After seeing a screening of An Inconvenient Truth last fall, 31-year-old Karyn Ravin regretted ever leasing her gas-guzzling Nissan Pathfinder. She should have bought a Toyota Prius, she realized.
But with one more year left on her SUV's lease, Ravin opted for the next best green thing -- 100 shares of
, an auto company known for its dedication to fuel efficiency. "It was doing our little part," says Ravin, owner of Maletzky Media, a public relations and marketing firm in New York City. So far, the stock's been friendly to her broad-based retirement portfolio, climbing roughly 15% since she bought it last September.
Indeed, green is the new black on Wall Street, with individuals increasingly placing bets on eco-friendly stocks, mutual funds and exchange-traded funds. "People understand you don't have to sacrifice returns to invest in an environmentally responsible way," says Jack Robinson, lead portfolio manager of the
Winslow Green Growth Fund
While some financial experts preach that the greener the investment, the better, there are potential downsides. "It's a speculative sector as a whole," says John Quealy, analyst at financial services firm Canaccord Adams.
For one, this sector is vulnerable to the demand for traditional energy.
"If we saw oil go back down to $50
a barrel, all of a sudden there's not going to be as much demand for green stocks," says Tom Lydon, editor of
ETFTrends.com, a blog about ETFs.
What's more, investors should watch out for bursting bubbles within certain subindustries, such as solar, whose capital investments, experts caution, run the risk of outpacing demand. "It looks to me like too much manufacturing capacity is coming on too quickly," says Jim LoGerfo, founder of Vortex Energy LLC, a financial advisory firm.
He compares today's solar popularity to the 2006 heyday of ethanol, when biofuel project financing was up 1,700% from 2004, according to researchers at New Energy Finance. "Both industries are being hugged to death," says LoGerfo.
Considering that, here are some ways to hug the world and curb your risk:
- Mutually Green: Green mutual funds are popular because they offer diversified sector exposure. The Winslow Green Growth Fund invests in 30 to 40 small-cap, high-growth green stocks. "Green" to Winslow means promoting healthier lives, plain and simple. Some of the highest-growth players in the no-load portfolio include Chipotle Mexican Grill (CMG) - Get Report and Fuel Tech (FTEK) - Get Report. The Green Century Balanced Fund (GCBLX) - Get Report and the Spectra Green Fund (SPEGX) - Get Report are two other mutual fund options.
- ETFs -- Pure and Liquid: For pure exposure to a certain index of green companies, such as simply solar or clean tech, experts recommend ETFs, which trade like stocks, so they're more liquid than mutual funds. PowerShares Wilderhill Clean Energy Portfolio (PBW) - Get Report and the New Alternatives Fund (NALFX) - Get Report are widely popular.
- Stocks With Green Ingredients: Adding, say, GE (GE) - Get Report or Toyota -- industry-leading stocks with active green initiatives -- to an existing portfolio can also give investors green exposure while mitigating risk. Others include Advanced Micro Devices (AMD) - Get Report, Dell (DELL) - Get Report and Google (GOOG) - Get Report. One caveat: These companies may not see direct revenue gains from their green doings as quickly as "pure" green stocks. "If you bought Applied Materials (AMAT) - Get Report today, for example, you are buying something that, in terms of revenue, is not a 'clean tech' company. Give it three years," advises LoGerfo.
Ravin says she'll hold on to her Toyota shares for the long haul, in addition to trading in her SUV for a Prius when her lease is up. "We're trying to make our carbon footprint as small as possible," she says.
Farnoosh Torabi joined TheStreet.com TV in July 2006 as the site's first official video correspondent. Previously, Farnoosh was a business producer and on-air reporter for NY1 News, Time Warner's 24-hour news channel in New York City. Farnoosh is a regular columnist for AM New York and has written for Money, Time, New York Daily News and Newsday. Farnoosh is a graduate of Pennsylvania State University, with a degree in Finance and International Business and holds a M.A. from the Columbia School of Journalism.