I just recently published an article for the most excellent Seeking Alpha, a contributor ezine for the consumate DIYers, (read the article here), and I wanted to follow up for my Smug readers with some more in depth analysis. The gist of the article deals with what I think the key to green investing (and investing in general) is: asset allocation. I spent the last three years in alternative investments (hedge funds, non traded REITs, limited partnerships, etc.), which, for the most part, are accredited investors only. The number one takeaway from my alternative experience was investing outside the box matters. The 60/40 stock/bond portfolio of yesteryear is so anachronistic, we at Smug practice post modern investing - we fashion ourselves as sort of the hipster punks of the investment world. Take one look at the Yale endowment fund (PDF file) and you'll realize what the smartest of the smart have known for a long time - the name of the game is correlation and risk. They only have a measly 7% in domestic equity! Forget the narrow view that the NYSE is the only player in the game, there is much more to your overall portfolio than that, green or otherwise. ETFs and ETNs have started to catch up and allow everyone, not just the super rich, in on the game.
As a green investor, the challenge is creating a total green portfolio. Now, this is still a bit of a dream, but if we stretch enough, it's not so crazy. How can we make a complete green portfolio? Here are some suggestions:
1.) Commodities are the base of your portfolio. There is a lot of "bubble" type press about commodities now, that commodities are overpriced. The Smug philosophy suggests otherwise. What has more worth: a resource that people need to live that is physical, or intangible stock in ANY company? For the green investor, this means water, waste and agriculture. Yes, we view waste as commodity. These are things that people can neither live without, nor can they help create it.
2.) Invest globally on a macro scale. This seems sort of contradictory, since investing locally is more important to sustainability than investing globally. That said, global index and currency investments, especially emerging markets that have eco reserve and low carbon output, offer low correlation returns and aren't depending on "traditional" investment theory.
3.) Real estate can be your friend. While green real estate is hard to come by, it does exists in small ways, especially if you're willing to do a tidbit of soul swallowing. The traded REIT and asset manager sphere has a few green players, but I'm very excited about some new non-traded green REITs that are worth watching. Real estate, especially the non traded vareity, adds a level of mental cool to the portfolio, and tend to offer fairly steady income yields. Don't be afraid of "subprime" in the commercial real estate realm (yet), real estate is essentially a commodity in limited supply and always has value in the long (sometimes very long) run.
4.) Don't invest in your father's bonds. Bonds have come a long way, and as we've detailed here and here, they can offer more low correlation returns in sustainable, responsible ways. I'm still waiting with bated breath for some green energy preferred shares - if anyone knows of any, please let me know, I'd love to incorporate them.
5.) Green energy and socially responsible funds are just pieces. They tend to be highly correlated to traditional S&P and NASDAQ type stocks, so don't overdo it. That said, no green portfolio is complete without green energy and technology. There are new great opportunities to watch with ETFs coming out almost daily, the new wind ETF (FAN), solar ETF (TAN), and carbon ETF (GRN), not to mention the mutual funds and ETFs Smug's already detailed (here and here).
6.) The most important thing: BE PATIENT. Creating a long term portfolio takes time and effort, but pays off. When the market bips and jumps and skitters, don't rush for the exits. It's important to keep your head, create a timeline, and be mindful that investing is a long term thing. Even Gordon Gekko, the henchman of corporate greed, said, "Don't get emotional about investing." That's true even in green investing - being responsible, sustainable, and green is smart investing, not emotional investing.
Not enough? How about we introduce the Smug Total Green General Portfolio:
|Eco Reserve / Low Carbon||15.00%|
|Energy / Technology||20.00%|
|Social / Diversity||10.00%|
|Waste / Recycling||10.00%|
This should provide a good baseline for an average investor, though it by no means suggests it fits your individual profile. Please contact your financial adviser, or call me directly, if you're looking for specific advice pertaining to your situation. And as always, read the disclaimer to the right about reading the prospectus first.
Be smug, invest green.