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A few weeks ago, I reviewed the book The Complete Guide to Investing in Index Funds by Craig Baird. It is an interesting and useful book. More recently, Craig was kind enough to answer a few questions I put to him via email. Here are his answers:

1. What are some of your favorite index funds?

I wouldn’t say I have a favorite one, but I am a big fan of investment funds that match my own morals. I like the FTSE4Good U.S. Select Index because they list the companies that match environmental and human right criteria. This way you know that the index fund you are investing in, and by extension the companies, are helping to make the world a better place. As well, with the push for going green growing around the world, a lot of these companies are becoming world leaders with consumers and have nowhere to go but up. The Domini 400 Social Index is another that I like as they do not list any companies associated with alcohol, tobacco, nuclear power, the military, firearms and gambling.

2. Do you prefer index funds over ETFs?

Well both ETFs and Index Funds have similar advantages including low-risk and tax efficiency, and can be good investments but I am a bigger fan of index funds. It is argued that ETFs represent only short-term speculation, and the expense of trading decreases the return to investors when compared with index funds. Those who work with index funds feel that there is not enough diversification in ETFs when compared with index funds. I personally feel that index funds are a safer investment, especially in tough economic times.

3. Do you recommend an all-index fund portfolio?

This really has to do with the individual investor. While an all-index fund portfolio can be good because there is low-risk, but low-rewards, it may not work for everyone. If someone is in their 50s or 60s and wants to get high returns for their portfolio to fund their retirement, then they may not get the rewards they want out of index funds. However, if they already have a lot of money in their portfolio and just want to slowly add to it, then an all-index fund portfolio can work for them. Young investors may not want an all-index fund portfolio because while they have a long time to build their portfolio finances, they may want to take some higher risks because they have a greater amount of time to rebuild in the case of a bad investment. I think it is good to diversify. If you are a high-risk investor, then perhaps make only part of your portfolio focused on index funds, with the rest invested in stocks, currencies, mutual funds, etc… The really adventurous and knowledgeable investor may want some index funds, especially if they are investing in junk bonds. If you want to be conservative and just bring in a little amount of money with little risk, then perhaps an all-index fund, or nearly all index fund, portfolio may be a good fit. That all being said, you do not want to put all your eggs in one basket, even if it is index funds. I would always ensure there is diversification in any portfolio, with the amount of index fund makeup in it varying from 30 percent for high risk investors, to 80 percent for conservative investors.

4. How would you invest in a recovery?

This is a good question as a lot of people are wondering about it. Personally, and this may work for me and not others, I would invest in index funds heavily in tough times because you are not trying to beat the market with index funds, but mirror it. It is pretty much impossible (or nearly) to beat the market because all the information relating to a stock immediately affects the price of the stock, so there is no legal way of getting a jump on things, so much of it is chance. If one was to invest in stocks, then investing in the stocks of companies that traditionally do well but have lower stock prices because of the recession would be a good bet because they will go back up eventually. I would also invest in renewable energy companies. A large portion of the stimulus package created by the government is being used to create green jobs and to push renewable energy. A lot of these companies are going to see very fast growth in the coming years I think.

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Today is Blog Action Day. Each year bloggers around the world unite to bring awareness to an issue. This year, the issue is climate change. Which is an interesting one from an investing standpoint. In recent years clean tech companies that are focused on developing technologies that can help fight global climate change have been emerging. Some of them have done fairly well. Others, however, are struggling. And all of them are affected by the recent volatility in the stock market, due to the global financial crisis and the recession.

However, with the recession over, and economic recovery slowly starting, it might be time for some investment in green tech. BloggingStocks offers some very interest climate change investment ideas. These are ideas that may not be directly involved in technologies that fight climate change, but they are companies that are trying to reduce their carbon footprint — and they made the cut to be included in Cleantech Index Fund:

•  Autodesk: This NASDAQ traded company develops software that helps builders and designers increase the sustainability of buildings.
• Tomra Systems ASA: This is a Norwegian company that provides systems that automates the handling of recyclable items.

These are companies that are on sale right now, and likely to rebound when the economy does, according to BloggingStocks. They are interesting thoughts. If you are interested in investing in index funds and ETFs that concentrate on clean tech, you can do so by looking into various offerings of low-cost funds comprised of companies that either provide green tech technology, or that engage in sustainable practices.

Many people believe that clean tech is the wave of the future. If you want to make money from it, the time to get in is now, while the investments are low-priced. If you wait five or 10 years, you may be too late to buy low and sell high.

Disclaimer: I am not an investment professional. Nothing in this piece or on this Web site should be construed as investment advice. Before making investment decisions, do your own research and/or consult with an investment professional. All investment comes with the risk of loss. You are responsible for your own investment decisions and any loss that may result from your decisions.

Cover via Amazon

As you might know, I am something of boring investor. Nothing too fancy for me. In fact, I am a huge fan of the index fund. So I was very interested to have the opportunity to review the book The Complete Guide to Investing in Index Funds by Craig Baird.

Index Funds truly is a complete guide. It starts out providing you with background into what an index fund is, and how they came to be. It also provides helpful information on what an index is, versus what the market is. If you are looking for a solid foundation and some good education, this book will start you out right. It even covers the different stock indexes in the U.S., as well as other stock indexes, and an overview of bond market indexes, indexes that track commodities and currencies, and mortgage-backed securities.

Baird also makes it a point to describe the advantages of mutual funds and index funds, and what you can gain by investing in them. He also compares index fund investing with stock picking, and compares index funds with more traditional mutual funds. After providing you with a solid understanding of index funds, how they work, and the available options, Index Funds moves on to the more practical aspects.

The next portions of the book are devoted to helping you set goals and plan your investment portfolio. Baird offers some insight into putting a portfolio of index funds together, as well helpful hints on asset allocation and managing your index fund investment portfolio. To finish up, the book includes profiles of a number of low-cost index fund providers, as well as case studies and a helpful bibliography.

Overall, this is a very good book for those who are interested in investing in index funds. It is a great resource for taking you through the stages of education, helping you understand how you can earn decent returns with a relatively low risk investment (nothing is risk-free), and what you can do take charge of your own investing future.