Monday, March 19, 2012

No Risk Alternative Energy Funds? No Way

On the surface, investing in alternative energy funds seems like a great idea, especially since it appears as though this industry will undergo record growth in the coming years. With that being said, however, investors must proceed with a great deal of caution, since there are definitely no guarantees when dealing with this industry. Government regulations can significantly influence the long term sustainability of alternative energy and even though these methods of energy production are renewable, there is no guarantee that they will be profitable enough to make a difference. Basically, while these alternative energy funds do have a great deal of potential, they are just as likely to fail long term because many of these funds are over inflated based on industry hype.

Finding some alternative energy funds to get involved with will not be difficult, as it seems as though there are countless companies who are looking for investors. While these funds might be highly sought over, since energy is the world's largest trade, they also come with a great deal of volatility. For example, the political climate in a region can greatly influence whether or not an energy source is able to be used. Since energy in most parts of North America is regionally based, finding a buyer in a different region can be difficult if a certain type of energy production is not regulated in a certain area.

Another thing to keep in mind is that energy production is high event, which means that there is always the chance of something happening. If you invest in alternative energy funds and there is an explosion at a power plant, it will cut into your profits significantly. While these power plants would probably not do as much damage as a nuclear meltdown, the fact remains that there is always this type of risk when dealing with energy of any type. The last thing an investor needs is for a power plant to sustain damage, but it is definitely something that goes with the territory.

One aspect of alternative energy funds that many investors overlook is taxation. Since energy is something that we all need, governments know that they can tax these industries heavily. Therefore, you might see heavy taxes being levied against any fund that you get involved with in the future. In order for your energy source to be sustainable, you must keep it affordable, so even if it is your customers who are heavily taxed, you must make up the difference if you wish for your energy source to be chosen. While this is not a decision that any investors will have to make, it will impact the return that investors get.

Regulatory risks also go with the territory when dealing with alternative energy funds, as there are countless codes that must be adhered to and if any of these regulations are not being followed, it will impact the bottom line of the fund significantly. This means that investors will be relying on employees to keep their investments safe, which is much different from investing in something like gold. Energy is different from many other investments because it is a commodity that must eventually be delivered to customers, which creates more risks in itself. Rather than simply having a product that holds a certain value, there is work that must be done in order to create this value in energy, which is where the market can run into problems.

Finally, there will always be a problem with supply and demand in alternative energy funds, as there is a great deal of debate on how much is actually needed. Once again, unlike gold, you cannot simply sit on this energy and sell it later, as it cannot be stored in the same manner. That is probably where most of the questions come into play, as these funds are entirely based on the demand for that particular form of energy at any given time.

In the end, there is a great deal of room for growth in this industry, but that is no guarantee that this growth will occur. That is why this industry is so volatile, as it is young enough to have this potential, but is still too young to adequately predict the future. This uncertainty is the reason why alternative energy funds will have more questions than answers in the near future.

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