June 16th, 2008

Why You Should Avoid Those “Green” Funds

With “Eco-Friendly” and “Green” being such hot buzz words, it’s easy to get excited about the environmentally responsible funds that are available. Investment firms are taking this opportunity to sell these funds like there’s no tomorrow. These funds are generally made up of companies that attempt to remain environmentally responsible while conducting their business. For example, many of these companies are likely work with alternative fuels. For many beginner investors it seems like a dream come true; making a return while supporting “green” companies looks like a good deal.

However, I’m going to purpose that you stay away from these funds. The fact is, the return on your investment is not likely to be as high. When fund managers are deciding what companies to invest in, their selection is significantly smaller, because the companies must be environmentally responsible. Because of this reduced selection, the managers are ignoring many businesses that could be more lucrative for investors.

So I have a different proposal for you: instead of investing in these funds, invest in a more traditional fund (such as an index fund) that will likely earn you a higher return. You can then use some of the extra money you make to buy products that have a premium attached because of the “green” factor. Or you could choose to put the money towards an environmentally friendly charity/non-profit. By doing it this way you have more choice in how much you support these causes.

 

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Filed under: Green, Investments

3 Responses to “Why You Should Avoid Those “Green” Funds”

  1. Ian said:

    Good points. Unless you’re investing in “Green funds” for the sole purpose of supporting “Green” companies, it makes no sense to limit the selection of companies you can choose from.

    Posted on June 16th, 2008 at 7:40 pm
  2. affordable web hosting said:

    Thanks for that insight on avoiding Green funds. Can you recommend us some of those legitimate companies?

    Thanks
    chris

    Posted on June 23rd, 2008 at 1:36 am
  3. Will Wright said:

    http://tinyurl.com/6cj4h8

    The above link is to a blog post regarding socially responsible investing, of which “green” investing is an off-shoot. I think it brings up some very good points about the benefits of investments which are targeted to reflect your values.

    In addition to the points in the blog post, I have one other thought re: green or SRI investing. If you’re investing for the long-term, you are better off with companies who take an active role in managing and preserving their resource capital, whether that be natural or human. SRI and green investments are targeted towards companies who realize that resource capital is still capital, and if the were to deplete it for short-term gains, they would be impoverishing themselves over the long run.

    Posted on July 3rd, 2008 at 12:40 am

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