Over the past few months hardly a day goes by in which 'green' is not mentioned in the business section of a national newspaper. The goal of most investors is to make a higher return on investment than a comparable investment given a certain risk tolerance and until recent there has been little incentive to invest in green equity. Social and environmental costs are becoming an increasingly positive factor in cost benefit analysis and investment decision-making allowing the emergence for green equity as a viable asset class in any diversified portfolio.
High Oil Prices and Recessionary Contractions
Despite current low oil prices, green equities should not be taken off the investment radar. With the high volatility of oil prices, a current market price of $40 a barrel may double the following week. Many recessions have been caused by steep energy price climbs that occurred up to three years prior to the market correction.
When oil prices rise inflation is created and organizations such as the FED must decide whether to let it continue or take action to prevent further increases, usually resulting in recessionary contraction. Alternative energy will be a major factor in preventing future recessionary contractions caused by oil spikes and oil dependence and has the potential to smooth the overall business cycle.
Increasing Consumer Demand In Alternative Energy
The key to green equity success is in consumers beginning to demand and buy more of these products. Government programs, incentives, and major infrastructure spending, such as in the smart grid, will make alternative energy products more retail ready, easier to purchase, and more cost-effective for consumers.
Lower silicon and PV prices are positive for the industry long-term as it results in reduced end-product prices and a competitive energy option. Decreasing PV prices will make solar more affordable to consumers, increasing demand and forcing producers to become more efficient and innovative.
Alternative Investments in Green Equity
Due diligence must be made before jumping in on any investment or hot tip. It is important to stay diversified, which entails not only diversification in the stock market but also investing outside of it. This can be done while still staying green such as by investing in eco-real estate. Homes can be retrofitted with high efficiency panels and weatherized, potentially making a home a cash flowing asset. Local government programs should be checked for incentives.
Diversify further through private green business. Business owners should look for ways to become more green or add green-oriented products. Staying diversified with green equities in the stock market and in alternative investments can help build a more diversified portfolio.
With new government regulation, increasing emphasis on corporate social responsibility, and growing consumer demand, green equity investments are becoming a great investment opportunity for the long-term investor. Many large companies and billionaires have already invested heavily in this sector and the retail investor now also has many options available to add this new asset class to a diversified portfolio.
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