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Visualized: The Economic Benefits of a Green Recovery

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green recovery infographic

This infographic is available as a poster.

Visualized: The Economic Benefits of a Green Recovery

After years of technological advancement, many renewable energy sources are now more efficient than traditional sources of energy.

Thanks to their falling prices and scalability, a green recovery, which centers on worldwide funding and policy support for green energy alternatives, is gaining strong momentum.

This infographic from New York Life Investments unpacks how a green recovery will benefit both the economy and investor portfolios.

What is a Green Recovery?

A green recovery is the intention of allocating the unprecedented global wave of public spending, pent up over the course of the 2020 pandemic, exclusively towards investment in sustainable systems to support:

  • The creation of millions of jobs
  • Improved productivity
  • A structural decline in greenhouse gas emissions (GHG)

Green Recovery: The Economic Benefits

It is projected that nine million jobs per year will be created or saved over the next three years in a green recovery, along with 1.1% added in global economic growth annually.

Let’s look at two reasons why a sustainable recovery is gaining traction:

  1. Lower costs in energy spending
  2. More jobs created

To start, a sustainable recovery would involve 2% of U.S. GDP invested in low carbon energy. Compare this to current U.S. energy spending, which stands at roughly 6% of GDP—sitting at near lows. In fact, in the past, energy spending in the U.S. has reached as high as 13% of GDP.

Secondly, for every $1 million investment in renewable energy, more than twice as many jobs are created per category than in traditional energy. For instance, 7.5 jobs are created in the wind energy industry versus 2.2 in oil & gas.

Per $1 Million InvestmentTypeJobs Created
Renewable EnergyEnergy Efficiency7.7
Wind7.5
Solar7.2
Traditional EnergyCoal3.1
Oil & Gas2.2

Source: World Resources Institute, 07/28/20

With this in mind, let’s take a look at how investors can take advantage of a sustainable recovery across three industries.

1. Renewable Energy

Historically, energy demand has sharply rebounded after major economic shocks.

Following the Spanish Flu, energy demand plummeted over 15%—but rebounded by almost 25% the year after. Similarly, in the years that followed the Great Depression, World War II and the Global Financial Crisis, energy demand spiked.

In 2020, energy demand growth hit a 70-year low, created by the largest absolute decline ever. If history repeats itself, energy may be poised for a substantial demand increase.

On top of this, renewables have become significantly cheaper and scalable in recent years. Solar energy is a prime example. It is now one of the most affordable sources of electricity. In fact, the price of energy from new power plants—vital sources that generate energy for society—has changed significantly over the last decade.

Energy TypePrice per MWh (2009)Price per MWh (2019)Price % Change
Coal$111$109-2%
Solar Photovoltaic$359$40-89%
Onshore Wind$135$41-70%
Gas (combined cycle)$83$56-32%

Source: Lazard Levelized Cost of Energy Analysis via Our World in Data, 01/12/20

In 2019, over 50% of new global power capacity came from solar photovoltaic and wind power.

2. Transportation

Globally, as electric vehicle (EV) sales have accelerated, so have public chargers, illustrating a new infrastructure opportunity for investors. In 2019, there were 1 million public chargers built worldwide. Since 2014, public chargers in Europe specifically have more than doubled to over 200,000.

Year# of Global Electric Vehicles
2012110,000
2013220,000
2014400,000
2015720,000
20161.2M
20171.9M
20183.3M
20194.8M

At the same time, economies are planning for a wave of green transport investments.

Italy, for instance, plans to invest $33 billion in sustainable mobility as part of its $231 billion green recovery plan. Meanwhile, Germany is investing $6 billion in the electrification and modernization of its rail and bus system. Interestingly, high-speed rail uses 12 times less energy per passenger than airplanes or road transport trips under 500 miles.

Like renewable energy, electric vehicles, high-speed rail, and modern transport infrastructure are all central to the new chapter in sustainable investment.

3. Low-carbon Technology

Finally, you can’t talk about a sustainable recovery without net-zero emissions, where all emissions created are also removed from the atmosphere.

In recent months, net-zero targets have increased substantially. In January 2020, 34% of all global emissions were covered by net-zero targets. By March 2021, this reached 50%. Decarbonization will play a critical role in reaching net-zero targets.

Crucially, net-zero emissions can be achieved through the following decarbonization options:

  • Carbon capture: Chemical absorption and the injection of CO2 into depleted reserves
  • Nuclear energy: Produces energy through nuclear reactions
  • Storage & utilization: Improved electricity grid storage
  • Renewable innovation, and others: Includes hydrogen, batteries, and scaling renewables

Even in the wake of the pandemic, global investment in decarbonization topped half a trillion dollars in 2020, 9% higher than in 2019.

New Turning Point

COVID-19 is radically reshaping the sustainable investment landscape.

In 2020, nearly 25% of all U.S. stock and bond mutual fund net inflows went into sustainable funds. By 2025, as many as half of all investments are projected to be ESG-mandated in the United States. From modern infrastructure to low-carbon tech, sustainable investments present many opportunities for investors.

Supported by lower costs and government policies, sustainable investments show potential for promising growth.

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The 20 Most Common Investment Mistakes, in One Chart

Here are the top investment mistakes to avoid, from emotionally driven investing to paying too much in fees.

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The 20 Most Common Investment Mistakes

No one is immune to errors, including the best investors in the world.

Fortunately, investment mistakes can provide valuable lessons over time, providing investors an opportunity to gain insights on investing—and build more resilient portfolios.

This graphic shows the top 20 mistakes to watch out for, according to the CFA Institute.

20 Investment Mistakes to Avoid

From emotionally driven investment decisions to paying too much on fees, here are some mistakes that investors commonly make:

Top 20 MistakesDescription
1. Expecting Too Much
Having reasonable return expectations helps investors keep a long-term view without reacting emotionally.

2. No Investment Goals
Often investors focus on short-term returns or the latest investment craze instead of their long-term investment goals.

3. Not DiversifyingDiversifying prevents a single stock from drastically impacting the value of your portfolio.

4. Focusing on the Short TermIt’s easy to focus on the short term, but this can make investors second-guess their original strategy and make careless decisions.

5. Buying High and Selling LowInvestor behavior during market swings often hinders overall performance.

6. Trading Too MuchOne study shows that the most active traders underperformed the U.S. stock market by 6.5% on average annually.
Source: The Journal of Finance

7. Paying Too Much in FeesFees can meaningfully impact your overall investment performance, especially over the long run.

8. Focusing Too Much on TaxesWhile tax-loss harvesting can boost returns, making a decision solely based on its tax consequences may not always be merited.

9. Not Reviewing Investments RegularlyReview your portfolio quarterly or annually to make sure you’re staying on track or if your portfolio is in need of rebalancing.

10. Misunderstanding RiskToo much risk can take you out of your comfort zone, but too little risk may result in lower returns that do not reach your financial goals. Recognize the right balance for your personal situation.

11. Not Knowing Your PerformanceOften, investors don’t actually know the performance of their investments. Review your returns to track if you are meeting your investment goals factoring in fees and inflation.

12. Reacting to the MediaNegative news in the short-term can trigger fear, but remember to focus on the long run.

13. Forgetting About InflationHistorically, inflation has averaged 4% annually.

Value of $100 at 4% Annual Inflation
After 1 Year: $96
After 20 Years: $44

14. Trying to Time the MarketMarket timing is extremely hard. Staying in the market can generate much higher returns versus trying to time
the market perfectly.

15. Not Doing Due DiligenceCheck the credentials of your advisor through sites like BrokerCheck, which shows their employment history and complaints.

16. Working With the Wrong AdvisorTaking the time to find the right advisor is worth it. Vet your advisor carefully to ensure your goals are aligned.

17. Investing With EmotionsAlthough it can be challenging, remember to stay rational during market fluctuations.

18. Chasing YieldHigh-yielding investments often carry the highest risk. Carefully assess your risk profile before investing in these types of assets.

19. Neglecting to StartConsider two people investing $200 monthly assuming a 7% annual rate of return until the age of 65. If one person started at age 25, their end portfolio would be $520K, but if the other started at 35 it would total about $245K.

20. Not Controlling What You CanWhile no one can predict the market, investors can control small contributions over time, which can have powerful outcomes.

For instance, not properly diversifying can expose you to higher risk. Holding one concentrated position can drastically impact the value of your portfolio when prices fluctuate.

In fact, one study shows that the optimal diversification for a large-cap portfolio is holding 15 stocks. In this way, it helps capture the highest possible return relative to risk. When it came to a small-cap portfolio, the number of stocks rose to 26 for optimal risk reduction.

It’s worth noting that one size does not fit all, and seeking financial advice can help you find the right balance based on your financial goals.

Another common mistake is trading too much. Since each trade can rake up fees, this can impact your overall portfolio performance. A separate study showed that the most active traders saw the worst returns, underperforming the U.S. stock market by 6.5% on average annually.

Finally, it’s important to carefully monitor your investments regularly as market conditions change, factoring in fees and inflation. This will let you know if your investments are on track, or if you need to adjust based on changing personal circumstances or other factors.

Controlling What You Can

To help avoid these mistakes, investors can remember to stay rational and focus on their long-term goals. Building a solid portfolio often involves assessing the following factors:

  • Financial goals
  • Current income
  • Spending habits
  • Market environment
  • Expected returns

With these factors in mind, investors can avoid focusing on short-term market swings, and control what they can. Making small investments over the long run can have powerful effects, with the potential to accumulate significant wealth simply by investing consistently over time.

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Visual Guide: The Three Types of Economic Indicators

From GDP to interest rates, this infographic shows key economic indicators for navigating the massive U.S. economy.

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A Visual Guide to Economic Indicators

Economic indicators provide insight on the state of financial markets.

Each type of indicator offers data and economic measurements, helping us better understand their relationship to the business cycle. As investors navigate the market environment, it’s important to differentiate between the three main types of indicators:

  • Leading
  • Coincident
  • Lagging

The above infographic from New York Life Investments shows a road map of indicators and what they can tell us about the economy.

What’s Ahead: Leading Indicators

Leading indicators present economic data that point to the future direction of the economy like a sign up ahead. Here are three examples.

1. Consumer Confidence Index

This key measure indicates consumer spending and saving plans. When the index is above 100, consumers may spend more over the next year. In December, the index jumped to 108 up from 101 in November. This was in part due to lower inflation expectations and improving job prospects.

In the December survey, 48% indicated that the job market remained strong, highlighting the strength of employment opportunities and likely influencing sentiment towards spending in the future.

2. ISM Purchasing Managers Index

The ISM Purchasing Managers Index indicates expectations of new orders, costs, employment, and U.S. economic activity in the manufacturing sector. The following table shows how the index is broken down based on select measures:

IndexNov 2022
Oct 2022Percentage
Point Change
Direction
Trend (Months)
Manufacturing PMI49.050.2-1.2Contracting1
New Orders47.249.2-2.0Contracting3
Employment48.450.0-1.6Contracting1
Prices43.046.6-3.6Decreasing2
Imports46.650.8-4.2Contracting1
Manufacturing SectorContracting1

For instance, in November the index fell into its first month of contraction since May 2020. Falling new orders signal that demand has weakened while contracting employment figures indicate lower output across the sector.

3. S&P 500 Index

The S&P 500 Index indicates the economy’s direction since forward-looking performance is factored into prices. In this way, the S&P 500 Index can represent investor confidence as the index often serves as a proxy for U.S. equity markets. In 2022, returns for the index are roughly -20% year-to-date.

Current Conditions: Coincident Indicators

Coincident indicators reflect the current state of the economy, showing whether it is in a state of growth or contraction.

1. GDP

GDP indicates overall economic performance. Typically it serves as the most comprehensive gauge of the economy since it tracks output across all sectors. In the third quarter of 2022, real U.S. GDP increased 2.9% on an annual basis. That compares to 2.7% for the same period in 2021.

2. Personal Income

Rising incomes indicate a healthier economy and falling incomes signal slower growth. Personal income grew at record levels in 2021 to 7.4% annually amid a rapid economic expansion.

This year, U.S. personal income has grown at a slower pace, at 2.7% on an annual basis as of the third quarter.

3. Industrial Production Index

Strongly correlated to GDP, the industrial production index indicates manufacturing, utilities, and mining output. Below, we show trends in industrial production and how they correspond with GDP and personal income indicators.

DateU.S. GDPPersonal
Income
Industrial
Production
2022*7.3%2.7%4.7%
202110.7%7.4%4.9%
2020-1.5%6.7%-7.0%
20194.1%5.1%-0.7%
20185.4%5.0%3.2%
20174.2%4.6%1.4%
20162.7%2.6%-2.0%
20153.7%4.7%-1.4%
20144.2%5.5%3.0%
20133.6%1.3%2.0%
20124.2%5.1%3.0%
20113.7%5.9%3.2%
20103.9%4.3%5.5%
2009-2.0%-3.2%-11.4%
20082.0%3.8%-3.5%
20074.8%5.6%2.5%
20066.0%7.5%2.3%
20056.7%5.6%3.3%

*As of Q3 2022.

As the above table shows, factory production collapsed following the 2008 financial crisis, a key indicator for the depth of an economic downturn. Meanwhile, personal income sank over -3% while GDP fell -2%.

Despite economic uncertainty in 2022, industrial production remains positive, at a 4.7% growth rate, albeit somewhat slower than 2021 levels.

Rearview Mirror: Lagging Indicators

Like checking your back mirror, lagging indicators take place after a key economic event, often confirming what has taken place in the economy. Here are three key examples.

1. Interest Rates

Often, interest rates respond to changes in inflation. When rates rise it can slow economic growth and discourage borrowing. Rising interest rates typically signal a strong economy and are used to tame inflation. On the other hand, low interest rates promote economic growth.

Following years of record-low interest rates, the Federal Funds rate increased at the fastest rate in decades over 2022, jumping from 0.25% in March to 4.25% in December as inflation accelerated.

2. Consumer Price Index

This inflation measure can indicate cash flow for households. Inflation is often the result of rising input costs and increasing money supply across the economy.

Sometimes, inflation can reach a peak after an expansion has ended as rising demand in an economy has pushed up prices. In November, U.S. inflation reached 7.1% annually amid supply chain disruptions and price pressures across food prices, medical prices, and housing costs.

YearInflation Rate Annual Change
2022*7.1%2.4%
20214.7%3.5%
20201.2%-0.6%
20191.8%-0.6%
20182.4%0.3%
20172.1%0.9%
20161.3%1.1%
20150.1%-1.5%
20141.6%0.2%
20131.5%-0.6%
20122.1%-1.1%
20113.2%1.5%
20101.6%2.0%
2009-0.4%-4.2%
20083.8%1.0%
20072.9%-0.4%
20063.2%-0.2%
20053.4%0.7%

*As of November 2022.

3. Unemployment Rate

The unemployment rate has many spillover effects, impacting consumer spending and in turn retail sales and GDP. Historically, unemployment falls slowly after an economic recovery which is why it’s considered a lagging indicator. When the unemployment rate rises it confirms lagging economic performance.

Overall, 2022 has been characterized by a strong job market, with unemployment levels below historical averages, at 3.7% as of October.

On the Road

To get a more comprehensive picture of the economy, combining a number of indicators is more effective than isolating a few variables. With these tools, investors can gain more perspective on the cyclical nature of the business cycle while keeping a long-term perspective in mind on the road ahead.

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