by Archie M. Richards, Jr.
June 11, 2007

Byron writes, "I'm hearing and reading a lot about clean technology, involving companies developing alternative forms of energy. New exchange-traded funds based on clean technology, GEX, PZD and QCLN, have been moving up. Should these be included in a balanced ETF portfolio?

In the long run, Byron, any seemingly-favorable investment that you "hear and read a lot about" is likely to turn out poorly. Hot investments tend to turn freezing cold.

Solar energy merits development, certainly. But alternative biofuels don't. Ethanol, for example, requires more energy to produce than it supplies. It's more expensive than gasoline, throws off nasty toxins, and creates smog. It also raises food costs, especially for poverty-stricken Mexicans, making them want to emigrate to America all the more.

Take it for granted that five or ten years from now, the idea that man is causing the earth to warm will be considered a joke. Yes, the earth has been warming since the mini-ice age that peaked around 1650. But variations of this nature are caused mostly by fluctuations in the sun's emission of energy.

Fairly rapid warming occurred from 1850 to 1940, before the U.S. started injecting a lot of carbon dioxide into the air. From 1940 to 1980, when we emitted CO2 by the ton, the earth cooled. In the last four years, when China and India have started throwing off carbon dioxide big time, the earth has again cooled.

Most alternative energy sources are more expensive than oil and coal and much more expensive than my favorite source, nuclear.

The U.S. has several centuries of oil left. Even though oil companies suffered tremendous damage from Hurricane Katrina, not a drop of oil spilled into the Gulf of Mexico. The U.S. government's prevention of companies from exploring for oil in the continental shelves and in Alaska is outrageous.

Within a few decades, solar receptors will be far more efficient than they are now. Huge banks of receptors in space will gather most of the energy we need from the sun and beam it by microwave to earth.

Don't sink a lot of money into companies involved with global warming and alternate fuels. If you can't resist, do so with only 5 percent of your money. For the vast bulk of your funds, stick to broad-based ETFs.

Greg writes, "Please qualify your statement that a person's home should not be counted as an investment." (See "Repay Debts Before Retiring, Including the Mortgage" from 5/21/07.)

Unlike stocks and bonds, Greg, a home doesn't generate wealth. It consumes wealth.

Let's say you buy a house for $200,000. Many years later, you sell it for $300,000. Terrific!, you say to yourself. I made a hundred grand!

No you didn't. Over the years, you spent far more than $100,000 in taxes, upkeep, and improvements.

Owning a home you love is highly satisfying, of course. But most people most of the time should consider their home as an expense, not an investment.

I've modified the formulas in the spreadsheets found in the column section of my website. The spreadsheets may be used without charge to set up portfolios and to rebalance.

In the past, the spreadsheet allowed the percentage of the market value of an investment sector to change by more than 30 percent before rebalancing. I've decided that 20 percent is sufficient.

Let's say the market value of an investment class is intended to be 10 percent of the portfolio. A year later, the sector amounts to 12 percent of the whole (20 percent higher). In this event, my spreadsheet, as revised, makes no change.

But in this example, if the market value of the sector amounts to 12.1 percent (20.1 percent higher), the spreadsheet calls for a sale of 2.1 percent, bringing the sector back to 10 percent.

My 5/21/07 column stated that mutual funds report average earnings instead of the more correct compound earnings. David questioned my assertion.

David is correct. The prominent fund families I looked at do indeed use compound earnings. This is a change from the past. I relied too much on my memory.