The recent attention being given to warnings of the effects of global warming has caused many Americans to start thinking about how they can help the environment. From renewing recycling efforts to biking instead of driving, there is something that everyone can do to assist with conservation efforts. Even investors can lend a helping hand by considering green investments.
When investors choose green investments, they are investing with an eye to the environment as well as their pocket books. But before jumping on the bandwagon, investors need to know that green investing isn’t for everyone.
Investors should ask themselves three questions before considering green investments:
Am I going Green just to be Green?
According to many analysts, green investments don’t always put green in your account. Green investing shouldn’t just be about the money. Those who invest green because of the possible returns they’ll get are sometimes disappointed. While green investments are worthy because of what they do for the environment, they may not provide the kind of growth needed to fuel those all-important life goals such as funding a comfortable retirement or providing a good college education for your kids. Investors who are interested in investing green should work with their advisor to create a balanced portfolio. You may want to hold some environmentally-friendly stocks or mutual funds, but you should also maintain a healthy ratio of other investments that have been strategically selected to help you achieve your other investing goals.
How Green do I want to be?
What constitutes a green investment is often open to interpretation. Companies like General Electric have green initiatives; yet at the same time other GE business practices may be harmful to the environment. With green investments, you need to develop a detailed investment strategy that lays out why you are investing in different sectors and asset classes. More and more, you may be hearing about something called an Investment Policy Statement. This guiding document, which should ideally be developed with the help of a professional financial planner, lays out your investing decisions and can keep you on track. Don’t let your emotions trip you up. Unless you are independently wealthy, it’s probably unwise to invest in companies solely because they promote an environmentally-friendly agenda.
Are Green Stocks clouding my investment decisions?
Before diversifying your portfolio with green investments, it’s important to remember what makes a good investment and what doesn’t. You have to be very careful when investing green. Like any other investment, do your homework to determine if the investment seems right for you. Some green stocks have positive cash flows and fundamentals that make them attractive options, while others don't. In the quest to save the environment, don’t forget that you should still make wise monetary decisions.
Don Patrick is Managing Director of Integrated Financial Group in Atlanta, Ga., and has has been serving clients as a financial advisor for over 26 years. Patrick earned his MBA from the University of Southern California and his undergraduate degree in finance and economics from Loyola University Los Angeles
