G. Jeffrey MacDonald

How You Can Green Your Home and Cash in on Stimulus Money

Energy-saving systems for the attic, basement, and in between have effectively gone on sale, courtesy of the United States Congress.

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Can You Profit from Global Warming?

One day in late January, a few creative Californians dramatized the onset of climate change by filling a stretch of Rodeo Drive in Beverly Hills with snow and letting snowboarders show off in the sunshine.

Organizers of the stunt, however, weren't looking to inspire lifestyle changes or environmental activism. Their goal was to attract investment in the DWS Climate Change Fund, a five-month-old mutual fund that aims not to fight climate change but simply to profit from it.

"We're really tackling this as an investment opportunity, as opposed to being socially responsible or believing that you can change the world" through investing, says Antonio Galloni, product specialist for the DWS Climate Change Fund. "Climate change is one of the megatrends that will drive investment opportunity in the coming years and decades. It's going to affect every company and every sector."

As climate change becomes a mainstream issue, it's also gaining traction as an important theme for investors eager to profit from big trends emerging on the horizon. At least nine new mutual funds have launched in the United States and Europe over the past year to capitalize on the theme. Earlier this month, more than 400 institutional investors gathered at the United Nations for a summit on using investable assets to advance solutions to climate change.

But as the DWS Fund demonstrates, not all investment products with a climate-change theme are committed to finding solutions. What's more, strategies of climate-change-related funds vary wildly and lead to portfolios that sometimes have little in common with one another. This poses a challenge for investors aiming to put their money where their environmental values are. One risk: Despite intentions to the contrary, they could at times be profiting from climate change without doing much at all to fight it.

How investors can fight the good fight on this issue and still make money isn't easy. That's because the problem of a warming planet is colossal in scope and proposed solutions are largely still in development, according to Frank Coleman, executive vice president of Christian Brothers Investment Services, a money management firm charged with investing assets for Roman Catholic institutions.

Climate change-related funds "are all coming at it with different approaches," Mr. Coleman says, "because we don't know which approach is going to work or which are going to take hold in the minds of investors."

As world leaders debate what to do about climate change, mutual funds are in effect placing bets on which sectors and companies will thrive in a future, "carbon-constrained world." That's the view of Leslie Lowe, director of the energy and environment program at the Interfaith Center on Corporate Responsibility, a coalition of 275 faith-based institutional investors.

Yet because carbon isn't regulated as a pollutant, she says, industry analysts are just now developing techniques to determine which firms are most at risk in a setting marked by stiffer regulation.

"Tools for doing the analysis are really immature," Ms. Lowe says. "So anyone can say, 'I've got a green fund.' And who's to say any different?"

Nevertheless, researchers are educating investors on how to deploy assets both for profit and environmental solutions. This month, McKinsey Global Institute issued a report that says that with targeted annual investment of $170 billion, investors could cut in half the rate by which global demand for energy is projected to grow over the next 13 years. And they could do it while earning an average projected annual return of 17 percent.

The key, the report suggests, lies in getting more productivity per unit of energy consumed in four primary sectors - commercial, industrial, residential, and transportation. For solution-minded investors, this means putting their money in enterprises whose stock-in-trade involves energy-related services, such as engineering and design.

"We're optimistic about the opportunity here because we think it stands on its own" as a potentially profitable proposition, says MGI Director Diana Farrell. But, she adds, slowing global demand for energy "probably won't happen without thoughtful intervention" from regulators. Conversely, if governments raise minimum efficiency standards to fight climate change, she says, investors will likely back firms instrumental to such transitions and reap profits.

Despite its lack of a social mission, the DWS Climate Change Fund is structured to give exposure to this area of energy productivity, which MGI highlights as a top priority as demand climbs worldwide in coming years. Firms that make energy-saving products, such as high-quality insulation and compact fluorescent bulbs, make up 20 percent of the fund's holdings. Another 20 percent encompasses natural-resource management, including environmental consulting. The last 60 percent targets clean-technology, such as wind and solar stocks.

Meanwhile, funds with a bent toward finding solutions are taking divergent approaches. The Winslow Green Solutions Fund, which launched Nov. 1, weights the clean-energy sector most heavily in its portfolio. That's followed by resource efficiency, green building, and environmental services. Meanwhile, the Calvert Global Alternative Energy Fund takes a more concentrated approach by focusing on renewable-energy producers, such as wind, solar, and tidal, and including utilities that foresee a growing role for renewables in their source mixes. Nuclear technology is largely left out due to Calvert's misgivings about waste disposal and safety issues.

"We do not want to encourage investment dollars going to nuclear at the expense of wind, solar, and biomass," says Bennett Freeman, senior vice president for social research and policy at Calvert. "We really think it's fundamentally important that those emerging renewables industries, those sectors, attract significant investment resources."

For investors, Calvert's bet on alternatives has been a roller coaster. After the fund's June launch, it earned a handsome 30 percent during the second half of 2007, a period when market turmoil sent the S&P 500 Index down more than 11 percent. But over the first five weeks of 2008, the fund gave up most of those profits as its net asset value fell by 22 percent.

Other funds, meanwhile, expect a host of sectors to be involved in responding to climate change. The Global Climate Change Equity Fund, available to Europeans from Schroders in the United Kingdom, includes among its top 10 holdings both nuclear giant Exelon and luxury auto manufacturer Rolls Royce. These and the fund's 72 other holdings are presumably well positioned to "benefit from efforts to accommodate the impact of global climate change."

In the US, the Spectra Green Fund takes a best-in-class approach by including companies that seem to be making environmental progress in less-than-green industries. Its holdings include oil titan British Petroleum and Coca Cola, whose usage of water resources has come under fire from environmentalists. Beyond the realm of mutual funds, six new exchange traded funds (ETFs) have launched within the past year with focuses in such climate solution-minded areas as clean energy and nuclear energy.

For now, the landscape is littered with opportunities for trial and error. And those concerned about climate change aren't disturbed one bit by all the interest in the subject. "These are all ways that groups are trying to grapple with the issues of climate change, producing renewable energies, finding alternative ways of consumption," Coleman says. "There's room for all of them."

Not Saving? Strategies To Help You Start

When millions of Americans struggle to save any money from month to month, as research suggests they consistently do, the first step to a solution is not for them to make a realistic budget.

That's according to Daniel Wishnasky, a financial planner in Phoenix who says many frustrated, would-be savers have overlooked a more basic step. They first need to lay a solid foundation by examining entrenched spending patterns and the powerful, deep-rooted emotions behind them.

"It's the most important driving factor in financial decisionmaking -- the underlying personality and the often unhealthy attitudes" toward money, Mr. Wishnasky says. "And if you don't deal with these, nothing else is going to really happen."

Personal finance experts are rolling up their sleeves and delving deep into the American consumer's mind in light of disturbing reports from the US Department of Commerce. New numbers released March 1 say the personal savings rate for January was negative 1.2 percent, which means Americans aren't saving at all, but are either borrowing or dipping into savings to pay expenses. Negative savings rates have been the norm since the second quarter of 2005, and 2006 was the worst year for saving since 1933.

To help thinly stretched Americans get back on track, tough-love advisers generally agree on a few basic principles: Spend less than you earn, eliminate frivolous conveniences, and sock money away in efficient investment vehicles.

But good saving habits, they say, aren't simple plug-ins. They stem instead from realistic soul-searching and the adoption of strategies tailored to mitigate an individual's unique weaknesses in the face of temptation. The goal: a saving strategy that really works, even for people on fixed incomes and perched on low rungs of the salary ladder.

Dennis Filangeri has witnessed the benefits of putting cash-flow patterns and personalities under a microscope. A Las Vegas financial planner, he once counseled a two-income, middle-management couple who couldn't save a penny for their newborn son's college education. He gave them homework: Carry a spiral notebook and write down every cash expense for a month. Sure enough, they were frittering away 30 percent of their income on magazines, vending machines, and other incidentals.

Having pinpointed their unique weakness, he searched for a motivational nerve. He suggested they display two photographs side by side in their comfortable suburban home. One showed a Twinkie, representing unnecessary and easily forgotten expenses. The other featured their baby.

"You have to decide which life goal is more important to you: Twinkies on your break or sending your kid to college," Mr. Filangeri says. "It does require a certain bit of emotional fortitude, and no financial planner is going to give it to you."

Sometimes a person can accomplish the personality analysis by reviewing what he or she has done in the past with unexpected income, Wishnasky says. If a person tends to spend tax refunds at the mall or expand living expenses after receiving a raise, then those point to habitual weaknesses that require preventive safeguards.

In some cases, he says, the most helpful professional won't be a financial planner but a psychologist who can help wean people of the costly emotional rushes they get from routinely buying new gadgets or handbags. He also worries that credit cards play an unhealthy role by fostering the illusion that saving is unnecessary because one can always charge expenses in an emergency.

Once dangerous thought patterns and personal weaknesses come to light, experts suggest building firewalls accordingly. If money in the bank is an invitation to spend, then move it to a certificate of deposit or individual retirement account (IRA) where withdrawal penalties are steep. And steer clear of certain stimuli, from television advertising to free-spending friends, if they tend to loosen the purse strings.

"Consider not carrying your credit cards with you if you tend to be an impulse buyer," says Adele Brady Bolson, a certified public accountant in Bellevue, Wash. "It's good just to leave that temptation at home and only use them thoughtfully after you've planned out your purchase."

Once safeguards are in place, financial advisers differ on where to find significant savings. Ted Sarenski, a certified public accountant in Syracuse, N.Y., says the best results come from relatively painless measures. He suggests carrying higher deductibles on insurance policies, getting books and movies from a library, and laundering shirts at home instead of sending them out.

"It's very hard to make major changes to your lifestyle," Mr. Sarenski says. "Small things do add up, and they don't change your lifestyle all that much," which makes them likely to endure long enough to make a difference.

But Ms. Bolson says lifestyle needs to be on the table for those serious about making long-term gains. Not only should families refrain from buying new cars on a regular basis, she says, but they should also investigate carpooling, downsizing from two cars to one when possible, and not buying cars for teenagers. She also urges clients to weigh the merits of relocating to a smaller home.

"People focus on the small ways that they can save money, [such as] don't buy the latte," Bolson says. "But I think you can save a lot of money if you focus on the big things." At home, for instance, "the fewer square feet you have, the less money you're going to spend on insurance, property taxes, maintenance, and, of course, on the home itself."

Experts agree that after adjusting spending patterns, savers should steer their gains to where they'll have the most impact. If an employer matches 401(k) contributions, Sarenski says, then employees should fund that program even before paying down certain credit-card debt because the payoff is so strong. After that, paying down debt on credit cards and student loans rank as high priorities in his opinion because they free up cash for building nest eggs down the line.

For would-be savers unencumbered by pride, author Michael Ellenbogen has a few suggestions. Before shopping, he says, do an Internet search with store names and "lowest price" or "coupons," and then ask managers to beat the competition's prices. In his 2006 book, "The Insider's Guide to Saving Money," he explains exactly what's involved in reusing vacuum cleaner bags and negotiating prices on just about anything.

"There's always somebody out there who's willing to make a little bit less," Mr. Ellenbogen says.

Even with strategies tailored to specific personalities, experts say accountability systems are often necessary. Sarenski suggests spouses agree to consult each other before either spends more than $50 on a single purchase. Unmarried people, he says, sometimes agree to help one another keep spending in check.

Ultimately, experts insist that saving money is like dieting: it requires patience and consistency to realize progress. And that means living somewhat counterculturally in a consumer nation.

"In our society today, with all the ads we see and everything, instant gratification is touted a lot more than patience and self-discipline," Sarenski says. "So we've got those things working against us."

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