Top 7 Rules for Investing in Green Funds Detroit MI

Every time gas prices go up, more investors pile into green funds. Every time environmental issues heat up, so do the number of green funds. And as the number of green companies increase, so do the dollars in green funds.

“Green funds tend to be focused on companies of the future,” said Steve Schueth, president, First Affirmative Financial Network, which specializes in socially responsible investments. “They’re popping up like mushrooms after a morning rainstorm.”

Investors are also popping up like mushrooms, pouring trillions of dollars into green funds. As the demand for alternative fuels and clean technology grows, the potential for return continues to grow. But the green market is young and volatile, said investment experts, and investors need to manage their investments wisely in order to realize returns.

“They’ll need the stomach to pass the dramatic swings in performance and keep a longer term view,” said Michael Herbst, an analyst covering green funds at Morningstar, a leading investment research firm. Morningstar has 38 green funds in its database.

Green companies are involved in helping the environment by creating alternative energy sources, such as wind, solar or thermal. Or they might be involved in cleaning up carbon footprints. Or they might lead their industries in producing goods and services in energy-efficient ways.

These are the seven rules for investing in green funds:

Knowledgeable brokers are invaluable in a growing market Rule #1 - Choose a good broker

You can choose a professional investment advisor or you can do it yourself. If you choose a broker, find someone who is experienced in green stocks and who is committed to its values.

Some Web sites post directories of green fund advisors. First Affirmative Financial Network, at firstaffirmative.com, lists 120 socially-responsible investment advisors nationwide. The Social Investment Forum, at socialinvest.org, posts 250 advisors. Other mainstream investment firms—such as Merrill Lynch, Credit Suisse and Morgan Stanley—now also offer socially-responsible investing funds as part of their general investment instruments. But their experience with green funds is limited. 

If you decide to be your own broker, make sure you do lots of research.

Rule #2 - Know your investment values

Are there certain types of companies that you want to avoid? For instance, some investors avoid companies that sell tobacco, alcohol, military equipment or nuclear energy. Conversely, what types of companies do you want to support? Some investors prefer companies that help the environment, as well as have good management practices.

For example, Wal-Mart has some very progressive policies in terms of saving energy, but some investors question their employee benefits. Corporate monolith GE is involved in wind and thermal energy, but is also developing nuclear energy, which some investors object to...

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