Fund Investing 101

Try this first…

Most people invest in mutual funds or exchange traded funds (ETFs) – and mostly through retirement plans. As opposed to investing in specific stocks, investing in funds spreads the money around and reduces the riskiness of the investment. Each fund is set-up with a set of criteria that is used by the fund managers to guide where they can invest the money on behalf of the fund’s investors.

You may be surprised to learn that it’s extremely easy to move your money into funds that don’t include investments in the companies that are the main focus of the divestment movement: the major fossil fuel producers. And with respect to broad recommendations often made about investing (diversification, balancing risk and return, and the like), you don’t give up a thing. In fact, many people would argue doing this puts you more in harmony with those guidelines, especially as time goes on and the fossil fuel companies are replaced by a new clean energy companies.

You only need to follow one simple rule: Don’t invest in funds that invest in very large companies. That’s it. Really. (This page explains why it works. And, why this move is increasingly a smart thing to do from a financial perspective.)

How do you do it? In investment terms, move your money out of “large-cap” or “mixed–cap” funds. That is, funds that invest in big companies. Reinvest the money across the thousands of funds that remain:

  • “small-cap” and “mid-cap” funds
  • fossil fuel free funds
  • clean energy funds
  • government bond funds
  • non-energy sector funds (e.g., pharmaceuticals)

If your money is in a corporate retirement plan with a limited number of investment choices, you can still implement the same idea.

For various reasons, some people may want to implement a more fine-tuned fund reinvestment strategy. That’s also very doable, and you will still have lots and lots of choice. To learn about that, go here.