What if there was a way to diversify your investments and simultaneously gain a greater annual return with lower volatility? If you have $15k, installing a solar energy system on your rooftop is the best way to invest it. Solar provides a low-risk mix of cost savings and additional income, and portfolios that include solar can outperform a more standard investment portfolio.
Most American investors have similar goals for their portfolios. The average investor seeks to achieve the highest risk-adjusted returns as possible, and also include a mix of asset classes to protect against market fluctuations. With these goals in mind, recent advances in solar energy technology have effectively created a new ‘asset class’ for investors to consider. Investing in a solar energy system for your home can turn $15,000 into more than $115,000 over a 20-year period. We’ll walk you through the math.
What $15,000 Creates in a Traditional Portfolio Allocation
First, let’s analyze what an investment of $15,000 can create in the typical allocation of stocks and bonds. Using historical data to represent actual market performance, we can track the performance a typical investment in 1995 would generate today. If you invested 60 percent of your $15,000 in the S&P 500 and 40 percent in bonds, by 2014 you would have created over $80,000 in wealth. However, keep in mind that $65,000 of this income is subject to capital gains taxes upon its sale. While this may seem like an impressive run, our analysis reveals that adding solar energy to the mix can further amplify your expected returns.
What $15,000 Creates in a Solar Diversified Portfolio
In this second scenario, we will assume that instead of investing $15,000 in stocks and bonds, you install a solar energy system on your home. The benefits of this purchase are twofold: you avoid the increasing cost of utility bills on a monthly basis, and additionally have the ability to reinvest your energy savings into the market.
The first benefit of solar is the cost savings you can realize on your electricity bill. When you install a solar energy system, you avoid paying the utility company thousands of dollars each year. You also avoid the regular increases in the cost of electricity. The U.S. Energy Information Administration calculates that energy bills in 2014 were around three percent higher across the country than in 2013.
Historical trend analysis can assist in calculating just how much you will save with a solar diversified portfolio. Starting in 1995, the cost of electricity in the U.S. increased at a compound annual growth rate of roughly five percent. If you were able to purchase a solar energy system in 1995 but with today’s competitive installation prices, by 2014 you would have saved nearly $60,000 in electricity bills alone.
The second financial benefit is your ability to reinvest your cost savings from solar back into the market. In our solar diversified scenario below, you save between $2,000 and $3,000 annually by switching to solar power. Instead of spending these savings each year, we propose that you reinvest them at regular installments back into the market. This annual investment of solar savings has a compounding effect, and amplifies the value of your solar installation.
It is worth nothing that, while electricity bill savings are tax free, new income is not. Combining your solar savings with the incremental return on investment will yield you more than $115,000 over a 20-year period.
Why Solar is the Best Way to Invest $15,000
Solar should be a part of every portfolio. Assuming that your household is a good fit for solar, you should consider installing a solar energy system as a means to both diversify your holdings and amplify future returns. Not only are the solar savings effectively a tax free annuity, but they also free up capital for you to invest elsewhere.
Now is the right time to invest in solar. With a 30 percent tax credit available from the federal government, and with many states offering great incentives, you can substantially reduce your level of upfront investment. With a variety of financing options now available, solar power can become a part of any size portfolio. Get started today: Calculate an instant estimate of your savings or register your property to receive quotes from qualified solar installers.