Blowin’ in the Wind
Q With energy prices soaring and the planet heating up, energy conservation and clean technologies such as solar and wind will continue to grow in popularity. There must be ways to make some money by investing in renewable energy. Can you help me put my money where my heart is?
Saddle Ridge, New Jersey
A Renewable energy is making great strides, and savvy investors are paying attention. Globally, wind-power generation has been growing at a snappy 25 percent per year. A new report in The Progressive Investor (www.SustainableBusiness.com) forecasts 40 percent growth in the solar energy sector in 2005. Clean Edge (www.CleanEdge.com) anticipates the market for renewable energy growing from $7 billion now to more than $82 billion by 2010.
The stock market is one way to invest in this trend. Many socially responsible mutual funds screen for issues such as global warming and renewable energy, and some make this a major focus. The New Alternatives Fund has been doing this since 1982. Portfolio 21 is a global fund focused on sustainability, and the Winslow Green Growth fund focuses on small companies. (Links to these can be found at www.NaturalInvesting.com.)
If you’re not in a financial position to gamble on risky small-company stocks, there are other ways to make profitable investments. For example, can you name a small investment (under $10) that can return as much as 12 percent per year, tax free? Answer: the light bulbs in your house! A December 2001 study in Home Power magazine (www.HomePower.com) analyzed the payback from replacing incandescent bulbs with compact fluorescent (CFL) bulbs, costing $8.99 each. They consume one-fourth the electricity of incandescent bulbs and last ten times longer. Depending on your electricity rates and how much you use your lights, you may earn far more this way than with any stock market investment. Installing energy-efficient windows and insulation and solar hot-water heat or buying a fuel-saving vehicle also generate financial and environmental returns.
Another way to make a difference is to change where you do your banking. Many community banks, credit unions, and loan funds promote energy efficiency. Perhaps the leading example is the Permaculture Credit Union (www.PCUOnline.org). Its Sustainability Discount Program makes discounted loans for home energy-efficiency upgrades and renewable-energy production. You may also want to contact ShoreBank Pacific’s EcoDeposits program (www.Eco-Bank.com). Both institutions offer insured, market-level interest on savings. Also check out www.CommunityInvest.org for information about energy-related programs.
We believe the most exhilarating strategy is buying shares of companies that are creating the Solar Hydrogen Economy—but this one requires some caution. As one fund manager put it, stocks of small alternative energy companies with little or no earnings “jump around like pogo sticks on steroids!” One recent casualty was solar manufacturer AstroPower; its stock soared and then crashed when it declared bankruptcy. Make sure that investing in small companies makes sense for your overall financial plan; only commit a small portion of your portfolio that you’re willing to place at risk.
Most of the big players in solar are large global corporations. Japan is by far the biggest producer of solar panels, followed by Europe, with the United States lagging. You could invest in a big electronics company such as Sharp (the largest solar producer) or oil companies Shell and BP, but these are obviously not “pure” solar investments. The most significant U.S. company that’s entirely focused on solar is Evergreen Solar (symbol ESLR), which has some advanced technology but is still a small player compared with the multinational behemoths (www.EvergreenSolar.com).
Wind power is another promising investment opportunity because wind farms are sprouting all over the world and are very cost competitive with fossil fuels. Here again, there are limited opportunities for U.S. investors. Believe it or not, one of the biggest players was Enron; its wind turbine business is now part of General Electric (which also bought AstroPower). Pure wind investments will lead you to Europe, where Vestas (Denmark) and Gamesa (Spain) are based.
Q I’m scared about the fall of the U.S. dollar. Some of my friends are telling me I should run for cover and convert all my money to euros. Should I take their advice, and how would I go about this?
San Mateo, California
A Measured against foreign currencies, the dollar has lost about 16 percent of its value between 2001 and 2004. That’s significant, but smaller than you might imagine given the scary news stories we’ve seen in recent months.
The causes of the weak dollar have been well reported: President Bush’s tax cuts and the Iraq war have eviscerated the Clinton surplus; the U.S. government once again has record deficits and must borrow from foreign countries to pay the bills. Households are also playing their part, running up credit card and mortgage debt and buying cheap foreign imports. Our dollars are scattered to every corner of the planet.
Currency rates have always fluctuated, which is the reason we’ve always advised investors to diversify outside the United States. But that doesn’t mean succumbing to panic and making extreme moves with your financial assets. Diversification means not putting all your eggs in one basket, but rather making prudent moves with small portions of your overall portfolio to lower your risk exposure. Be careful if anyone tells you to open an “offshore” account—the IRS looks very closely at taxpayers using schemes to avoid paying taxes, and you don’t want to inadvertently violate U.S. law.
You might want to look at opening a bank account with EverBank (EverBank.com), which allows you to open savings accounts or CDs in the currency of your choice. These investments are FDIC insured, but that does not protect you from the possibility that the U.S. dollar could go up, reducing your overall return. (FYI—EverBank does not screen its investments for social or environmental concerns.)
In the stock market, there are a few ways to diversify internationally using socially responsive (SRI) mutual funds. Portfolio 21, Calvert World Values, and MMA International invest most of their assets outside the United States. Sadly there are no socially responsive funds that invest in international bonds. In the meantime, about the best we can suggest is to look at non-SRI international bond funds that limit themselves to sovereign (government) debt and developed nations. The fund earns interest from the foreign bonds and, if the dollar declines, it also benefits from the change in currency valuations.
HAL BRILL AND CLIFF FEIGENBAUM are co-authors of Investing with Your Values: Making Money and Making a Difference (New Society, 2000). Brill is president of Natural Investment Services, a Registered Investment Adviser in Paonia, Colorado (NaturalInvesting.com). Feigenbaum is publisher of the award-winning GreenMoney Journal (www.GreenMoney.com), a socially responsible consumer publication. Green Money is a registered trademark of GreenMoney Journal/Cliff Feigenbaum. Used with permission. This material is for informational purposes only. It is not a solicitation to invest.