By Todd Walker
It seemed like a sure thing. As solar power and other clean energy technologies exploded after 2000, investors hungrily gobbled up shares from start-ups. Everyone wanted to get in on the ground floor of the “next big thing.”
But it didn’t quite work out that way. Consumer and business demand was there to be sure. But the relative ease of getting into the business – especially on solar panels – plus the inability to invent truly breakthrough clean energy products with strong patent protection, soon resulted in a flood of overcapacity and commoditization, exacerbated by the entry of low-labor-cost products from overseas.
Stock prices suddenly plummeted, then companies started folding. In many ways it reminded people of the “dot.com” market meltdown on the late 90’s that shared a similar problem – too many underfunded start-ups, too many product clones.
But it’s important for today’s investor to understand that times have changed. Today’s clean energy companies have become more sophisticated, are much better funded, and the industry as a whole has diversified into many different sectors – from panel and turbine manufacturing to commercial power production, alternative energy financing to business-to-business clean energy markets. There are many more directions to choose from.
Moreover, there are many more easy ways for average investors to participate in this sector with instant diversification – always a smart idea in any kind of investing. These include professionally managed clean-energy mutual funds, exchange traded funds, or personal investment management firms who specialize in socially responsible or impact investing.
Tips for Green Energy Investing Today
In fact, clean energy has become such a large and growing part of the worldwide economy that today one would be remiss to not include some portion in a total portfolio. But there are some important guidelines to remember to improve your chances of success when investing in this dynamic sector.
- For the most part, clean energy investments remain “aggressive” investments.
By “aggressive” I mean investments from younger, growing companies that can offer the highest potential returns, but also higher volatility. For that reason they should only occupy a small percentage of your portfolio – typically no more than 20%. Such companies may also take years to jump, so you need to be willing to invest for the long term.
- Understand the different types of clean energy investments.
Today there are many clean energy players in the U.S. and internationally – manufacturers, installers, utilities, lenders, cleantech companies and more. Consider diversifying among a variety of them.
- Usually stay away from individual stocks or bonds unless you are an expert.
Due to the selection research involved and lack of adequate diversification in small-moderate sized portfolios, most average investors would be wise to avoid choosing individual securities. Instead …
- Focus on Clean Energy Mutual Funds, Exchange Traded Funds (ETFs) or an experienced personal financial advisor.
All these professionally managed options allow you to invest in collections of clean energy securities with easy, one-step investments. There are many types available to you through companies like iShares, Powershares, Calvert and First Trust. Or you could retain a personal financial advisor for customized recommendations and management.
- Don’t let the Trump administration put you off.
Finally, do not let the anti-environment/subsidy Trump administration scare you away from clean energy investments. The economic reality is that renewable energy is now far outpacing fossil fuels and should continue to do so even without subsidies. Recent talk of eventually banning fuel-burning cars by leading countries is just one more huge plug for clean energy. It’s time has certainly come.
Todd Walker is a financial advisor and co-founder of Greenvest, a New England/New York based personal financial advisory firm specializing in socially and environmentally responsible investing. Securities offered through Vanderbilt Securities, LLC, member, FINRA, SIPC, registered with MSRB. Advisory services offered through Vanderbilt Advisory Services, LLC. Clearing Agent: National Financial Services, LLC. Supervising Office: 55 Main St, Suite 415, Newmarket, NH 03857 (603) 659-7626.