Frugally Green

Over the last few weeks, I’ve been trying to put together a budget that I can live by.  As a result, I’ve made an effort to spend more time in my kitchen, preparing my own meals, instead of at restaurants, paying someone to prepare them for me.  Growing up, my mom cooked most of our meals, but when I left the house to go to college, somehow the value of a good, home cooked dinner got lost. Eating out has been a serious vice of mine for about the last 6 years.  Now that I am trying to save more money, it’s time to rediscover the value of my kitchen.

Every room in your home is bursting with potential to save you money and lower your dependence on finite resources and your kitchen is no exception. Technology has evolved quite a bit since your mother made you muffins to take to your grade school class party (or was that just my mother) and today we’ll take a look at the role appliances play in the efficiency of how you and I sustain ourselves.

Shiny, new, efficient appliances

Assuming you actually use it (like I am trying to do), your kitchen likely uses the most resources of any room in your house, condo, or apartment. The appliances you use are a huge part of that.  I have always been of the mindset that if it still works, you should still use it. However, there has been a lot of hype lately over the advancement in technology over the last few decades.  It’s regularly reported that you might pay yourself and the environment back faster than you think by replacing old, out-dated appliances with newer, more efficient models.  I am slightly skeptical because 1) I am skeptical about everything (thanks, Dad) and 2) I’m not sure I see how it pencils out after you consider the environmental impact of manufacturing, transporting, and selling a new appliance and the impact associated with recycling something that is still functional.  I don’t doubt for one second, though, that if one of your major appliances breaks down, you’re much better off in the long run purchasing a newer, more efficient model than trying to replace it with another antiquated one.  Consider these compelling arguments:

• Refrigerator: According to the US Dept. of Energy, these suckers account for, on average, 14% of a home’s overall electricity usage. This is your single best opportunity to improve your carbon footprint and lower your electricity bill, so make the most of it and get the most efficient model you can afford.
• Range: Whether you decide to go with a gas or electric range is really up to you and what your home is already equipped for.  One will not save you that much money over the other.  A few things to consider though are that gas ranges emit more toxins into your kitchen, requiring more exhausting but electric stoves take longer to heat up and cool down compared to the superior temperature control afforded by a gas stove.  If you’re replacing an old range, at least consider upgrading to one with a convection oven as they are currently the most efficient on the market.
• Dishwasher: Today’s new models use up to 75% less water than their counterparts from a decade ago.  When you consider that  60% of the energy used by these handy appliances goes to heating water, you can see how the savings can add up. If you don’t do a lot of dishes, make sure you don’t pick a dishwasher that is too large for your needs.  You’ll either waste water running loads that aren’t full or run out of dishes trying to fill it up.
• Microwave: New or old won’t make that much of a difference.  Just know that using one at all is, oftentimes, much less energy intensive than cooking in a conventional oven.  Microwaves are better suited for smaller jobs so you’ll still need your oven for those larger meals, but technology is continuing to improve and the newer models are getting better at cooking larger items without destroying the flavor.  I can’t be the only one that thinks some things just don’t taste good coming from the microwave?

No matter what items you decide you need to improve the efficiency of your kitchen, you’ll get the most eco bang-for-your buck out of those that are approved by Energy Star.  Energy Star is a government organization – a joint program between the EPA and the Department of Energy – that bestows certification to the best performing appliances available to consumers.  In considering the long term costs of ownership, you’ll find that it’s almost always more frugal to pay a bit more up front for a more efficient appliance. I also think it’s important to mention that it’s possible to attain these shiny, efficient appliances gently used. Just like a new car loses value after you drive it off the lot, so does a new refrigerator or dishwasher when you carry it out of the store. It’s unfortunate that not everyone thinks the way you and I do, keeping their new items until they’re worn out, but as long as those folks exist, it is practically our responsibility to make the best of it by taking these things off their hands (and educating them about their wasteful ways – without being preachy of course).  Most major cities have at least a few used appliance stores, but I have to plug Craigslist again as my favorite site for buying and selling used things. Find the city closest to you and begin your search. You can find anything on Craigslist.  I dare you to go looking, but not too hard. You might frighten yourself.

But I don’t need any new appliances!

No worries, I hear ya.  Maybe you don’t have a need for a new appliance right now.  Maybe you can’t afford one yet.  Maybe you’re currently a renter, like me, stuck with whatever your landlord decided to buy.  I often dream of someday buying a house and filling my kitchen with the most efficient modern appliances. Until that day comes, though, I will continue to do my part by using the appliances that I have in the most efficient ways I can. Here are some of the tricks I’ve learned and can pass along:

Refrigerator:

• Make sure your temperatures are set right. The refrigerator should be set between 35 & 38 degrees F and the freezer should be set around 0 degrees F - any less and you’re wasting energy keeping things too cold.  And who really likes to work so hard to eat their ice cream anyway?
• Keep the unit away from other appliances that create heat (like an oven or dishwasher), don’t place it in direct sunlight, and keep the back of the unit a few inches off of the wall to allow the coils to breathe.
• Make sure your door seals tightly when you close it and, like your mother always told you, don’t leave it open! Decide what you want before opening it. Hint: Keep your grocery list on the front of your refrigerator to help you remember what’s in there.

Range:

• Make sure you’re using the right size pots on your stove top.  A tiny pot on a big burner is a waste of energy.
• Always thaw your foods in the refrigerator or at room temperature before baking.  Sometimes it’s hard to plan ahead, but as we all know, you’ll save yourself money and resources in the long run if you do.
• Turn the oven off a few minutes before your food is done and let the dissipating heat finish it off.  This is a good idea in the summer when you want your oven on as little as possible, but in the winter I prefer to turn it off when the food is done and leave the door open, allowing the escaping heat to warm the house, relieving my furnace a bit.

Dishwasher:

• Resist that urge to run the dishwasher when it isn’t full.  It’s working at maximum efficiency when it is.  If you find yourself doing this often, consider washing single items you need regularly by hand or getting a back-up. Don’t wash a half-load of dishes just to clean one item that you need.
• Skip all the fancy wash cycle options like pre-washing and all that nonsense.  If you effectively scrape your dishes (without water!) before loading them, you shouldn’t need those extra steps.  And by all means, turn off the heated dry option! When the machine is done, crack the door to allow the dishes to air dry. Or, open it all the way and pull the trays out to get the job done faster.
• Don’t pre-rinse your dishes unless absolutely necessary.  As I said above, scrape them the best you can without water before putting them in the machine.  If you spend much time rinsing your dishes before putting them in the washer, you’d save more water and money just finishing the job by hand.

Microwave

There aren’t many ways to improve your microwave’s efficiency, but if you don’t have one, you might consider buying one for all the reasons mentioned above.  You might even consider picking up a toaster oven.  Sure, there’s an upfront cost, but you’ll save yourself:

• time cooking things that don’t need to be put in the oven
• energy by cooking things faster
• money by saving on the two points above

When it comes to greening your kitchen, you’ll make your biggest gains with the appliances that you use whether they’re new or old.  Keep in mind that if you do opt to buy something new, you should still participate in all the efficiency tips explained in the second half of this article.  They’re just as applicable.  While new technology is designed to make life simpler, I still strongly believe it is our duty to continue to find better ways to use what is available to us.  It is through this process that we persist in getting the most of the things we might otherwise take for granted.

Do you have any tips for picking the best new appliance or for getting the most out of the ones you have? Is it easy for you to implement tips and tricks like the ones I described or is it something you struggle with? What else do you do in the kitchen to be frugally green?

Here at Frugally Green I am on a mission to connect personal finance with sustainable living, but oftentimes I notice that in my quest to grow in both aspects, I slide back and forth from one extreme to another.

It’s easy to find yourself focusing on one side of the equation and neglecting the other side that is just as important.  What good does it do to save and earn as much as you can if you’re not also leaving yourself an environment that you can enjoy once you’ve reached your financial goals?

On the other hand, as noble as it may seem to shirk financial gain in favor of saving the world at all cost (forgive the pun), how many people can really sustain such a life?

I think most people with multiple goals have a natural tendency to create a hierarchy for them.  I certainly do it.  Even though I strive daily to put my sustainability  goals on the same playing field as my personal finance ones, I just seem to have a stronger natural draw towards frugality.

One path to two goals

Maybe you’ve noticed yourself leaning one direction or the other?  In the past, when I become aware that I’ve focused too heavily on frugality and begun to neglect my green-oriented goals, I’ve had a tendency to over-correct, sending myself into the ditch on the other side of the equation.

This eventually leads to the same problem with the same, ineffective solution.  So how do I get myself back on track and maintaining a healthy, sustainable balance between these goals?

Well, I’ve noticed that simply forcing myself to shift my perception a little has helped quite a bit.

If I’m constantly looking at frugality and sustainability as two mutually exclusive goals, then it’ll be impossible for me to truly succeed in achieving them.  Real success will only come when both goals are being met simultaneously.

The most helpful thing I have done to overcome this paradox is to simply be more aware of my decision making process. It takes a little practice to really pay attention to all your passing thoughts, but now I can recognize when I am creating an unnecessary adversarial relationship between goals in my mind.

If you’re committed to multiple causes, achieving success in one should never stifle success in another.

Focus on the big picture

One of the major perception shifts I’ve had to make, but has paid off extraordinarily, has been getting myself to recognize that the least expensive option is often not the best option when it comes to being green or when it comes to being frugal.

Now, this may seem like a pretty simple concept to some, but it has tripped me up for a long time. Subconsciously, I know that buying the cheapest option is almost never the best bet, but there is always something alluring and exciting about the possibility of getting an amazing bargain.  Problem is, you have to endure 9 sub-par purchases in order to get the thrill from that single great one.

When you look back on what it took to get that deal, it’s easy to see how much time, money, and resources have been wasted.  All of a sudden, that bargain doesn’t provide the same satisfaction it did before. Bummer. Keep the big picture in mind.

But marketing is so good these days.  It seems the advertising industry has truly perfected the art selling snake oil.  How can you tell the difference between the quality products and the ones that are only pretending? Hard as it may be, it can be done.

Know what you need

Don’t waste time comparing products that don’t have the features you’ll require or the ones with all the bells and whistles that you’ll never use.

Just eliminating those will keep you from 1) paying too much for something you don’t need and 2) buying again when you realize what you picked isn’t up to snuff.

Note: This strategy requires that you do your homework and anticipate features that you don’t need right now, but likely will in the future…but be realistic! This is an easy way to up-sell yourself to something that you won’t utilize.

Hold the items in your hand

Try ‘em out.  Feel ‘em up.  Most times, the cheapest option will feel the cheapest, too.

Am I really saving any money on that widget if I have to buy it four times to get the same use out of it? Doubtful.  And I can be very sure I’m not doing my poor planet any favors.

Now, this isn’t always possible since so much commerce is done on the internet these days so read reviews.  It’s hard to find independent reviews that say how great something is since people usually only write them when they’re  upset enough to tell the world about it, but take the time to read them and see if anything stands out.

It’s easy to see patterns among reviews that can steer you toward or away from something based on what you need it to do.

For extra green points, if something is available locally, at least give the shop an opportunity to price match for your business.

Borrow it!

This is what friends are for. No need to accumulate things you won’t use often if your friends or family have things that you can borrow.

If we all knew our neighbors better we could save so many valuable resources.  There are neighborhoods in my city, Portland, that collect a small fee from willing neighbors to maintain a fully stocked tool shed/wood shop.

If 25 people living within a couple blocks of each other only need to use a chop saw twice a year, why should each of them own one?  Leverage your friends and neighbors.  Let them leverage you.  You’ll come out ahead in the end.

Wrapping Up

Balancing goals can be a tricky juggling act, but with a little thought and planning, you can make great strides in finding the synergies between them rather than fighting to achieve each one on it’s own, and you’ll get there in half the time!

My examples above relate directly to my own problem trying to be both frugal and sustainable at the same time and I’ve shown how shifting my perception has helped me see the opportunities to achieve both, but this concept could apply to any set of goals that you’ve decided are worthy of your time. 

Focus on the details when you have to, but make sure you step back once in awhile to get a bird’s-eye-view.

What are some of your goals?  How do you balance them?  What tips and tricks do you have that could help someone else in the same situation?

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Juggler image by JPhilipson.

What an exciting day to share with you!  Three weeks ago I announced on Frugally Green that I was ready to put my money where my mouth is and embark on a journey to become a green investor, buying into companies that will change our relationship with the environment for the better.  I’ve spent countless hours examining myself and figuring out just what type of investor I was, then pouring over green mutual funds and environmental ETFs to make sure I selected the right candidates for me. Last week was spent in much the same fashion, but this time the end result will be action.

Today, I will purchase my first green investment – $2500 of the iShares S&P Global Clean Energy ETF.  This was not the easiest decision I’ve ever made. $2500 is a lot of money and I wanted to make sure I was giving myself the best chance possible to succeed.  I also wanted to make sure I was investing in something that felt right.  If you remember from Part Two and Three, I had narrowed myself down to a single mutual fund and a single ETF to decide between – The Winslow Green Solutions Mutual Fund (WGSLX) and the iShares S&P Global Clean Energy ETF (ICLN).  In all honesty, I believe that either of these funds would have been a good choice given the right justification, but for my current situation, the iShares ETF was the best option for me.  Let’s compare the two to find out why.

Diversity

Both funds invest in multiple holdings but each one certainly takes a different approach. WGSLX holds 45 stocks in 8 entirely different industries.  This is certainly more broadly diverse than ICLN which holds only 30 stocks across 6 different sectors of clean energy, but look a little closer and you’ll see that some of the larger current holdings of both funds are the same companies, like Vestas and First Solar.

WGSLX will hold up to 50% of it’s assets in foreign companies, while ICLN has no limit.  It simply follows the S&P Clean Energy Index which says that it will follow the 30 best fitting companies throughout the world – and it shows.  Right now almost 75% of ICLN is invested in foreign companies.  Whether you consider this more or less diverse may be up for interpretation and I will leave that for you to decide. All I will say is that Europe has been kicking our butts for ages in the development of green energy and, unfortunately, I don’t see this changing significantly in the foreseeable future.

Also, this investment is only the beginning of my plans for a truly diversified green porfolio.  If your plan to invest green only includes picking up a single fund, by all means, make it as diverse as possible! Once again, we come back to the realization that you must do what works for you.  My journey is only an outline of how to make an informed decision.

Performance History

If you’re the type of person that finds great pleasure in being frightened by horror films, this part is for you.  Both of the funds I selected for final comparison are little infants in terms of market history. WGSLX has been around for only 1 1/2 years and ICLN even less at just a year! This is the nature of the beast that is green investing.  It’s the Wild West of the financial world and we’re settlers on the Oregon Trail (Don’t get wet fording the river or you might come down with dysentery). There is no established, predictable future for us, but I think my opinion on where the green movement is going has been made pretty clear: the growth of sustainable industry is undeniable and good things will come to those who wait…

And wait you must! Both of these brand new funds lost lots of money over the last year.  WGSLX lost 44% of it’s value. ICLN lost 54%!  How’s that for a knot in your stomach? In a struggle to find a real foothold over the last few years, sustainably oriented investments suffered an enormous blow last year as the world-changing recession sent even the bravest of souls running for the most comfortable bonds or, even worse, cash positions.  Now, I can practically see the look on your face  saying, “You want me to buy what? And it lost how much?” And I will kindly respond, “no,” and, “a lot.”

No, I absolutely do not want you to go out and buy any investment because I’m going to do the same.  I identified my risk tolerance and targeted funds that matched it.  I want you to buy what’s right for you.   That may or may not be what I’ve found to be my right decision, and you won’t know until you’ve thoroughly examined your own profile like I did in Part One. I’m like a broken record, aren’t I? I keep repeating it because it’s honestly the most important step in the process.

Now back on track. In terms of performance history, the reason why I’ve chosen ICLN over WGSLX is because it’s performed worse.  That’s right. I’m buying it because it lost more money.  Although past performance is no indicator of furture returns, pretty much all funds were down last year and I am picking the one that I believe is more discounted. See, now it’s got all this room to grow. Remember all that talk above about undeniable growth, yada yada yada? Once again, and removing all emotion from the equation, I believe that rising energy consumption will be one of the biggest challenges humans face going forward (along with water supply, but we’ll discuss that another day) and there will be abundant opportunity for green energy sources to relieve the pressure. I want to be well exposed to that market.

Fund Expenses

I have to admit that this is the factor that swayed me the most on this decision.  The expense ratio of a fund is often overlooked by many of its investors, but can have a shocking outcome on its overall performance.  This is especially true for the long-term investor, like myself.  Even if it seems like just a little bit, the more money a fund takes from you in order to manage it, the less you have available to you to reap the compounding rewards of its growth.  ICLN’s expense ratio is 0.48%. WGSLX is currently capped at 1.25% and is only gaurunteed until 2011.  If you look at what it actually costs to manage the fund, the expense ratio should be a whopping 2.93%.  Is that a steal or a huge potential liability!?! I used an investment growth calculator that Fidelity publishes to see just what the difference in outcome would be if both funds performed the same.  I assumed an annual average return of 8% over a 15 year period (remember – that’s how many years there are until I turn 40 and potentially need this money) and ignored potential inflation and capital gains taxes as they’re not important to this calculation:

Illustration of the performance of the iShares S&P Clean Energy ETF over 15 years with an average annual return of 7.52% after fund expenses

Illustration of the performance of the Winslow Green Solutions Fund over 15 years with an average annual return of 6.75% after fund expenses

As you can see, with all other variables the same, ICLN would outperform WGSLX by 9% over 15 years.  That’s $691 of missed potential growth – quite a lot considering my initial investment was only $2500. Are you ready for the real shocker?  Let’s say I decided I didn’t need this money in 15 years and just let it sit, growing for 40 years until I was closer to a more traditional retirement age?

Illustration of the performance of the iShares S&P Clean Energy ETF over 40 years with an average annual return of 7.52% after fund expenses

Illustration of the performance of the Winslow Green Solutions Mutual Fund over 40 years with an average annual return of 6.75% after fund expenses

Holy crap! I didn’t even expect the difference to be that big. Over a 40 year investment period, with all other variables the same and assuming an average annual return of 8%, this ETF will outperform this mutual fund by a staggering 23% or $10,374!

Of course, there are a million and one things that could happen over 40 years to affect how this model would play out in real life, but the overall lesson here is cut and dry: the more money you invest and the longer you spend investing it, the more growth you will miss out on due to fund expenses.

Implementing my decision

Great.  I have a winner.  The iShares ETF isn’t as diverse as Green Solutions, but I have a plan to deal with that.  It’s better poised to grow, and it has the lowest expenses.  A quick gut-check tells me that it feels right also.  Now all I have to do is buy it.  This will require an online brokerage account.  I already have one with Zecco that I never funded, and after looking at what Tradeking has to offer, I decided to open an account there.  The trading fees are just marginally higher, but they appear to offer better customer support and, most importantly, they offer free automatic dividend reinvesting and you can purchase fractions of shares.  This means I don’t ever have to worry about having some random money sitting in my trading account because a dividend didn’t get reinvested or I didn’t have enough to buy a full share of the fund.  Zecco offers free automatic dividend reinvestment as well, but it appears to be quite a hassle to set it up and they do not currently offer fractional share purchases.  It took me about five minutes to set up an individual and a Roth IRA account at Tradeking and it was confirmed and ready to fund the next day (I set it up on Sunday).  There are many other online brokerages that you can choose from.  I decided to go with a low cost broker because I anticipate wanting to dollar cost average into this fund on either an annual or bi-annual basis and I want to get my money’s worth out of each installment.

Reflecting on the process

As I look back over the past month, I count the hours I’ve spent pouring over the details of this decision and it’s been no simple task.  I put in a lot of time.  I spent several hours a night for a month figuring out what type of investor I am, researching the best mutual funds for my situation, doing the same for index funds and ETFs, and then getting down to the nitty gritty and making a decision on what green investment I would choose.  And that’s all before documenting it on Frugally Green! But, you know what? It wasn’t that hard.  Putting together my plan up front helped me to be very methodical about my decision making.  Once the plan was in place, all I had to do was follow it. Circumstances occasionally came along that forced me to adjust, but with a goal in place from the beginning and an outline of how to get there, properly adapting was no big deal.  All this planning translates to a much bigger picture.  I feel great about my decision. With all this pre-work in place, I can kick my heels up for the next 15 years (at least) and let this money grow.  This is the Chef Ron Popeil “set it and forget it” strategy of investing (remeber those cheesy infomercials?).  Now, there’s no telling what could happen in that span of time that could force me to adapt, but now that I’ve gone through the motions, I know how to approach the task if I ever need to adjust.

I sincerely hope that you’ve found this series to be helpful to your own situation.  If you haven’t already, please go back and read the first three parts to see how I went from a vague idea about becoming a green investor to picking the best strategy for me.  The decisions I made are not recommendations for you, but the process that I underwent is.  Anyone with a little common sense and fortitude can recreate the steps I went through to make an informed investing decision.  My gut tells me you’ve got a little bit of both.  So go forth and prosper!

Are you holding any green investments right now?  What steps did you take to ensure you were making the best decision?  Maybe you don’t currently hold any green investments. Do you intend to? What other advice can you offer to Frugally Green readers to make sure they’re investing in what’s best for them?

Note: This is part four of a four part series on entering the world of green investments.  The four parts are as follows:

1. Part One: The Analyzation Stage
   
2. Part Two: Researching Mutual Funds
3. Part Three: Researching Green ETFs
4. Part Four: The Final Decision

Welcome back! The last week has gone by so fast researching more green investment options.  Since this is such an organic process, I have made another change to my plan.  After searching tirelessly for traditional index funds that would meet my criteria, I have decided to abandon these (for now) and change course just ever-so-slightly.  This week I’ll offer  some clarity about the pros and cons of achieving your sustainable investing goals through a passively managed ETF (Exchange Traded Fund).

What is it and why should I care?

An ETF is similar to and behaves like an index fund in that it is (usually) passively managed, allowing for a low expense ratio and tracks a chosen market index. The main difference between the two is that an ETF is traded on a stock exchange and can be purchased through a broker at any time of day that the market is open.  Index and mutual funds require a separate account with the investment companies that provide them and can only be traded at the end of the day.  So, if you have an online account with one of the many brokers out there like Zecco, Etrade, or TradeKing, you can simply log on and start trading. For a more in-depth explanation of the differences between an ETF and an index fund, take a peak at this article I found over at Investopedia.

The good

Let’s compare some of the basic advantages to an ETF over a traditional mutual fund:

They’re passively managed – A sentient being rarely gets involved with the day to day management of an ETF.  A fund is set up to track a specific index and does not attempt to beat it.  That means that Sally, the trusty ETF computer, can handle all the day to day tasks of making sure the fund stays on track while we humans hang out by the pool knowing that our money is in good, binary hands.  And this lack of active management keeps the fees down!  Humans require paychecks, but Sally will work for free with minimal maintenance.  If you remember from last week, the mutual funds I was researching all had expense ratios of 1.25% or greater.  The green ETFs that I’ll tell you about below are all under 0.75%.  You may think 0.5% is too little a difference to worry about.  I did at first, too, but for the long term investor, 0.5% could equal some astronomical losses in potential gains. Compound interest is a force to be reckoned with.

They’re tax efficient – Since the way that shares are traded in an ETF are different from a traditional fund, there’s much less turnover, meaning that the fund manager does not have to buy and sell large amounts of holdings in order to let new investors in or old investors out. When a fund sells shares, it is required to pay a capital gains tax to the government.  Obviously, the more often your fund is able to avoid this scenario, the better the overall performance will be and the more money you’ll keep in your pocket.

There’s no minimum purchase – One of the great barriers to entry into a mutual or index fund for younger, less-endowed (financially!) folks like me is the minimum amount required just to open an account.  Oftentimes, the minimum is at least $1000 and can be as staggeringly high as $50,000! When you buy into an ETF, you can purchase just one, single share of it if you like. Now, I wouldn’t recommend this strategy seeing as the per trade fee from your broker would decimate your future earnings if you bought one share at a time, but having the option to get in for less up front can really help out the beginning investor who sees that account minimum as a giant hurdle.

The bad

On the otherhand, you’d be wise to consider the possible downsides to investing in an exchange traded fund:

They’re passively managed – Looks like this going to be another one of those double edged swords!  If the stock market takes a turn for the absolute worst, an actively managed fund will abandon ship and shelter your money in temporary defensive investments.  Most ETFs will do this as well, but when it comes to abandoning ship, Jane, the mutual fund manager who is paying attention to the market every day will probably be better prepared than Joe, the guy who has to turn off Sally the ETF computer and figure out what to do with his pot of money.

They’re easy to trade – If you’re like me and trying to set yourself up for a smooth, long-term investment, having the option to simply log on to your brokerage account and move money around may prove devastating to this plan if you do so.  You’ll incur brokerage fees at each trade that could quickly wipe out the savings you thought you were getting from the low expense ratio!  Let me repeat myself:

You’ll pay a brokerage fee for each trade – This is one area where traditional index and mutual funds can beat the pants off of an ETF.  Unless your fund has a front-end fee ( a percentage removed from every deposit you make) most traditional mutual and index funds will allow you to add to your investment for no additional cost.  Dollar cost averaging is a very useful investment tool that you will pay more to utilize for an ETF than for a traditional fund.  If you’re going to dollar cost average into your ETF, I suggest finding the cheapest broker around and making sure that each trade you make is big enough to be worth the cost.

The ugly

I can’t really say that there is anything terribly ugly about ETFs, but here’s the dirt that seems to be getting kicked around lately – over the last several years ETFs have experienced, overall, greater “tracking error.”  This means that the funds have not matched the return of the index that they track as well as they “should have.”  This could mean that they don’t perform as well, but it could also mean that they accidentally beat the return of the index! One explanation for this is that the ETF has gained a great deal of popularity lately.  New funds are sprouting up all over the place to track new indexes that are appearing.  New indexes and, subsequently, new funds are not perfect and are difficult to get right. This is definitely something to consider when deciding to enter the world of green investing. Most of the options out there are relatively new.  While the explosion in popularity of socially responsible investing is exciting, all of these new funds to choose from could make for a bit of a bumpy road as the industry grows and matures.  Personally, I am happy to know that I’ll be getting in near the beginning, exposed to all the potential growth.  This likely won’t come without some rocky patches, but I’m willing to ride them out because I’m in this for the long-haul.

Getting green

So on that note, I’d like to introduce you to the ETFs that I decided to research this week.  There are six of them – all are based on clean energy indexes, three focused domestically and three focused globally.

Domestic ETFs

Powershares Clean Energy (PBW) – PBW tracks the WilderHill Clean Energy Index (54 stocks of all market capitalizations, but mostly small) and has an expense ratio of 0.67%.

Powershares Progressive Energy (PUW) -Similar to the Clean Energy Portfolio but focuses on transitional energy – companies working to improve the cleanliness and efficiency of existing energy sources. The Progressive Energy ETF also covers all market caps and carries a slightly higher expense ratio of 0.73%.

Nasdaq Clean Edge US Liquid Series (QCLN) -This is another domestic fund that focuses on emerging clean energy solutions like solar power, biofuels, and advanced battery technology. QCLN uses a weighting methodology to give larger companies more weight in the portfolio but maintain a balance of all market caps.

Global ETFs

iShares S&P Global Clean Energy (ICLN) – ICLN is a global fund that tracks the S&P clean energy index of 30 holdings across a fairly diversified field of clean energy companies.  It also has the lowest expense ratio of all that I picked at 0.48%.  Attractive.

Powershares Global Clean Energy (PBD) – This fund holds 80 different companies across a broad array of clean and alternative energy markets. While it has exposure to all market capitalizations, it is weighted heavily towards mid caps. PBD seems well diversified comparively speaking, but it boasts a pretty high expense ratio as well, 0.75%.

Van Eck Global Alternative Energy (GRN) – With an expense ratio of 0.62%, GRN tracks the Ardour Global Index with 30 holdings practically split between large and mid cap stocks.  It should also be mentioned that Van Eck offers an Agribusiness ETF with the stock ticker symbol “MOO.”  That’s funny.

The Conclusion

As you might remember, back in Part One I laid out the criteria that I would use to guide my selection.  After evaluating these ETFs based on those principles, my profile as an investor, and taking into account the reltive “newness” of all these funds, I feel my personal winner is the iShares S&P Global Clean Energy Fund.  It has the lowest expense ratio of the funds I selected and the index that it tracks was created by Standard & Poors who’ve been around the block.  I think they’re the best qualified to manage a successful index. Two of the larger companies in this index also have major operations in Oregon.  Living in Portland, supporting them with my investment dollars feel good.

I feel good about this.  I could analyze every option to death, but I feel I’ve done a fair amount of research on funds that fit my profile and I now have two funds remaining to compare side by side and select.  Only one week remains until a final decision is made and I am on my way to bettering the world and my portfolio with a green investment.

Maybe you’ve found yourself interested in green ETFs.  I hope you have.  I would highly encourage you to take a deeper look at the funds that I outlined above,  but don’t stop there!  Those ETFs that I picked were hand selected for my own situation and there are many options out there to fit your particular needs.  If you haven’t yet, please go back and read Part One to make sure that you fully understand your own situation before selecting an investment vehicle.  Create your own investor profile and go from there.

Happy hunting!

Note: This is part three of a four part series on entering the world of green investments.  The four parts are as follows:

1. Part One: The Analyzation Stage
   
2. Part Two: Researching Mutual Funds
3. Part Three: Researching Green ETFs
4. Part Four: The Final Decision