OK, so we just finished up a great three-episode series on simple strategies to diversify your portfolio quickly and easily by using leading ETFs.

I’m always glad to receive your questions and I thought this listener question from Cynthia was a good one that fit in well with the ETF portfolio series.

Cynthia asks:

I am a new investor with a small amount of money to invest. Is there somewhere you would recommend looking for relatively stable green/renewable energy ETFs or mutual funds, in sectors such as biofuels, solar energy, recycling companies, etc? I want to look for successful areas to invest, but don’t want to support companies that produce chemical pollution or derive their profits from unsustainable practices. Where should I look? I’d appreciate any suggestions.

How to Invest in Green Energy

That’s a question or at least comment I hear very frequently and it makes perfect sense.  It seems like we’ve heard negative headline after negative headline about the corporate greed of large companies during the financial crisis in 2008 and who can forget what happened after the oil spill in the Gulf in 2010.

What Is a Green ETF?

So where do we begin?  First, let’s define what a green ETF is. .A green ETF targets companies that purchase shares in clean, environmentally friendly companies.  They seek to own companies that are innovators in the clean or alternative energy fields, such as wind, solar, biofuels, and even nuclear energy.  The main idea is to avoid companies involved in coal or other fossil fuels that tend to pollute the environment over time. 

It’s actually a bigger segment of the market than you might think, and there are a lot of people who want to avoid certain companies.  In addition to feeling good about your purchases, you could be invested in a growing sector that has a large potential to increase in value over time as alternative energy sources become more in demand, especially as oil prices continue to rise.

How to Find Green ETFs

I did a web search and found some good resources on the popular website SeekingAlpha.com.  If you type in “green ETFs” or “alternative energy ETFs” on their  search page, you can find great articles that describe these funds and list leading ETFs.

Here are just some of the examples of broad-based, non-industry specific ETFs offered from the Powershares Fund family:

  • the Cleantech Portfolio ETF, which trades under symbol PZD
  • the Global Clean Energy Portfolio ETF with symbol PBD
  • the Progressive Energy Portfolio ETF with symbol PUW

Or if you don’t necessarily want to go global, there’s the Clean Energy Portfolio ETF with symbol PBW.

Other Green ETFs

If you would prefer to invest in a specific industry or segment, there’s those kinds of ETFs as well.

Just to name a few, there’s the Nuclear Power ETF, which trades under symbol PKN.

If wind energy is more your thing, you can take a look at the Wind Energy Trust which trades under the appropriately named symbol FAN… you know, that’s one thing I love about ETFs, some of them have very easy to remember names!

There are also a lot of companies working on the growing solar energy market, and you can invest in a basket of these with solar company ETFs.  One of the most popular is another ETF that has an easy to remember name– it’s TAN.   You know, like sun tan?  Again, you gotta love the ETF world.

That’s certainly enough to get your search started and draw your attention to this new and growing group of ETFs.

3 Things to Consider Before You Invest

Keep in mind a few caveats before you rush out to invest, though. 

1. Always do your homework and read-up on what companies are included in the ETF. Just because you’re buying a solar-themed ETF doesn’t mean all the companies are equally involved in solar power technology.  Some of the companies are indeed what you would think of if someone said “solar technology company,” but others may only be slightly related and still be considered a solar company.  The same is true for nuclear-related companies, which can include companies that you think might have nothing at all to do with nuclear power but are still included in the basket ETF.

Also, many of the clean energy related ETFs invest overseas so there is a double-edged sword in that.  You do get the added diversification of owning companies in foreign countries or foreign markets, but there’s risk in that too so keep that in mind before purchasing a broadly themed ETF–know exactly what’s inside the basket.
Additionally, looking inside the holdings of these ETFs can give you some ideas of stocks you might want to add to your portfolio, or at least generate some ideas for you to do further research.

2. Do your research. Take a moment to look at the price chart on both a daily and weekly basis of the ETF before investing, paying close attention first to daily volume and second to anything that looks odd or not normal about the chart, including large gaps or anything that looks spooky.

3. Look at expense ratios. And finally, take time to look at the expense ratios if you plan to hold these funds for more than a year.  They’ll almost all be less than 1%, but if you have the choice between two very similar funds, it can help to go with the one with the noticeably lower expense ratio.

My latest book, The Winning Investor’s Guide to Making Money in Any Market is now available at Amazon and other fine booksellers and in print and digital versions too!

Want to become a Winning Investor? Then be sure to get your copy today – The Winning Investor’s Guide to Making Money in Any Market.

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