Can 'Green' Investments Power Your Investment Growth?

'Green' investments are rapidly gaining in popularity for a couple of very good reasons: first, growing numbers of Canadians are seeking out 'socially responsible' investments that have a positive environmental and social impact as well as providing reasonable returns; and second, because 'green' industries are a fast-emerging market sector with a potentially unlimited upside.

Take the 'green' energy sector, for example: Worldwide energy demand is expected to increase by more than 50 per cent in the next 25 years, so it's no surprise that the demand for clean, alternative energy sources is stronger than ever.

Producing and transporting alternative energy requires new technologies, new companies - and most importantly the ability to raise new capital. One research firm estimates more than $60-billion was invested in the alternative energy industry worldwide in 2006, more than double the amount spent in 2004.

The potential rewards would seem to be considerable and making an investment in alternative energy could appear to be a slam dunk but there is also risk.

The challenge isn't finding alternative energy companies there are plenty to choose from the problem is finding the right alternative energy investments. Like any other investment opportunity, you should seek out diverse, fundamentally sound players with the potential for growth and profits.

Here are some important alternative energy investment considerations:

• Potential market share. Will a company's products be sold and distributed in North America, or around the world? What is the intensity of the competition? How well-funded are competitors?

• Manufacturing scale. Can a company design and manufacture its product in a cost-effective manner that allows for healthy profit margins?

• Government regulation. Regulations increasingly favour alternative energy sources. But they vary according to jurisdiction, and are constantly evolving. How will they affect a particular business?

• Incentives. Alternative energy incentives are becoming more common, with government tax breaks and subsidies for producers and consumers. How might these benefit an alternative energy investment?

• Technology risk. Today's promising product can be tomorrow's failure, especially if it's overtaken by newer technology. This can quickly alter the investment landscape.

• Product acceptance. Not every good idea meets with market enthusiasm. For example, when using new fuels, will the consumer be able to drive as far, and can they re-fuel conveniently?

• Management experience. With hundreds of companies starting up and getting funded, seasoned management teams are more likely to be able to navigate unforeseen developments.

A good way to be comfortable that you've made the right alternative energy investment choice would be to let an expert make it for you - by investing in a socially responsible mutual fund that has already identified a group of alternative energy and/or other socially responsible companies with the most assured potential. A professional advisor can help you go 'green' in the most powerful way for you.

Who Needs Segregated Funds? Maybe You.

It's easy to overlook potentially powerful additions to your investment plan when they have complex-sounding names like - well, Segregated Funds. But you could be short-changing your financial plan when you ignore certain investments like Segregated Funds.

Segregated Funds (sometimes called 'Seg' Funds) are offered by insurance companies. Like mutual funds, these funds pool money from investors and invest in a variety of individual securities. They provide the benefits of professional money management, simplicity and choice, plus the protection of life insurance.

A Segregated Fund investment could be right for you if you.

• Want the growth potential of a mutual fund with the additional advantages of capital guarantees. A Segregated Fund can allow a cautious investor to participate in equity markets with less worry that volatility could erode the investment because, by leaving the money invested for the duration of the contract, 75 to 100% of your original investment is guaranteed (depending on your contract).

• Are a business owner, self-employed person or a professional requiring creditor protection because a Segregated Fund policy is a type of life insurance, and its value "may" be protected in the event of bankruptcy. Talk to your lawyer about whether creditor protection in your province is available.

• Want to establish and maintain a fixed amount to pay to your beneficiaries. The value of a Segregated Fund policy flows directly to the beneficiaries, bypassing your estate, potentially reducing probate fees and avoiding access by creditors. Unlike a will (but subject to provincial legislation) the payment to your beneficiary is usually automatic.

• Seek a death benefit guarantee. If you should die before your policy matures, your designated beneficiary receives the greater of the market value or the guaranteed amount (less a proportion of withdrawals) and all deferred sales charges are waived.

Retirees may also benefit from a Segregated Fund investment. During a time when nest egg preservation assumes greater importance, transferring assets to a Segregated Fund can provide added protection from the uncertainties of investment markets.

When you look carefully, a Segregated Fund isn't all that complicated -- and it could be a valuable addition to your financial plan. A professional financial planner can help you decide if a Segregated Fund is right for you.

Unbalanced Portfolios Cause Falls

In every horse race there is one winner and a bunch of losers. Yet, by nature, we humans are ever optimistic - that's why we bet on horse races even though the odds are never in our favour. But every once in a while we win - and that's when another aspect of human nature kicks in: the optimistic tendency to 'ride a winner.'

Many investors carry that 'ride a winner' philosophy into the selections in their portfolios and that is usually a very risky investment decision - here's why:

• If you're an investor, you have no doubt looked into effective investment strategies - and one of the most effective is to build a diversified portfolio in which you divide your investments within and across asset classes to take maximum advantage of market conditions and economic changes while protecting yourself against downturns.

You may even have created such a portfolio for yourself - and then you let it get out of whack . because you are, after all, an optimistic human.

• You see that some of the investments in your portfolio are real winners while others are lagging. So you switch to the 'optimistic' strategy of 'riding a winner' and transfer an additional portion of your assets from the 'laggards' to the 'winners'.

• And just like that, your balanced portfolio becomes unbalanced and ripe for a fall. Study after study and investor experience in capital markets that always include a degree - and sometimes a high degree - of volatility have proven without a doubt that a properly diversified and balanced portfolio strategy is the best strategy over the longer term.

Large institutions, foundations, and other organizations that make huge investments know that a balanced portfolio is a 'best practice' investment management strategy. And they also know that when a portfolio swings out of balance, it's time to rebalance it.

The same holds true for individual investors like you. Every so often, it's necessary to rebalance your portfolio to bring it back in line with the original allocations that match your personal tolerance for risk, your age and family status, and your financial goals. And sometimes that can mean hopping off a 'winner' and reinvesting that money in an investment that has lagged.

Having the discipline to maintain a balanced portfolio - and knowing when it is necessary to rebalance -- can be difficult and complex. A professional financial planner can help keep your portfolio true to your goals.

Thinking Of Ethical Investing?

Are you warming up to global environment messages? Does the Kyoto Accord strike a chord with you? Are you thinking about what you can do, as an individual, to help make our world a bit better?

If so, you’re far from alone. More people are becoming actively involved in a host of environmental and ethical issues – including a growing number of investors who are seeking holdings that reflect their values. They want to support companies that behave in ways they consider to be appropriate or responsible, companies that are trying to do the right thing on a range of ethical, social and environmental issues.

This type of ‘ethical’ investing has gained so much traction it has been given its own name: Socially Responsible Investing (SRI) and, these days, it’s getting plenty of attention as investors increasingly search out socially responsible investment alternatives.

SRI is simply the integration of your personal values with your investment decisions. In addition to the profit potential of an investment, you also consider the investment’s impact on society and the environment. SRI investors typically avoid industries such as gaming, tobacco and armaments and companies with a poor record for environmental concern, governance, labour relations and/or human rights in favour of those with a focus on the environment, solid social performance, or sustainability. Companies involved in renewable energy, biotechnology, water or waste management and health care often fall into this category.

Mutual fund managers develop an ‘ethical’ fund using techniques like these:

• Negative screening – avoiding certain types of investments like weapons manufacturers.
• Positive screening – giving preference for company activities or characteristics considered to be desirable, such as industries involved in renewable energy or health care.
• Best-of-sector – selecting the leading companies in a business sector based on their environmental and social performance or sustainability.
• Social responsibility – adding a process for selecting shares that addresses issues related to social responsibility.

It is also important to note that a fund is not automatically “unethical” just because it isn’t termed ‘ethical’. Fund managers typically are of the view that natural market forces will suppress the price of stock in a company that has been publicly identified as being ‘unethical’ – so, like any informed investor, they typically will not include ‘iffy’ companies in a fund’s portfolio.

Ethical funds are not for every investor. They are often more volatile than ‘traditional’ funds but, over the long term, some have produced good returns. Are they for you? Maybe, if they’re part of a balanced portfolio. Your professional advisor can help you make the decision whether or not to ‘go ethical’.

Money Education – Things Your Children May Not Learn In School

It doesn’t cost much, except time – but neglecting it could be costly for your kids. That would be teaching them age-appropriate money management skills they may not learn in school. A dollars and sense education will help them achieve their life goals, lead a better life and help others.

Here are some age-related toonie tutorials to get you started.

6 – 12 years

Give your youngsters a ‘fun’ bank to fill with coins from you and others. Let them graduate to a ‘real’ bank account and an allowance clearly tied to the completion of certain tasks. A fixed amount allowance is best because it teaches that there are serious choices to be made about when to spend and when to save. Encourage them to deposit at least ten percent of their allowance in a bank account. Explain how interest makes their money grow. Board games like Monopoly or interactive websites such as the Bank of Canada’s (www.bankofcanada.ca) and the Canadian Foundation for Economic Education (www.moneyandyouth.cfee.org) are also good money education tools.

12 – 16 years

Help your children develop a simple budget plan that includes keeping their tax receipts and statements so they can keep track of where their money went. A charitable giving component will show them how their money can have a positive impact in the community. Give an allowance ‘bonus’ for special work with the requirement that this extra money must be invested. Introduce them to the concepts of ‘compounding’ and tax-saving through such long-term investments as a Registered Retirement Savings Plan (RRSP).

Use shopping trips to discuss debit and credit including the fact that most credit cards carry much higher interest rates than other forms of borrowing, such as a personal loan.

16 – 18 years

Have each child file a tax return as soon as they have a job that results in a T4. They’ll get a more ‘personal’ view of income taxes and build up room for future contributions to an RRSP. Co-sign for a credit card in their name with a low limit. Carefully monitor its use and stress the importance of making their monthly card payments to maintain a good credit rating and avoid high interest rates or late fees. Use monthly credit card statements to discuss their spending patterns and best uses of their purchasing power.

Involve your children in your family finances and discuss how your family budget must balance expenses and income. Introduce them to savings and investment products -- stocks, bonds, Guaranteed Investment Certificates, registered and non-registered savings plans -- the role of insurance, and investment concepts like portfolio diversification and risk/reward decisions.

It’s smart to talk money with your children and if you need help, give your professional advisor a call. A professional perspective can add welcome weight to your toonie tutorials.