How To: Build Your Sustainable Portfolio 101
New year, new resolutions. If one of yours is to begin (or continue) converting your financial portfolio in a greener grouping of money-making opportunities, here are some tips that can help. There are few magazines dedicated to helping you invest your money in profitable, responsible public companies, but a recent article from Progressive Investor gives some insightful tips that we've summed up below. For example, did you know that natural food stocks have outperformed the market for years due to positive demographic trends? Or that energy stocks will run up quickly in an accelerating economy, but tank in a difficult economy?
1. Masterlist your universe
Create a list of companies that would be stoked about investing in. For starters, it doesn't matter if they're big or small, or what industry they're in.
2. Stick your nose in their business...
It's important to understand what a company is all about and what they do. For example, if Whole Foods is your typical Saturday afternoon grocery shopping destination, you probably know what's up there. Noticed that all your neighbors have started shopping there too? Then you see growth, and a potentially larger market, making it a good candidate for your list. On the contrary, if you haven't got a clue about what they do (can you explain it clearly to friend who has no idea?), it's not for you.
3. Do your homework
Researching the companies that made your list will help you know if they are indeed a good investment. Do you really want to invest in risky technology when it could be smarter to support alternative energy by purchasing it for your home or business? Purchasing TRCs, premiums, or a service from a local providers may serve you better. (See: "How To: Get Green Power.") And don't forget the simplest step: reading the financial news.
4. Timing is everything
If prices are too high or stock is way overbought, the value may not be there. Progressive Investor uses fuel cell companies to illustrate the point—they go way up and then way down, making them not only somewhat volatile, but also not a great value at all price points. If you still want to invest in a company that follows a wild pattern, buy when the price dips.
5. Start at the beginning
If your new to the market, begin by trading on "paper" only. You can set up a portfolio on a site like CBS Marketwatch and then pretend you are buying shares of various companies to test the waters—and your skills—over a period of time, say, six months.
6. Take off your blinders
Never "fall in love" with a stock or company. Just like a bad relationship, admit to yourself when it's time to bail.
7. Variety is the spice of life
Diversify your portfolio. You should have stocks and mutual funds to play it safe. If you only have enough moula to invest in three stocks, you should be sticking to mutual funds—and spreading those out amongst different industries.
8. The last shall go first
If you are converting your portfolio, it would be wise to first sell off the stocks you like the least, and gradually buy new ones. ::SustainableBusiness.com's Progressive Investor [by MO]