Everything You Need to Know About Investing in Renewable Energy Right Now
As people and businesses all over the world do what they can to steer clear of oil and gas and move towards a future of renewable energy, there are plenty of reasons to invest in renewable energy. Renewable sources of energy are clearly better for the planet as a whole and therefore everyone on it, so countries all over the world are likely to start leaning that way in the coming years in terms of energy production.
This not only provides the opportunity for big growth potential but also offers investors many other reasons to consider adding renewable energy to their portfolios. Investing in renewable energy is ethical, offers technology companies space for growth, and it can lead to cheaper transportation across the world as fuel and oil are forced to go cheaper and cheaper.
Other than these reasons to invest in renewable energy in general, let’s take a deeper look into a few more investment-specific tips. Here are five tips to invest in renewable energy today.
Pay Attention to Government Policies
Compared to many other sectors of typical investing, renewable energy is relatively new on the chopping block and therefore is far more susceptible to governmental regulations and policies. This can add more risk and more volatility to your portfolio since government policies or mandates on renewable energy companies will greatly impact what happens in the sector moving forward.
As the industry has grown and matured over the years, government subsidies are decreasing since companies are much larger and more established. In addition to the growth in these companies, much of the financing and capital production have also been privatized. This puts negative pressure on prices and stocks which can cause them to take a hit as government subsidies decrease.
On that same token, governmental policies can also lead to extreme growth in the industry. If more governments dedicate more money and mandate that more energy comes from renewable energy sources, then the industry could take off. This is why there is more inherent risk and volatility in this field than in some other industries.
Diversify Your Portfolio
As any seasoned investor knows, diversification is one of the most important aspects of a successful long term investing strategy. This means having your money spread out over a wide range of investment types and industries.
Many investors will have included in their portfolio the following things: stocks or equities and a small number of bonds to help weather the storm. Some people also might throw some commodities in there such as gold or silver to diversify it even further.
It never hurts to diversify your portfolio even more and take advantage of the potential growth in the renewable energy industry. By putting some of your portfolio’s value into renewable energy, you can be along for the ride when the renewable energy sector booms and takes off.
But you also don’t want to go overboard and go all-in on the renewable energy industry — or any other single industry for that matter — which is why it’s ideal to be diversified and have investments in several fields that are proven and/or have serious potential for big growth.
Invest in Renewable Energy ETFs
Exchange-Traded Funds (ETFs) act a lot like individual stocks but are funds that are comprised of many different stocks all rolled up into one. This is one of the easiest ways to diversify your portfolio since the fund you invest in is already diversified.
ETFs are great options to invest in because you will be exposed to many different renewable energy companies all at once, and typically you will have exposure to the larger companies. This is good because you won’t have the risks that come from small to mid-cap companies — but you’ll also miss out on their potential to explode in value.
These types of investments are some of the most commonly used in industries of all kinds, not just in the renewable energy fields. This is because, with ETFs, you get the diversification that every good investment portfolio should have as well as well-grounded companies that have strong foundations and are well-known. Companies aren’t typically placed in an ETF just for no reason, there has to be something that warrants their inclusion in the fund in the first place.
Invest in Specific Energy Companies
This is where you start to get into the area of more risk, more reward. If you can stomach the risk of picking individual stocks and letting your money grow over time based on that company’s performance, you have the opportunity to incur some of the biggest gains on the market.
With the renewable energy industry, remember that it can be extremely volatile with price swings going in either direction regularly. This is why it’s important to invest in companies with strong foundations and good future outlooks. You don’t want to get caught holding the bag if a company takes a huge loss over a short period of time and has to declare bankruptcy or anything like this. Even if you pick individual stocks it’s still important to diversify your portfolio!
Investing in the Way of the Future — Renewable Energy
Investments are typically considered to be long-term, so it makes sense to invest in something that is often touted as the way of the future. As the name suggests, nonrenewable energy sources will run out eventually. As the world heads towards that inevitability, it’s important to begin transitioning into other forms of energy that are renewable.
In the ideal scenario, the world will ween off nonrenewable energy sources completely as it prepares for the full transition to renewable energy sources such as solar, wind, hydroelectric, or others. If governments around the world fail to move towards more renewable energy sources in the not so distant future, it could one day be too late to seriously begin the transition.
This is why adding some renewable energy sources to your portfolio is a great idea looking forward. If you decide to do so, keep these tips in mind, and hopefully, you will be able to reap the rewards one day in the not-so-distant future.