3 Reasons the Green Fund Won't Grow on You

The green fund has become increasingly popular as more and more investors become socially conscious. With all the attention that it will get to the environment and acting responsibly, it is no wonder that many people like to invest in green funds. However, here are a few reasons that you might want to avoid investing in a green fund in your portfolio.

1. Volatility

One of the biggest reasons to avoid investing in a green fund is the volatility that comes with it. These types of funds are traditionally very volatile and are subject to huge swings in value. For example, some green funds might post an astounding 150% return in one year. After this, you are very excited with the possibilities of the fund. However, then the following year, it boasts a 60% loss. While there is some opportunity for long-term growth, this type of fund is not for the faint of heart. You have to have a very high risk tolerance in order to be able to invest in this fund successfully. Most people do not have the mentality that is required in order to see this investment through to the finish. Many investors will get scared when they see a large loss and then sell their shares. This is not a winning strategy when it comes to investing and can devastate your account.

2. Short History

The green fund is a type of mutual fund that has not been around for many years. Compared to other forms of mutual fund, there is really not that much data to evaluate. When investing in something for the long-term, you want to choose investments that have been proven to work over the years. Therefore, investing in a green fund provides you with an unknown element. You really do not know how the fund is going to perform over many years because there is a good chance that it has not been in business for very long.

3. Lack of Options

A green mutual fund chooses to invest only in companies that display some element of social responsibility. These companies have to treat the environment right and show some sort of initiative towards helping the world in general. This is a great concept that has good potential. However, when you start to put in practice, you will immediately notice that this greatly limits the investment opportunities for the fund. There are only so many companies out there that would qualify as viable investments for green funds. Therefore, the mutual fund may not be able to diversify their holdings in the way that most mutual fund investors are accustomed to. When you have a lack of options, this creates a scenario where the risk of the portfolio can be greatly increased. As an investor, you do not want to have to worry about increased risk that you can do nothing about. This makes the green mutual fund something that sounds better than it actually is.

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