Frugally Green

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

Hello again!  Last week I mentioned that I was on my way to becoming a “green investor” – purchasing investments that align with the ideals of environmental sustainability.  I had originally planned for this to be a two-part series that culminated in a decision today, but after all the reading and research I’ve done since last week, I’ve decided for your and my own benefit, that this will now be a four-part series offering a more comprehensive overview of my research and decision making process. I hope this will give you a better understanding of the “big picture” as I make my debut into green investing…and I need more time to make my best informed decision! Last week in part one I talked about my current financial situation and how it would affect my investment strategy.  I also touched on my initial thoughts about investing and set up some ground rules that I would attempt to abide by when making my decision on which investment vehicle to purchase.  This week I’m digging into the numbers a little bit and researching mutual funds.

A mutual fund is an investment vehicle aimed at allowing you to purchase bits of many different companies without the large, fee-laiden financial burden of buying them all by yourself.  It accomplishes this by pooling many investors’ money together to buy all of these stocks and then packaging them together in a nice little bundle for you with only one transaction fee to you rather than the many that would come with buying an array of individual stocks yourself.  Think of it like going out to dinner with your friends who all order separate dishes and then share with each other, taking a bit of each plate to create a nice, well rounded meal.

The good

There are a number of flattering characteristics to be mentioned about mutual funds:

• They’re actively managed – You can feel good going to bed at night knowing that a professional (or a whole team of them) are crunching numbers and evaluating companies, keeping a watchful eye over your hard earned money.  Every day they go to work trying to find a way to outperform their target market by rebalancing and managing the portfolio of stocks you own. Their job is to make you more money.

• They’re diversified – All mutual funds are diversified to a different extent, but you can almost always rest assured that your money is morespread out than if you were to buy only a few stocks.  Buying a share of a mutual fund usually means buying shares of a multitude of different companies. Depending on the fund, it could be a pool of companies completely unrelated to one another or it could be one comprised of companies in a specific industry, market capitalization, or both.  Whichever way you choose, you won’t end up with all of your eggs in one basket.

• They can invest defensively – If all hell breaks loose and the financial markets collapse (we’ve seen it happen!), most funds hold a clause in their prospectus (something you should read before you purchase any fund) that allows them to abandon all hope, sell off their holdings and invest in whatever they deem to be the safest vehicle to ride out a financial storm, saving you from complete fiscal decimation.

The bad

Of course, this wouldn’t be a fair article if I didn’t balance the attractive characteristics of mutual funds with it’s less than appealing ones (hmm, these sound familiar):

• They’re actively managed – That team of hard working professionals trying to make you money have to feed their families too.  And how do they do it?  They charge you for their hard work!  Good ol’ fashioned capitalism at it’s best.  If you want the impressive returns that come with a well managed fund, you’re going to pay for it in fees. Is it worth it?  That’s for you to decide.

• They’re diversified – Sure, we all know the more spread out your money is, the less likely it is to go away.  But if you’re an expert stock picker, you’re lowering your overall returns by buying a ton of different stocks if you know which ones are going to grow the most and the fastest. This certainly isn’t me, and I have a hunch if you’re reading this introductory article, this isn’t you either.  But it’s still something to consider.

• They can invest defensively – Nothing quite like buying high and selling low, right? Most times, if you have a long investment horizon, you’d end up in a much better position by riding out the storm, taking your lumps, and getting in on the growth following a walloping bear market.  But these guys are professionals, right? They get paid to know when to get out and get back in.  At least that’s what we hope!

The ugly

It had to come, didn’t it?  Here’s the real dirt on mutual funds – most of them don’t ever end up beating their target indexes, at least not in the long run. Markets, in and of themselves, are extremely efficient, and when you’re paying someone to try to beat them, the odds of succeeding are stacked well against you. But, there will always be a few managers out there that  beat the odds, and as long as they do, there will be people willing to give them their money in exchange for some of that mojo.

Getting green

Now, you might say that all that nonsense above is slanted against mutual funds.  If you did, you’d be right (I can’t get anything past you)!  I’ll admit that in most circumstances, my general opinion is that an actively managed mutual fund is not the best bet, err..investment… for the average investor. But we’re trying to get green here so this is not a normal circumstance and we are not average investors.  From the research that I have conducted, there currently seems to be a lot more options for sustainably minded mutual funds than their competitive, new (relatively speaking) counterpart – index funds (more on these in part three).

If you remember, in part one I laid out a selection of mutual funds and a set of criteria on how I would judge them.  I decided that all of these funds embody the spirit of the green movement and have a fair potential for long term growth, so the most important things I looked at were expense ratio and diversification. Most of these funds differed in one way or another in this aspect. After putting them all through the ringer, one fund came out as a decisive winner for me – the Winslow Green Solutions Fund – it’s diversified across a field of green, innovating industries, has a low (relatively speaking) expense ratio of 1.25% (though it should be mentioned that it is currently capped and could rise in 2011), and gets plenty of exposure to foreign markets where a lot of “green solutions” are being spearheaded, namely Europe.

The conclusion

So, that wasn’t so hard.  All it took was an hour or two a night for a week to get acquainted with mutual funds and dig into the basics of the ones that interested me.  Now that you know how to do it, I bet you can come to a conclusion much faster than me on what the right fund is for you.  Just don’t forget to put the time in up-front to analyze your current situation. Forgo that step and you’d be failing to be frugally green.

Note: This is part two 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

Wouldn’t you like to make money while you sleep? Aid in the creation of great ideas and products that could make the world a better place and earn lasting income from it without taking on the massive burden of creating them all by yourself?  I know I would, and that’s why I have made the decision to begin pursuing passive income. There are infinite ways to go about doing this, but today, I want to talk about a fairly common method, yet one that I am not yet entirely familiar with.

Today I begin my journey to become a green investor.  As a 24-year-old recent graduate, I started contributing to my 401k the first month that I was eligible at my new construction job.  It took me a couple hours to set up the account at Vanguard,  select a fund and how much to contribute to it, but after that, my investing plan was basically on autopilot.  This, on the other hand, feels like a whole new world.  It’s scary and it’s exciting and only time will tell what the future holds for me and my money, but I intend to do the front-end work to make sure the odds are stacked in my favor and it would delight me to be able to share my journey with you.  Hopefully you’ll get something out of it that you can apply to your own life.  Maybe you’ll even have some advice for me as I venture down this winding road.  Let’s start off by going over what I know about myself as an investor already.

Analyzing my current situation

I’m 24-years-old, contribute 18% of my current salary to my 401k (15% + 3% employer match), I want to “retire” (stop working because I have to) by the age of 40 (a lofty goal, I know), I have roughly 37% of my current annual salary in liquid savings, and no outstanding debt.  That’s Tyler in a financial nutshell. Now lets look at what each of those pieces of the puzzle mean.

• 24-years-old – When I wake up in the morning and notice that my muscles ache and, curiously, I have a little more hair on my body and less on my head, I feel like an old man. But in the world of investing,  I’m still a young buck, relatively speaking.  I have a long investment horizon and can handle large swings of the market.
• 18% contribution to 401k – By most financial planning standards, that’s pretty good, especially if I don’t plan on big pimpin’ in retirement. Anyone who knows me knows that is likely not my plan.
• Target retirement age of 40 – Whew, that’s a scary goal to put down in writing. But not that scary, because what I really mean by “retire” is that I want to be able to feel comfortable to pursue less, shall we say, lucrative income vehicles that are either completely fun, rewarding, or both and not feel like I have to keep earning MORE in order to die with some money in the bank.  If I find work that is just right for me in every aspect, I have no qualms with working till the day I die.  So this leaves me with some flexibility in how I structure my future investments.
• 37% of current salary in savings, no debt – I currently have 37% of my salary in liquid savings and I have calculated that my monthly living expenses work out to just under 50% of my income.  This means that if everything that could go wrong went wrong, I could continue my current lifestyle for about 9 months.  Knowing that I have a several opportunities to cut my expenses and adapt to such a hardship, I’ll play this one liberally and say that I could survive for a full year on just what is sitting in the bank earning minimal interest before having to do something to start the income machine again.  Plenty of time for someone with a sharp mind and knack for spotting opportunity to get things back in order.  Hmm, guess I better keep saving.

Looking at my current situation, I would estimate that I’m in a good position to take some calculated risks.  Look at the metrics above that I used to evaluate my current situation and decide for yourself where you stand.  Everyone is different and your situation likely has some unique characteristics that are worth analyzing.  One thing to keep in mind, no matter what financial situation you’re in, is that psychology plays a big part in how you should structure your investment strategy. Knowing your personal risk tolerance is an important part of the equation.  You could have all the money in the world, but if losing 50% of it (and we’ve all seen it’s possible) makes your stomach turn in knots and you have to reach for something sturdy to maintain your balance, then volatile investments might not be your cup of tea even though you can certainly, financially speaking, manage a great loss.  You probably have a gut feeling about how risk averse you are, but here’s a quiz I found over on moneycentral.com that you can take to reaffirm your opinion if you’re just not sure.  Moneycentral seems to agree with my gut instinct that I am fairly risk tolerant but probably shouldn’t lay my emergency fund down at the roulette table (black jack has much better odds).

Putting some green in my portfolio

Now that I have taken a good, solid look at my financial situation. It’s time to start looking for some opportunities to grow my portfolio.  This is where I will be doing some research to decide what the best route for me will be.  I know that I want to target stock in companies that put environmental sustainability at the forefront of their business, but beyond that, I haven’t come to a solid conclusion about how I’ll do it.  I could invest in individual stocks, but I don’t feel confident enough for that yet.  There might be a few green bonds out there that could interest me, but I feel that in my current situation, bonds are a tad to safe for me.  So right now I am leaning towards mutual funds or index funds as they increase my exposure to the overall market with the limited amount of money I have earmarked to begin green investing ($2,500).  But this isn’t set in stone, and next week I will write about the research that I did into each option and why I selected what I did. For now, here are a couple of mutual funds that I have briefly looked into already:

• Winslow Green Solutions or Growth Funds – These are 2 different funds aimed at investing in specifically companies that provide environmental solutions.  Each takes a slightly different approach in the selection of companies.
• Calvert Large Cap Growth Fund – The Calvert Fund is a fund that seeks to invest in large U.S. companies that are doing their part to reduce their footprint on the environment.
• Guinness Atkinson Alternative Energy Fund – This is a fund that invests in domestic and foreign companies that derive at least 50% of their income from alternative energy.
• New Alternatives Fund – This is another  fund that invests in companies that provide environmental solutions. The New Alternatives Fund, unlike most other green funds, has been around since 1982.
• Domini Social Investments – Domini created the Domini-400 Social Index that many funds now attempt to track.  They recently switched from an index to a mutual fund.

You might notice that everything I have looked at so far has been a mutual fund. That is because 1) I don’t feel very comfortable yet picking individual stocks and 2) I’ve yet to find a passively managed index fund that meets my (yet to be fully developed) opinion of what constitutes a truly “green” fund. What I’ve found in the way of index funds so far has actually felt a bit more “green washed.”

This is just the beginning though.  When I make a selection and post again,  I will explore these funds further in depth and hopefully I will have some more options to discuss. Maybe you can recommend something to me that I might be leaving out?

Strategies for decision making

Whenever I make an important decision, I like to set up a list of critera that I base my decision on.  After I have all of the facts in front of me, I throw them out and go with what my gut instinct tells me to.  Sometimes the criteria fully supports my decision and sometimes it needs some “creative inerpretation” to really make sense. Try it sometime.  Actually, try it often.  You won’t always make the best decision, but you will learn to trust yourself, and that is just as important.  Plus, you’ll notice that as you learn from your mistakes, your gut will gradually get smarter.

Here is a list of criteria (in no particular order) that I will be looking at as I attempt to decide where my money will go:

• Self-defined “green factor” – How green do I really feel this fund is?
• Expense ratio – how much do I have to pay you to buy all these stocks for me?
• Diversification – Does this fund invest in a wide variety of businesses or is tied mostly to one type of industry?
• Potential for long-term growth – Do I feel like this fund is poised to grow long term? How patient can I be waiting for it to really shine?

So, before I make a decision, do you hold any green investments? If so, what are they? If no, why not? What are the absolute facts that you must know before you make a financial investment?  What’s your risk tolerance?

Note: This is part one 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