. He's a cited authority on personal finance and the unique money issues we face during our first two decades as adults. He lives in Maine with his wife and two children.

Comments

  1. So far, I have gone with Vanguard’s social index funds. I’ve invested in their real estate and health funds since they seems to be less likely to have companies with gross ethics violations…. without looking close enough to be sure that’s actually true!

    I will look those other ones next time I’m looking to invest. Thanks for mentioning them.

  2. I don’t have much to invest right now, but if I were going to invest more I’d like to be involved with company’s that are social responsible. Thanks for sharing the Natural Investing link.

  3. Being an engineer, I tend focus more on the cold, hard numbers when it comes to investing. I do understand the emotional pull of “socially responsible” or “green” investing, especially for those of our generation. However, I think you must use caution whenever you are investing your hard earned savings. Emotional buys, whether it is a car or a mutual fund, are almost always made at the expense of financial common sense. I’m not saying that the investments are bad because they are “green” or “socially responsible”, I’m just saying that they are not necissarily good investments because they are “green” or “socially responsible.” These investments must still pass the “Investing 101″ litmus test; have solid earnings and growth potential. You can’t get around the fundamentals, there must be financial value in the investment. You must consider the up side and down side to “green” investing.

    The up side:
    – Green investing is the hot new trend, carrying a lot of momentum

    – Green industries are heavily subsidized by the current administration

    – Being a hot-button emotional buy, the investment can be driven up in spite of poor performance

    – People in the Green movement tend to be fiercely loyal to Green companies/products regardless of cost or value

    The down side:
    – Tend to be relatively new start-up companies with little to no performance history, AKA highly speculative investments that can go bust as quick as they start (Solyndra anyone?)

    – Green industries are still in their infancy, usually operating in the red as their R&D efforts try to develop new, viable products, let alone a competitve cost structure

    – Rely heavily on government subsidies, loans, and support, which can end with a change in adminstration

    – Green products usually have lower profit margins and cost more to the consumer than their competiton’s product, especially against foreign compaines with lower labor costs (think Chinese solar panels)

    – Current economic and unemployment woes drive people to lowest cost option, which usually is not the green product

    – As David pointed out, investment firms charge a higher premium for most Green investments in an attmept to exploit the emotions of the Green movement

    Don’t get me wrong, there are good Green ivestments out there with solid fundamentals and good business plans. I’m just pointing out that there substantial risk associated with this new, unproven industry. For all we know, it might just be a bubble, it is too new to know for sure. Just be sure that there is a solid business behind the feel-good Green lable and as always, do not put all of your eggs in one basket.

  4. I love this article and have included a link to it in the Monday Shout Outs on ReadyForZero http://blog.readyforzero.com/monday-shout-outs-green-edition/. Your article was perfect given this week’s topic – saving money while saving the environment. Here at ReadyForZero, we’re doing everything we can to help people pay off debt and our blog features news and updates on anything that can help people improve their financial picture.