There is a relatively new sector on the street these days which is garnering a lot of buzz.  Alternative energy, and specifically renewable or ‘green’ energy, is any energy source that is an alternative to fossil fuels.  As we all know, fossil fuels will soon run out.  Finding a replacement or replacements to this energy source is a solution that not just our country, but the entire planet will have to face sooner or later.

There are many different forms of renewable energy, which falls under the alternative energy umbrella.  Solar power, wind power, hydroelectric power, and biofuels are all examples of ‘green’ energy.  Because of the fact that ‘going green’ is politically savvy, there will be a lot of money made by companies dealing in this kind of energy, because the government will support and subsidize this type of energy production, even if it isn’t as efficient as just using fossil fuels.  So even for the short to mid term (fossil fuels are not expected to run out for the next couple of decades), these companies will be profitable.  Looking longer term, these companies will be the main energy producers, so profits are only projected to rise as fossil fuels supplies fall and as research and development in these new energy sources advances.

The real challenge is picking the winners out of the many alternative energy companies.  One idea to consider is to hedge by investing in mutual funds or ETFs.  The top alternative energy mutual funds out there, believe it or not, have a mix of renewable energy companies and fossil fuel companies.  Lets face it, for the next couple of decades, the world will still be very reliant upon fossil fuels.  Oil prices are on the rise, and that trend will likely continue as unrest continues in the middle east.  Finding the best alternative energy funds on the market will require some diversification across different energy sources.

Alternative energy funds can come in the form of mutual funds (alternative energy mutual funds), like those offered by respected brokerage companies, or in the form of ETFs.  ETFs hold a few advantages over mutual funds in my opinion.  First, ETFs can be traded like any stock.  They can usually be found with more specificity to which market you wish to target.  For example, finding alternative energy mutual funds that only have holdings in solar power might be difficult.  There are ETFs for solar energy, solar and wind power, wind and hydroelectric power, and so on.  ETFs also don’t have the fees that are associated with mutual funds.

Whether you like the prestige of mutual funds, or the specificity of ETFs, the political correctness of renewable energy or the availability of fossil fuels, don’t overlook energy in your portfolio.  Alternative energy is an up and coming sector in the market, and the next couple of decades will bring many changes.  Make the right decisions now and you could definitely score large profit margins from the certain shift.