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].

###

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. I heard about your website on TV and I am interested in earning some extra income, however in reading the blogs it seems like your site is mostly for employers who want to send there projects to other countries. Please let me know if there is work for people in the states that want to earn extra income.

    Thanks for your response.
    Phyllis

    Like

  2. “Just learned that normal table pepper sprinkled on candle flame creates sparks. How cool is that? Don’t burn down your house.”

    I never knew that. That’s awesome. How did you find that out Tim?

    -Andrew

    Like

  3. The joy I get from this thread is listening to the low grumble of creative minds practicing their art on an abstract problem.

    ADD causes a loneliness of spirit for itself. Tim’s example reminds us of things our society forgets. OK. First post. That’s out of the way.

    @Jaq: Isn’t a strip coal mine a carbon footprint? Don’t dismiss the words just because they were spoken by some political git to score points. They’re good words. Own them for your own use. Don’t let them be squandered.

    @Raina: Uncertainty is good. Keep doin’ what your doin’. It will be OK.

    Tim; Dude. Sit down with me over some beers sometime in the next two years. We can trade ‘adventure’ stories. Mine were before automation, which adds a certain patina to the telling…

    Best wishes,
    Wayne

    Like

  4. I can tell you how I found out about pepper on open flames…grilling when I was about 17 yrs old. Oregano does the same thing…discovered at 15 while working in an Italian restaurant.

    Whether I act in such a way that one might perceive it as “going green”, understand that the only reason I’d do so is based on money….does it save me money/time/etc.? If not, then I won’t do it. Separating the recycling? Nope, not when the city won’t accept 1/2 of the stuff that should be recycled (and PAYS someone to go inspect home recycling bins) and it needs to be rinsed, dried, etc. Not worth my time or effort.

    My gas-guzzling truck? Nope, even at these prices. I get a lot of utility from my pickup, more than any sedan can offer. I’ll keep it, thanks.

    I think you get the idea.

    The earth has been warming and cooling for eons. It will continue to warm and cool long after “Man has left the building.”

    What concerns me isn’t that people make the personal decision to “go green”, it’s the “I now have to force everyone else to do this too” mentality that will ultimately increase the interference by government into people’s lives. If you want to do all those things because, well, “it won’t hurt”, have at it.

    I remember news and magazine reports in the 1970s predicting the next Ice Age. Today, in Cheyenne, Wyoming, they reported 5 inches of snow, with 5 more expected tomorrow. On top of all the snow they got in the past 2 days. Yeah…let’s hear it for Global Warming.

    Arizona is allowing a Spanish company to build a $3 BILLION solar farm, which will cover 3 square miles. This company will then sell the power back to our state’s power company…at a rate to ensure they will get a nice ROI. Guess who pays for that increased electricity costs? Consumers.

    Like all attempts at controlling others, follow the money. It will lead you right back to Al Gore’s company that deals in “trading” carbon offsets.

    “Isn’t that what governments are for….to get in a man’s way?”
    –Nathan Fillion as Capt. Mal Reynolds in “Firefly”

    Like

  5. One more thing that I forgot….

    “The majority of the world’s scientists agree that global warming is real”…but do they also agree as to the cause? If so, where’s the empirical evidence?

    Remember, at one time the majority of the world community also thought the earth was flat and that the moon was made of cheese. And that slavery was OK because, well, Africans were sub-human.

    All of which have been disproven, and the latter being morally reprehensible, to boot. I’ll not be a slave to any Green Overlords.

    Like

  6. TimW: I’m curious, what WOULD be enough proof for you? Certainly, even though all scientists agree that Global Warming is real, you still state that you don’t even believe that even that much is true based on your Cheyenne, Wyoming ‘revelation’ (btw, Global Warming doesn’t mean less snow or less weather, it just means higher temperatures on Earth in general. Believe it or not, El Nino becomes more fierce from warmer waters).

    I must be missing something, because if global expert opinion isn’t enough for you, perhaps reading books (*cough* Four Hour Work Week *cough*) and any advice in general won’t do you too much good in life.

    Like

  7. If you are a business owner with many employees, you can make a huge difference by simply selecting your office location. If you can cut the average commute by 10 miles per employee each way you will be saving an average of a gallon of gas per work day per employee. That’s impactful.

    Plus… your colleagues will appreciate the shorter commute.

    Like

  8. @Jaq
    I just noticed the comments above that are directed at me.

    I don’t think we are disagreeing that much. It seems we are still approaching the topic from different vantage points – you from a policy standpoint, me from an individual standpoint.

    I like what you are saying about transparency and integrity in the prioritization of humanitarian efforts. However all of the issues you mentioned are equally rife with misinformation, conspiracy theorists and scientific uncertainty – not questioning their existence, perhaps, but how to allocate finite resources certainly. Yes, it is important to avoid a media frenzy and mass hysteria. But how is that done? By individuals developing opinions and taking concrete actions one by one.

    My previous comment about you getting involved with policy was not intended as an accusation nor flippantly condescending. It was intended as a complimentary acknowledgement that you seem to have sufficient interest, patience and follow-through to get results in that arena, and I wouldn’t want to see you waste it by adopting a victim mindset.

    The actions that I advocated do have tangible results, and are not merely “feel-good”. The limited expectations I place on my actions are simply this: I’m not trying to change THE world so much as I am trying to change MY world. I believe that in many ways, one is a prerequisite for the other. But that is not a tacit admission that my world is little more than vacillating emotional fluff. Far from it.

    If I live in the desert and decide to have a rock lawn rather than an artificially watered grass lawn, I am taking nothing away from anti-malaria campaigns.
    I am not making a huge political statement, nor endorsing any particular agenda. I will be saving myself money, and honoring the local habitat. There might be more far-reaching implications, there might not. Pragmatic. Done.

    All of these things get so complicated so quickly. I read books for enjoyment and to help wade through the complexity (I recommend the Food Revolution by John Robbins for on the intersection of water conservation, economics, the ethics of agriculture, and individual health). I pay very little attention to news media. My decisions as an individual are relatively simple. I do my best to keep them that way.

    Please report back to us, Jaq, if you get in the ear of a policy-maker.

    @Nate
    Very interesting commentary on LEED. Hopefully those problems are primarily growing pains that will work themselves out.

    @Wayne
    Comfort with uncertainty was a primary skill learned in art school. Knowing that the decision to paint a brushstroke ‘here’ or ‘there’ on an empty canvas didn’t really matter, but that the decision still had to be made and accepted anyway. It’s an interesting exercise in self-containment. Or futility. Depending on how you look at it!

    Click on my name to see some of my prints. They’re totally G-rated, but abstractly sexy. Enjoy!

    Like

  9. Hi Tim,

    Someone just turned us on to your 4Hr Workday book. I ordered it from Amazon but I didn’t read the reviews! I’ve always had success but this guy jipped us and AMAZON will refund us Monday if I don’t get it tomorrow. Ordered it 3/20 so have to wait it out. But our friend said you were an ARG. TANGO dancer so that really triggered my interest! We are too! We’ve been to BA 2x already, Italy 2x, Greece/Istanbul all for tango! Had my most exciting, envigorating, breathless tango dance in Istanbul. I want to learn what he did!! Some type of colgada/boleo combo but it was sooo powerful, my leg just FLEW around with NO TIME to think (which is good)…but the power scared me to death at first. His lead was so gentle yet created such force. That’s what I want to know how he did that! I would think he must’ve had to learn from Metin Yazir?? but who knows. It will be a quest so Alan can learn it. He and others have done some similar things but it is not quite the same.

    I missed dancing with Pablo Veron in Beijing by 2 weeks! WE went to visit their small Milonga with a friend from email. His girlfriend just happend to be in my small little town and she came over for dinner, then we had dinner with him later that week in BEIJING! He’s visited us back home several times. But this guy did something similar and right before he was going to teach us, he had to go back to China. Now he’s trotting around India and I’ll probably never see him again. He broke up also with the girl.

    I read your blog on tango and never heard of that rising star so put in my Favorites in YOUTUBE!

    Can’t wait to read your book! Tangamente, Debbie

    Like

  10. I wish that we humans could do more to reverse the natural process of climate change, however let’s stay green, as there is a lot we can do to make air quailty better, particularly in cities. 4×4 bad, little car good!

    Like

  11. Servus Tim,

    How do you know if I am a native English speaker? Perhaps I am Italian, or Chinese…
    ;)

    Und…Bitte sehr. Es freut mich dir zu helfen. I just happened to see it when I was researching which blogs you’ve been featured on.

    Amy Brevard

    Like

  12. If there’s a lesson to be learned here, it’s simple but powerful: assumptions and perceptions are only that. It’s logical to assume that changing your habits or choices to better serve the planet are to some extent going to deprive you of something or limit your ability to enjoy yourself. Yet what keeps being under-emphasized in discussions of climate change is that our responses do not have to be harmful. Going green can mean feeling better about yourself, but it can also mean tangible, practical benefits in reevaluating old habits and ways of business. You could have a chance right now to help the planet and yourself at the same time, if you look at the world as an opportunity, rather than assuming that change will be a net loss.

    Like

  13. Hello, Mr. Ferriss, We quite enjoyed your comments and explanations regarding the “Financially-Friendly” aspects of generally eco-friendly sustainable businesses and just how easy it really is to be both “green” and profitable. We concur with virtually every aspect of this site. Please contact us if you like so that we might share some thoughts. Rick Hewitt, Founder

    Like

  14. Investors in the telephone publishing industry are taking a beating. Sites like http://www.YellowPagesGoesGreen.org are allowing people to sign up to “opt out” from getting telephone books delivered to their homes. This is this first big push to make telephone companies stop the saturation market coverage that they have used for decades. The Internet and an organization like this will force them to go green and only deliver books to people that ask for them.

    Great site. Great info.

    Like

  15. Pingback: used fire trucks
  16. The New Alternatives Fund is NALFX not NJALFX.

    “Sacrifice 30 minutes of extra sleep on the weekend to deal with Zipcar vs. pull the car out of the garage?”

    What is taking 30 minutes? It takes me 5 minutes to pull up their website and reserve a car.

    Like

  17. As a counterpoint- Scott Adams just posted in his Dilbert.com blog (one of my favorites, along with this one) a call for “some entrepreneur [to] create a way for citizens to invest in clean energy sources without having to gamble in abstractions such as the stock market or venture funds. I would love to invest in, for example, a particular windmill, or a piece of a solar farm that is generating a particular amount of energy each day.”

    I was struck how similar this seems to the LitLiberation and FirstGiving.org experiments I was introduced to by this blog.

    What do you think- would a similar model work for green energy grassroots fundraising?

    If so, to what extent? Would people donate or set up fundraising drives for something more abstract, say, research towards better methods of storage/transfer of environment-dependent energy like solar and wind?

    You can check out Adams’s blog post here: http://dilbert.com/blog/entry/name_that_windmill

    Like

  18. Hi Tim,

    Someone just turned us on to your 4Hr Workday book. I ordered it from Amazon but I didn't read the reviews! I've always had success but this guy jipped us and AMAZON will refund us Monday if I don't get it tomorrow. Ordered it 3/20 so have to wait it out. But our friend said you were an ARG. TANGO dancer so that really triggered my interest! We are too! We've been to BA 2x already, Italy 2x, Greece/Istanbul all for tango! Had my most exciting, envigorating, breathless tango dance in Istanbul. I want to learn what he did!! Some type of colgada/boleo combo but it was sooo powerful, my leg just FLEW around with NO TIME to think (which is good)…but the power scared me to death at first. His lead was so gentle yet created such force. That's what I want to know how he did that! I would think he must've had to learn from Metin Yazir?? but who knows. It will be a quest so Alan can learn it. He and others have done some similar things but it is not quite the same.

    I missed dancing with Pablo Veron in Beijing by 2 weeks! WE went to visit their small Milonga with a friend from email. His girlfriend just happend to be in my small little town and she came over for dinner, then we had dinner with him later that week in BEIJING! He's visited us back home several times. But this guy did something similar and right before he was going to teach us, he had to go back to China. Now he's trotting around India and I'll probably never see him again. He broke up also with the girl.

    I read your blog on tango and never heard of that rising star so put in my Favorites in YOUTUBE!

    Can't wait to read your book! Tangamente, Debbie

    Like

  19. The thing about building green for less money is knowing the materials. If you know all of the really cool and innovative materials available for a green building project it becomes more of a game where you want to one up yourself and get greener and greener with each choice. It’s true ethics and money savings are usually not enough, with some people you just need to appeal to their competitive side.

    Like