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Green Investing is the Next Big Thing


By Jeffrey R. Kosnett,
Kiplinger's Personal Finance Magazine
October 2007


Christiana Wyly is only 25, but she has already determined that her life's
mission is to use her investments to help preserve the planet and to persuade
other young people to do likewise. Kelly Sheehan and Joshua Martin are banking
on their environmentally friendly mutual funds to secure not only their
retirements but also their soon-to-be firstborn child's financial and physical
health. Jennifer Woodruff invests only in stocks and funds that pass
environmental muster.

These four people, all young, educated and sincere, haven't gone green just
because they're idealists. They're investing in environmentally friendly stocks
-- either directly or through funds -- to make money. Wyly, a Los Angeles
resident whose father, Sam, made a fortune in software, lives in a solar-powered
house and drives a car that runs on biodiesel fuel, but she's hard-nosed about
finances. "It's not either/or," she says. "You can make money at this."

But it's one thing for a number of well-meaning individuals to glom onto a
powerful investment theme that -- pardon the expression -- has the wind at its
back. It's another thing to actually make good money. After all, the same kind
of can't-miss thinking impoverished millions of investors who were sure that
buying highflying Internet stocks was akin to minting money.

The scarcity factor

But there are also plenty of pros who believe that green investing is the next
big thing. Take Christopher Peck, a financial adviser in Windsor, Cal., with the
aptly named Natural Investment Services. Investing in alternative-energy stocks
or specialized green funds, he says, isn't like buying shares of chip makers,
telecommunications-equipment producers and Internet companies -- sectors in
which product prices trend downward. Green power is a premium-priced product,
and it's still relatively scarce. Venture capitalists and other large investors
who are pouring money into green enterprises aren't doing it for charitable
purposes, Peck says. "They have no intention of accepting inferior returns."

Two well-publicized developments underlie the growing interest in alternative
energy. One is rising fuel costs. Crude-oil prices have jumped 600% since 1999,
and gasoline prices have soared. As a result, filling up an SUV can cost $100
nowadays. At the same time, growing numbers of scientists and government
officials now accept that emissions of greenhouse gases, such as carbon dioxide
and methane, are contributing to higher global temperatures, which could have
catastrophic consequences for the planet.

There are a lot of reasons to believe that investing in the environment can
generate sustainable, long-term profits. They include:

Range of choices. One of the nice things about green investing is that the
universe of potential investments is large and wide. Green stocks encompass a
variety of sectors, company sizes and quality. Many potential investments are
young, small and risky. But you can green up a portfolio with a package of
proven blue chips, such as General Electric (symbol GE), Johnson Controls (JCI)
and United Technologies (UTX). All three work with developers to cool, heat and
light buildings more efficiently, among other things. That's important because
buildings are responsible for about one-third of the world's energy consumption.
Look at United Technologies, a green double play. It has been developing
more-efficient helicopters and jet engines, as well as such innovative products
as gearless elevators that use half the power of traditional lifts. The
industrial conglomerate has also reduced its own energy consumption by 2% a year
for ten years and intends to accelerate those savings. Meanwhile, the company
has boosted its earnings 14% annually since 2002. Its stock price has doubled,
and so have its cash dividends.

 

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