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As more people learn about climate change, pollution, and sustainability, it’s favorable to you as an investor because their demand for renewable energy sources will drive the transition. In addition, this sector is growing as government support for renewable energy projects increases.
As an investor keen on increasing their financial returns by grasping lucrative opportunities, you ought to learn about the benefits of joining the green energy revolution. Thus, this guide discusses why the renewable energy sector should be on your watch this year and which investment vehicles can diversify your portfolio while increasing your returns. Read on!
Why Renewable Energy is a Growing Sector and the Key Types of Investments
You must have heard the call for sustainability to ensure a greener world. The energy sector is also in this cause by championing a transition to renewable options and reducing overreliance on fossil fuels like coal and petroleum because of their impact on the planet and their unsustainable production. As such, you may come across national policies streamlining how to reduce carbon emissions to achieve net zero status in the coming years.
Due to all these changes taking place, there are many renewable energy projects you can invest in. In addition to showing your commitment to a sustainable world, investing in this sector also has financial benefits. For example, this sector has long-term stability. Therefore, your investments will resist economic downturns.
On top of that, it’s a growing sector, so as it becomes more innovative, you get another range of investments to add to your portfolio. For instance, to properly invest $300k, you can select projects in different energy types to diversify your portfolio. So, which renewable energy investments should you consider?
Solar Energy
Developments in solar power production are making solar panels affordable and more efficient. As such, more homes and small businesses can install them. Such widespread popularity creates opportunities for solar energy companies specializing in specific consumers, such as homes. In addition, it’s increasing the need for solar storage systems.
Wind Energy
There are a few ways to invest in wind energy. For instance, you can focus on companies dealing in turbine manufacturing.
Hydropower
Its growth as a renewable energy source seems slower compared to the attention and investments other sources get. Nevertheless, it might be the one that helps you diversify your portfolio because there are emerging markets in regions with large water bodies to explore.
Bioenergy
Organic matter produces biogas, biofuels, and other energy types. As such, one of the areas you may invest in is technology that converts plant matter and waste into energy. It’s a diverse energy source growing with emerging markets hoping to tap energy from less popular organic matter.
Geothermal Energy
It’s another less popular option, but don’t rule it out because emerging markets investing in this energy type must be the breakthrough your portfolio needs. They include companies that develop geothermal plants and technologies for generating this energy.
Suitable Investment Vehicles for Renewable Energy
Now that you know the types of renewable energy projects, which investment vehicles can you use? Of course, before you select any of the options below, you have to check your current portfolio to see how the investment vehicles you add will diversify it. Also, the new investments must align with your risk tolerance. They must also suit your investment goals. Here are the investment vehicles to consider.
Stocks
As mentioned above, some companies are directly involved in renewable energy production or the technologies needed. Therefore, you can support these companies using individual stocks. As such, you look for companies in turbine manufacturing, solar panels, and other utilities for renewable energy production. It’s a process like any other investment, meaning you evaluate the company before you invest. Look at its financial health, innovations, and market position.
Private Equity or Venture Capital
We mentioned risk tolerance as a crucial factor as you build your portfolio. If your tolerance is high, you can take on high-risk ventures. Thus, consider private equity or become a venture capitalist. These are high-reward investments in startups in this sector. They could be in emerging technologies or innovations that can drive renewable energy production and management. However, due diligence is necessary before selecting startups you’d like a stake in.
Exchange-traded Funds
ETFs are suitable if you want to invest across the sector instead of focusing on one company. As such, ETFs help you diversify your portfolio by reducing the risk and exposing you to the gains in different holdings, from wind power producers to solar storage system firms.
Green Bonds
Unlike the two discussed above, a green bond is a fixed-income instrument. Its purpose is to raise capital for the sustainable projects of governments, supranationals, or corporations. Therefore, you can show interest in sustainability nationally or globally through green bonds.
Real Estate
The ultimate goal for an investor is to have a balanced portfolio that can give stable earnings throughout, irrespective of the market changes. For instance, real estate is stable, generating returns when the market is unfavorable for stocks. Fortunately, you don’t have to own or manage the property. So, how do you do that in the renewable energy sector? Well, have you heard of real estate investment trusts?
These are large-scale projects in real estate managed professionally. As an investor, your money turns into dividends, which can come from real estate properties across sectors, including renewable energy. For instance, you can get REITs specializing in solar and wind farm infrastructure. It allows you to select the energy type you think is more strategic for an investor.
Conclusion
Imagine finding a way to invest in making the world greener, and you don’t have to own or run a company. Renewable energy presents a variety of investment vehicles. For instance, you can invest in stocks of companies generating this energy or technologies and machinery to produce renewable energy. Another suitable path is tapping into the fixed income from green bonds.
Alternatively, you could invest in renewable energy infrastructure. Whichever path, the idea is to diversify your portfolio so that these investments become a soft cushion when your other investments face ups and downs.