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

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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” that Bach suggests researching:

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.

Posted on: April 6, 2008.

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

  1. Investors lost billions in the dot-com bubble; now they have a chance to lose trillions. The problem with investing in a hot new industry is that it’s nearly impossible to predict the winners. Scores of auto manufacturers existed in the U.S. in the 1920s, but only those who invested in Ford or GM made money.

    Like

  2. You continue to speak my language, Tim! A sustainable system is the solution!

    I’ve started taking the bus to get to work.
    No, I don’t save on gas money (despite the high price of gas)
    No, it doesn’t ‘save me time’…. but, here’s what I say Yes to:

    * I can save on insurance premiums
    * save on the wear and tear on my car.
    * I can nap/read a book/meditate instead of driving in bumper-to-bumper traffic.
    * I reduce emissions.
    * I get to enjoy the sidewalk musicians as I transfer through downtown Portland.
    * it forces me to get my work done on time
    * I get exercise if I take the bike along

    It’s a no brainer, really. The ROI, indeed, is unusual.

    I’d like to also comment on another intangible benefit:
    Once I started taking the bus/train, I more consciously realized how we are *all* ants marching.

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  3. @Dennis…..That is true but, in my opinion, investing in green funds is going to be a lot safer than the dot com or auto bubble because there is so much more room for various companies. With solar, wind, hydrogen, low voc paints, organic cleaning products, to sustainable building materials companies. You should be able to find a fund that is spread out a bit more and not in just one industry so your money will be protected while giving you a really good chance at making some big gains.

    I may be wrong but, some of the biggest investment trouble with the dot com and auto bubbles was with people not diversifying. Thay put all their eggs in one basket so to speak.

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  4. I’m all for sustainability – have no car, have done the changing lightbulbs thing, probably about 50% of my consulting work deals with green buildings, etc. But I agree with Dennis – in addition to the potential greenwashing issue, these green funds/companies have bubble written all over them … I personally am treading carefully. (There’s also something to be said for taking dividends/profits from un-green firms and spending them on living a sustainable lifestyle, no?)

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  5. I agree. I’m in LA and have recently stopped driving most days. I’m considering selling the car. If I take the plunge, I will save on gas, car insurance, maintenance, parking, parking tickets, smog tests, vehicle registration, and time. Not bad at all!

    Also, just making a conscious effort to buy less stuff in general can help the environment while saving money for bigger and better things.

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  6. Great info! My heart goes pitter-patter as my children (Hi kids in the future, you guys are so cute. Mommy could just eat you!) will have the opportunity to thrive and not clean up too many of our past messes with more people investing in green markets of trade. Although cleaning up builds character I would want my kids and my grandkids to be able to breathe and swim and beget more of my crazy lineage with less problems in that department.

    I agree most will not change easily unless the “Joneses” start giving up their God awful Hummers and the neighbors follow suit and prices for green improvements go down for the common man. I am hopeful for our future and still do my part by using Terra Pass to offset my Hyundai’s footprint. I say live consciously but try not to beat up oneself as if you’re dammed if you don’t recycle a straw. Balance is key!

    Tim, I hope you offset your travel! ;)

    Hugs,
    Jen

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  7. Tim-

    I appreciate your effort to make “going green” palatable by realizing what people truly will and won’t do in the interest of being better citizens of the earth.

    That said, my wish is that you don’t go too far into the global warming or artificial climate change religions to justifiy doing things for a cleaner, more energy efficient society. I am all for applying effort toward those objectives, but I don’t go for the guilt associated with the American lifestyle and the holier than thou attitude perpetrated by people who think driving a Hummer is more evil than roasting children on a spit.

    The science of the Earth’s climate is revised by the hour and it always strikes me as a little odd that so many people/governments are willing to spend trillions of dollars to reverse something that we don’t even completely understand. Notice how the explanations of the effects that humans have on the earth keeps changing as we get new information. The “artificial climate change experts” keep modifying their explanations to fit the crime. I am in awe of your efforts in Africa and elsewhere but I think that while the U.S. people are being given the mother of all guilt trips about how we live our lives (Not by you, but by the climate alarmists Though you are supporting the notion of artificial climate change by saying things like “carbon footprint.”) it takes our focus off of the more immediate, quatifiable, and simple things we can do to save lives today. Stamping out malaria by providing drugs to people that die from it everyday even though it is very treatable is a great place to start. It’s an opportunity cost that we can not afford.

    Many people (especially Gore) and countries tend to make billions off of the carbon trading game that allow companies to sin but find a way for salvation. It reminds me of why Martin Luther broke away from the church.

    From Wikipedia, ” John or Johann Tetzel (1465 – 11 August 1519) was a German Dominican friar remembered for selling indulgences and apocryphally for speaking the couplet “As soon as a coin in the coffer rings / the rescued soul from purgatory springs.”[1]

    I for one hope that as you offer up your great advice on how to live one’s best life and that it does not entail asking your readers to buy into an area of science that is so far from resolved.

    I read your blog often and I wish there were more people like you in the world. Keep up the great work!

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  8. I agree that there is significant profit to be made from green technologies, but for the average person I don’t think it’s anywhere in the stock market. Firstly, look at the volatility. Secondly, it’s in US DOLLARS.

    If I make 400% annual returns and become a billionaire, yet eating lunch costs a billion dollars, then inflation (declining currency value) has made my earnings worthless.

    Although hiring a financial planner is easier than becoming a sophisticated investor yourself, I think this is one area where it’s absolutely necessary for an individual to make good use of all the extra time they have reclaimed in there lives from applying 4HWW… one of the few things your can’t outsource is creating and protecting wealth for YOURSELF.

    Like

  9. @Tim:

    “Save $250 per year simply with smart landscaping. Strategically planting trees and shrubs to shade your home…”

    That $250 will be totally wiped out by that strategic planting, surely? Either (a) you’re putting in new trees, which will take years to grow and therefore you won’t see any end result until then, or (b) you’re digging up fully-grown trees from somewhere else, therefore damaging the ecosystem of that area to support your own. Which, meantime, will cost a small fortune.

    Trees, new or old, are expensive. I support the overall notion of this post but a lot of it is a bit like robbing Peter to pay Paul.

    ###

    Hi Sheamus,

    You’d have to ask David for the details, but speaking as someone who has sold trees before, it doesn’t necessarily damage the ecosystem to transplant trees, if done correctly and with preservation in mind. There are plenty of people happy to do damage, but I suspect that this concern with create more and more suppliers who have a good answer to this.

    Just my 2 cents — good observation,

    Tim

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  10. Tim,

    Great stuff and I enjoy the balanced and realistic approach you discuss. On the topic of investing, I hope that we all strive to combine the art of investing in “green” and investing to make money. Chris Arnold, on NPR, had a great interview on April 3rd with Yale’s endowment investing guru David Swensen. It is certainly something worthwhile to check out, considering Yale saw a 28% (or $5 Billion) return on it’s investments last year.

    http://www.npr.org/templates/story/story.php?storyId=89324244

    Keep up the great work, Tim. Always enjoyable.

    Like

  11. I don’t understand the neanderthal resistance to green choices. I think that as @blogrdoc pointed out, when you make green lifestyle choices you shift your perspective in the same way that 4HWW choices punch holes in the status quo. When you stop consuming as much, start looking at the planet as something to resource, and stop the cycle of earn-buy-waste-burn fuel you realize that you (hurray!) don’t have to be stuck in a job because of a regular paycheck. As Tim is suggesting, experiments all around green choices are in your own self-interest. They are incredibly freeing and very consistent with 4HWW ideals.

    One tiny example: right now, if your relationship with your electrical bill is a monthly obligation, you have to manage that to take a mini-retirement. But if you take a short-term gig with the purpose of earning to install solar panels, you cut that monthly obligation. You might even passively earn income. Talk about outsourcing.

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  12. I can’t think of a better cause, quite frankly, to invest in. I’m sorry, but we won’t have to worry about Malaria or any other “cause” if/when the Earth becomes uninhabitable (for humans, that is, the mosquitos will live longer than we do). I think enough of the scientific community is in agreement on this one. Read this article, looks like Malaria and lots of other diseases are being perpetuated by…none other than…GLOBAL WARMING:

    http://news.yahoo.com/s/huffpost/20080407/cm_huffpost/095331

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  13. You can save A LOT of green by going green. It’s interesting how despite all the money saved, people are still reluctant to go eco friendly. Is it because of the initial costs of do so?

    -Andrew

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  14. Tree farms are meant for farming trees to plant in your yard. Buying from them won’t disturb the ecosystem, and the costs of the tree will be reclaimed from saved energy costs.

    Global warming not a real science but an artificial religion? Uhm, read about the ice shelf that just broke off, decades before it was predicted to break off. It’s not necessarily a ‘I am better than you’ attitude, but sometimes people need that wakeup call to take action. I feel like some don’t want to take action until it directly affects them, and by then, it’s too late.

    I’m not sure why some commenters are quick to point out ‘flaws’ when just a little thinking outside of the box is required to come to a resolution.

    I, for one, like this post, as it seems to be the first post (correct me if I’m wrong) that discusses financial investment and ecological awareness, both which are largely not discussed in the book.

    Like

  15. I’ve found a great ROI has been to move 2 miles away from my office and bike to work. Daily (additional) exercise, virtually guaranteed travel time (one time got a flat, jogged home in 15 minutes), no waiting for the bus, no car needed. When it rains I wear a rain coat.

    Over the course of a year (been doing this since July in DC area, 4 seasons) I’ll ride a 1,000 miles (250 work days, 4 miles/day) instead of driving it. Oh, I also save $100/mo in parking fees.

    Used to drive 45 min to work, deal with traffic. Just can’t imagine doing that any more.

    Still working on attaining a 4HWW!

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  16. @akthe47:

    “Uhm, read about the ice shelf that just broke off, decades before it was predicted to break off”

    The Wilkins ice shelf that broke off was an event. It may even be attributed to the warming of the earth, but how do you definitively say that it was because of human caused global warming? Did the earth not warm to get us out of several ice ages before the first Hummer rolled off of the production line?

    What level of certainty can you put on any scientific prediction about the earth’s climate when less than a few decades ago “scientific experts” were predicting an ice age? New data recently has suggested that the earth has been cooling for the last decade. How could that be if we’ve pumped more carbon dioxide into the atomosphere in the last ten years than any other time in human history? The answer; we don’t know. My point is that this debate in our society has reached a fever pitch that distracts from real world solutions to problems that we know exist and can be fixed.Finally, how do we gauge what is good and bad about global warming whether or not it is caused by humans? It could be that we lose a couple miles of shoreline around some countries but the African deserts all turn into lush gardens providing an increase in the standard of living for all who live in the region saving millions of lives in the process. There is just no way to know for sure. This issue is not simple, it is an asymmetric one that requires much more analysis before trillions of dollars are committed at the behest of those who stand to gain the most. Better to get people interested in a healthier lifestyle for themselves and their communities than use guilt to make people do what you want. It might work initially, but that strategy always backfires in the end.

    Like