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The Unusual ROI of Going Green: From Saving to Eco-Friendly Index Funds that Beat the Market

Written by: Timothy Ferriss

Article Overview: Bestselling author David Bach used to use Flonase, Alegra D, and Singulair. He used Advair for almost ten years before he made one change that eliminated all of these medications. He moved into a The Solaire, a green-optimized building in NYC.

The Unusual ROI of Going Green: From Saving to Eco-Friendly Index Funds that Beat the Market

Bestselling author David Bach used to use Flonase, Alegra D, and Singulair. He used Advair for almost ten years before he made one change that eliminated all of these medications.

He moved into a The Solaire, a green-optimized building in NYC.

Going green is something we all know we should do, but somehow most of us never quite get around to it, unless an accident or experiment shows us clear personal benefits. David moved into The Solaire for the location, for example, not the green effect.

But what if you could help the world by being self-interested? Self-interest and contribution need not be mutually exclusive, after all.

It can be done…

David should save about $30,000 in 2008 based on simple changes, and those saved expenses can be applied to investments. This is where things get interesting (and compelling); remember that $30,000 in expenses could equate to as much as $50,000 in pre-tax income for some.

Imagine if you could:

• Save $250 per year simply with smart landscaping. Strategically planting trees and shrubs to shade your home can lower surrounding air temperatures during warm summer months by up to 9 degrees Fahrenheit and can reduce wall and roof temperatures by 200 to 400 F, reducing energy costs for cooling and home carbon emissions by 3,952 lbs per year.

• Save $798 a year when you perform regular maintenance on your car to keep it running efficiently. Properly inflated tires, for example, can keep 5,800 pounds of carbon from entering the air each year.

These steps, and dozens of others, are all viable but little-known. General Electric has saved $6.5 million in electricity costs per year simply by changing its computers’ settings. This can, and does, translate to a personal level.

Saving only motivates so far, of course.

Suppose you invested the money saved in each 365 period automatically—$3,758 is one average figure offered by Bach—in a green mutual fund yielding 10% annually. This compounds to more than $700,000 after 30 years; $745,560.24 according to the calculator I used.

Legendary venture capital impresario John Doerr has stated he believes green technologies and companies represent trillions in investment opportunities, whereas the dot-com boom represented mere billions. Given that Al Gore just announced a $300-million-dollar media campaign to educate consumers about global warming and green action—which dwarfs even the original anti-smoking campaigns—the conditions are certainly well set for it.

To catch the “green investment wave,” Bach suggests in his new book that one invest in the new breed of SRI (Socially Responsible Investing) index funds and exchange-traded mutual funds (ETFs) that screen out companies that engage in ethically and environmentally destructive practices and screen in those that have embraced sustainability and have demonstrated a strong sense of environmental and social responsibility.

While the number of “green funds” available will explode in the coming years, many of the funds already available have outperformed the S&P 500.

Here are some simple starting points that David recommends in Go Green, Live Rich:

• If you are eligible for a 401(k) plan at work, find out if your “investment menu” includes a green fund. If it doesn’t, speak to your plan administrator (usually someone in your company’s human resources department) and express your interest in having an SRI or a green fund added to your choices.

• Begin researching a few green funds (some of the best funds currently available are listed below). Many green funds have posted double-digit returns, and some were up over 30 percent in 2007. This does not mean you should invest your entire retirement savings in a green fund. Many of these funds are narrowly focused and volatile. Others are more broadly diversified. So before you invest, do your research carefully and consider green investing as a piece of your overall financial plan and diversification. A great place to start your research is at www.Morningstar.com, which evaluates funds, their diversification, and their levels of risk.

• Find out how your current investment holdings perform in terms of sustainability by visiting Climate Counts, a nonprofit organization funded by Stoneyfield Farm, Inc. that brings together companies and consumers in the fight against global warming. Climate Counts provides a scorecard for companies in eight sectors based on their commitment to fighting global warming.

• Find a financial planner who specializes in socially responsible investing. Go to Social Investments Forum and click on “individual investors” to find a financial services directory and other tools.

Here are some of the top “green funds” currently available:

• Calvert Funds is one of the largest active managers of SRI mutual funds, offering both index-based and actively managed socially conscious funds. Calvert Large Cap Growth Fund [symbol: CLGAX] has outperformed the S&P 500 over the last five years.

• Launched in 2001, Winslow Green Growth [symbol: WGGFX] is annually the best performing green fund over the past five years. This small-growth fund invests in domestic companies that that are either in specific green sectors or have shown strong environmental responsibility. Its creators are about to launch a second green fund, called the Winslow Green Solutions Fund.

• Founded in 1982, The New Alternatives Fund [symbol: NJALFX] holds companies—both overtly green and less visibly so—that it believes “have a positive impact on the environment.” Many of its holdings are in the renewable-energy space, but it also invests in natural foods companies (like Whole Foods) and those involved in clean water and clean air.

• Green Century Funds manages two green funds. Started in 1991, they offer the Green Century Equity Fund [symbol: GCEQX] and Green Century Balanced Fund [symbol: GCLBX]. Both funds seek to track the Domini 400 Social Index Fund, which screens out companies involved in socially or ethically unacceptable areas (alcohol, tobacco, firearms, etc.) and screens in companies with positive environmental, social and governance (ESG) performance. Green Century is nonprofit and promises that its fees and profits are used to preserve and protect the environment.

• Powershares Wilderhill Clean Energy [symbol: PBW] is an exchange-traded fund (ETF) that focuses on companies that promote cleaner energy. Founded in March 2005, the fund seeks to mirror the Wilder Hill Clean Energy Index. Other “green” ETFs currently available include WilderHill Progressive Energy Portfolio [symbol: PUW], which focuses on companies that that provide technologies that improve the use of existing fossil fuels, PowerShares Cleantech Portfolio [symbol: PZD], Claymore/LGA Green ETF [symbol: GRN], Van Eck Global Alternative Energy ETF [symbol: GEX] and First Trust NASDAQ Clean Edge ETF [symbol: QCLN].

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The sad reality is this: “saving the world” is too long-term and nebulous to convince most people to take the first step.

Sacrifice 30 minutes of extra sleep on the weekend to deal with Zipcar vs. pull the car out of the garage? Spend 1-2 hours to replace all the bulbs in the house? Not going to happen.

Saving money is also often not a sufficient motivator. But increasing portfolio returns vs. other investment vehicles while significantly improving health, all of which can start with testing the effects of one green change?

Even the busiest and most distracted will make green decisions if it’s that simple. Being self-interested can be selfless, and the timing is good.

Do your own due diligence as with all things, but consider making taking one small step, whether in your life or in your portfolio.

In other words: get to experimenting.

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Article Tags: 5 million, air temperatures, alegra d, carbon emissions, david bach, electricity costs, energy costs, fahrenheit, flonase, general electric, index funds, personal benefits, personal level, planting trees and shrubs, reducing energy, roof temperatures, self interest, simple changes, singulair, trees and shrubs



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