Eco-friendly stock market investing is becoming far more popular these days. The Forum for Sustainable and Responsible Investment reports that the demand for ethical and impact investing grew by 38% between 2016 and 2018.
The stock market provides a way for you to invest your money in a company that you feel is fundamentally sound, as well as a company that invests in causes you believe in. If you are dedicated to promoting sustainability, then you can choose companies that go a long way towards lowering their carbon footprints. You can also use technical analysis to enter a stock, which looks like it’s going to go higher. Instead of starting your own business, the stock market provides you with a way to invest in public companies that are already operating.
We want to cover some of the fundamentals on green investing. However, before we delve into the nuances of sustainably focused decision-making, we want to cover some of the basics on investing in general. You can learn about them below.
Investing in Stocks
Securities trading has been occurring since about 1792 in the United States. You’re now able to invest in markets all around the world, but if you’re in the United States, you will probably want to focus on stocks that are listed on the NASDAQ or New York Stock Exchange. By investing in a stock, you are placing faith in the underlying business and believe that the company will continue to meet their long-term business goals. This usually includes creating a certain amount of revenue and profits that can be used to pay dividends or expand a company’s growth.
Different Types of Stocks
It can be a little overwhelming when you first start investing and you’re trying to figure out what type of stocks to use as an investment. One way to look at this is by evaluating their total market cap, which refers to the total value of the shares for a company. This splits up stock valuations of companies into three categories:
- Small-cap stocks
- Mid-cap stocks
- Large-cap stocks
You’ll usually find that smaller, high-growth companies will also have lower total stock valuations, which will put them into the small-cap stock category. These types of companies can be a little riskier but offer higher gains. In contrast, large-cap stocks usually have total stock valuations that are the largest and are associated with highly stable companies, which might pay a dividend to you as a shareholder.
How to Start Buying Stocks if You Are a Beginner
It’s fairly easy to start buying stocks if you’re a beginner as many companies have opened up platforms where you can begin investing with zero commissions. To open an account, you’ll need to have anywhere from $0 to $500 to open a brokerage account and $2000 to open a brokerage margin account. Once you’ve filled out an application and been approved, you will need to figure out the best stocks to buy right now so that you can begin investing.
Pros and Cons of Investing
The pros of investing include the following:
- Offer the Highest Returns: History indicates that stocks usually give the highest return when compared to other asset classes such as bonds or money market instruments.
- Provides Dividend Income: Several companies participate in providing a dividend to shareholders, which is a way to collect passive income.
- Stocks Are Liquid and Easily Diversified: You can hold or trade several different stocks easily and quickly on the major exchanges.
Some cons to think about when investing in stocks include the following:
- Short-Term Volatility: The price of a stock can fluctuates greatly if good or bad news appears.
- Picking the Wrong Stock: You can lose your investment if you pick a stock that continues to drop in price.
- Requires Knowledge: Investing in stocks does take some knowledge and time for analysis.
Strategies for Investing in the Stock Market
There are several different types of strategies you can use to invest in the stock market. You may want to choose to invest in one or more specific sectors where you feel like there will be high-growth. Another strategy is to focus on high-yielding dividend stocks and put your money in a group of these investment vehicles. You can also utilize technical analysis, which allows you to utilize specific indicators such as moving averages, trendlines, RSI, Fibonacci retracements or MACD indicator.
Risks Involved in Buying Stocks
When you invest in the stock market and purchase shares of a company, you’re putting your money at risk. The price will fluctuate up and down due to company earnings, geopolitical events and economic events, which means you can lose money if you sell your shares at a lower price than you bought them. However, if you manage your risk and diversify your investments between different companies that you’ve analyzed, you increase the odds of buying stocks that go up in price. Risk can also produce high returns.
When you take time to learn about the stock market and the individual stocks you want to buy, it will help increase your knowledge and steer you towards a path that leads to success.
What Are the Aspects of Sustainable Investing?
There are a lot of ways that you can make sustainability a focus when you are making investing decisions. Charles Schwab discussed some of them on the page listed above.
Green stock investing ideas include the following:
- Exclusionary investing. You can choose to create a profile that doesn’t include stocks of companies that harm the environment. Presidential candidate Elizabeth Warren followed this practice by giving away stocks in oil companies.
- Thematic. You can also choose to invest in companies that built their brands around sustainability, such as solar cell manufacturers.
- Best in class. Another option is to invest in companies with the greenest track records, regardless of industry.
There are plenty of ways to create a more sustainable portfolio. These guidelines should help.
Make Sustainable Investing Your Priority
Sustainable investing should be a priority to anybody that cares about the environment. You can create a portfolio with a high return and a commitment to lowering your carbon footprint.