Sunday, October 19, 2008

Best investment going

In this volatile investment climate, many people are wondering if there is a surer thing than the stock market and mutual funds. Well, there are only a few guaranteed investments out there.

1. Guaranteed investment certificates (GICs)
2. Paying off any kind of debt (get guaranteed rate of return equal to the interest rate being charged on the remaining principal)
3. Making unscheduled lump sum payments on your mortgage
4. Improving the energy efficiency of your life

Now, the last one is one some might not have considered. I thought of it, but did not think the numbers were as impressive until I read one of the best books I've read this year: The Carbon Buster's Home Energy Handbook by Godo Stoyke. The book presents two approaches to improving the energy efficiency of the things you use in your life; the Carbon Buster approach and the Carbon Miser approach. The former will take more carbon out of the air but not give you as high a rate of return. It will save you more money in absolute terms, but cost you more to implement. The Carbon Miser approach, however, still removes a respectable amount of carbon from the atmosphere, and gives you an impressive rate of return.

Let us go back to the whole concept of efficiency as an investment though. Many opponents of the Kyoto Protocol feel it would be to costly to implement, to the tune of $359 billion for the US alone. However, many efficiency experts, the author included, feel that the figure may be correct, but that it actually would represent a net financial gain not a loss. Some impressive examples of this approach in the corporate world are given in the book:

"-3M saved $827 million and improved efficiency by 58% per production unit.
-Shell reduced emissions 10 percent below 1990 levels at NO net economic cost.
-British Petroleum (BP) saved $650 million just from emissions reductions

Meanwhile, Exxon Mobil spent $12 million to lobby against action on climate change. Go figure.

By implementing the approaches in this book, the average family can exceed the Kyoto Protocol requirements by 860% and save tons of money. The measures by and large are simple (replacing most of your light bulbs with compact fluorescents, using cold cycles on your washing machine instead of hot, unplugging all power suckers when not using, LED Christmas lights, computer in sleep mode, etc). And the rate of return is impressive.

So here is my plan, and you can hold me to it! Keep in mind that some measures are incremental, meaning I'm buying a new car, for example, anyways, and my savings are based on comparing my efficient purchase to the average vehicle. I will denote an incremental measure with an I. If it is a new measure, meaning I'm replacing something that is working perfectly fine, I'll denote it with an N. Returns are calculated over 5 years.

1. I-Replace secondary vehicle (Kia Rio) with a Smart car: only when primary vehicle is paid off and if Rio seems to be kicking the can: annual rate of return (ARR)=93%
2. N-Eliminate 90% of power vampires by putting them on a timer power bar: 83.8% ARR
3. I-Replace electric stove with natural gas stove, but only in more than 5 years when we might need a new stove: 27.9% ARR
4. I-Replace electric dryer with gas dryer: 23.1% ARR
5. N-Put computer in sleep mode and turn off when not used: 1372% ARR
6. N-LED Christmas lights: 35.3% ARR
7. N-Seal air leaks in house: 74.3% ARR
8. N-Add R40 cellulose insulation to attic: 15.5% ARR
9. N-Install shrink foil on 50% of windows: 58.2% ARR
10. N-Tune up furnace: 51.3% ARR
11. N-Get electric ignition tankless hot water heater: 16.9% ARR

Total cost of all measures: $3109
Total 5 year savings of all measures: $7608
Total 5-year rate of return: 244.7%
Average annual rate of return: 48.9%

The longest time to payback of any of these is 6.5 years. That is not that long if you are thinking long term, as you should be with investments. There is no mutual fund available on the Canadian market that has a 5-year annualized rate of return of 49%. Only 5 large cap Canadian and 25 large cap American companies have seen their stock price change by more than 240% in five years, and you would have had to have the insight to invest in them five years ago. Besides, with the efficiency approach, you are doing something good for the planet at the same time.

I'm happy to say my family had already implemented some of the measures recommended in this book before I even read it. We had done the following:
1. Bought Toyota Prius as primary vehicle
2. Replaced all lights with CFLs
3. Got front-loading washer and dryer
4. Use cold cycles instead of hot
5. Bought high-efficiency furnace for new house
6. Got low flush toilets for new house

Just doing those few things we were able to realize a 5-year annualized rate of return of 25.9%.

You should really pick up this book. It has given us so many great ideas of ways we can improve our energy efficiency. What simple things could you see yourself doing?

No comments: