Green technology is undergoing a shift from being for the environmentally conscious to those who are cost conscious with a long view of the future. If something is renewable, it can have stability in price and is not a diminishing resource. Investing in particular types of stocks is easy with the tools available online and through brokerages. Also, there are many exchange traded funds (ETFs) that have a narrow focus for all kinds of investing goals.
Determine the specifics of what you would like to invest in because green technology is a broad description. It includes wind energy, hydrogen fuel cells and even clean coal. This narrowing of focus will help sharpen your research and decision-making.Step 2
Choose the appropriate investment vehicle for your level of risk and portfolio structure. Investing in the companies directly is one method. ETFs are a different way of investing in broad categories. Not all types of green technology are easy to invest in directly, so ETFs should play a role. Wind technology is an example of an industry with the most important players overseas. ETFs are the safest way to take a position in these companies.Step 3
Create an allocation of each technology for the green technology portion of your portfolio and classify them based on how far development has progressed. Do not treat green technology as one block because it runs from proven technologies to emerging technologies. Some might call this step optional, but if you want to properly invest in green technology, you need to have a mix of technologies. Solar cells and wind turbines are already available in the energy marketplace. Hydrogen is still in the development stage and has yet to create a large market. Those examples are a small portion of the technologies in energy, but green technology permeates every field, from building materials to clothing. You do not want your investment to be weighted heavily toward technologies that might never achieve something. Even ETFs tend to group around one segment or type of technology, such as automotive, etc. Also, keep in mind that many green technology companies are not publicly traded yet.Step 4
Compile a list of potential companies and ETFs. This is more difficult because green technology is not an actual industry and will require a lot of searching in articles and lists. Because green technology can extend into traditional industries, do not limit your search to obvious choices that solely focus on the environment, or you risk bypassing companies such as General Motors and Ford, which have alternative-fuel divisions for their cars.Step 5
Research companies or ETFs the way you would research any stocks. For companies, look for profitability, cash, debt and other fundamental factors. Many companies will drop off your list as unfit. For ETFs, look for expense ratios, allocations and historic returns, among other relevant factors.Step 6
Purchase the securities you want in line with the plan for your whole portfolio.Step 7
Monitor your investments regularly, as with any other investment, and adjust allocations as needed.
- Mutual funds are an alternative to ETFs, but they do not have the same level of focus as ETFs.
- Green technology is volatile, even if the technology and companies are well established. They can go out of business in the blink of an eye, even after getting assistance from the government, as did Solyndra. The markets have been propped up by government subsidies, particularly in Europe, and when these subsidies dried up, the companies suffered. When building your portfolio, ignore the politics and focus on the market position of the companies and the technology. Subsidies are a great way to get an industry going, but they cannot forever contravene market forces.
- Investing in individual companies can seem advantageous, but without the capacity and motivation to monitor all the companies regularly, an ETF is a better option.
- Keep an eye on expense ratios and transaction fees if you are investing in many different ETFs because they can destroy your returns.
Nihar Patel covers finance and investing for several online publications, including Seeking Alpha. He also runs his own investment analysis website. Patel holds a J.D. from UC Hastings College of Law, as well as a bachelor's degree in political science and history from UC Davis.