Financial Focus: Earth Day Offers Valuable Lessons to Investors
On April 22, millions of people will observe Earth Day by participating in events that support environmental protection. As a citizen, you may want to take part in a local celebration. And as an investor, you can learn a few lessons from the themes of Earth Day.
Here are a few of them:
• Avoid a toxic investment environment. A recurring topic of Earth Day is the necessity of reducing toxins from our air, water and land. And, while you might not think of it in those terms, your portfolio can also contain some “toxic” elements in the form of investments that may be hindering your progress, or, at the very least, not contributing to it. For instance, you might own some investments that, for one reason or another, have consistently underperformed, or are now too aggressive for your risk tolerance, which can change over the years. In these cases, you might be better off selling the investments and using the proceeds for other, more appropriate ones.
• Look for sources of renewable energy. Efforts to protect our environment include a push for more renewable energy sources, such as solar and wind. As an investor, you, too, can look for “renewables” in the form of investments that keep paying you back in one way or another. Of course, the most basic example would be a bond, which pays you regular interest until the bond matures and you get your principal back, provided the issuer doesn’t default, which is generally unlikely with an investment-grade bond. However, you also may want to consider another type of renewable – dividend-paying stocks. By reinvesting these dividends, you can increase the number of shares you own – and share ownership is a good way to help build your portfolio. Some companies have paid, and even increased, their dividends many years in a row, but keep in mind they’re not obligated to do so.
• Plant seeds of opportunity. Some Earth Day events involve planting trees – many of which won’t be fully grown for decades. When you invest, you are planting seeds in the form of investments you hope will grow over the years. Of course, you will likely see some volatility along the way, but over the long term, investments with strong fundamentals may reward you for your patience.
Apart from these ideas, you also can connect the idea of helping protect the environment with investing for your goals. Through socially responsible investing, you can screen out investments in companies whose products you find objectionable, while supporting businesses whose work you believe helps contribute to a better world. And you can find investments, such as mutual funds that emphasize social responsibility, whose returns are competitive, so you don’t have to sacrifice growth potential for your principles.
In the nearly 50 years since Earth Day celebrations began, we have taken steps to improve many aspects of our physical world, although the work continues. And by following some of the same techniques, you can improve your investment environment, too.