Best bang for your buck: Energy efficiency vs. stock market

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Energy Efficiency vs. Stock Market

Where and how should you invest your hard-earned money? There are so many options to invest in, which is the best one? What is the payback on energy efficiency for your home? I originally posted this comparison on whether to invest money on energy conservation for your home or on the stock market back in May, but I've updated it to be way more interactive. Read my original post to understand the comparison, then manipulate the cells yourself below. You can maximize the screen to make it bigger and easier to work with.

You can update the sheet below to reflect your situation.  You will need to know (or have a good guess) of your total home energy purchases last year.  This is the cell in Blue.  The cells in Yellow are cells that you can update if you don't like my assumed price/energy escalation estimates.

Finally, at the bottom you can see which investment comes out on top: Energy conservation or the stock market!

What is interesting is that as you increase your initial investment it makes stocks look more attractive if the stock market rises over the time period (duh, I know).  This is because the energy conservation investment is spent on improving your energy bills.  So if your energy bills are low to begin with or energy prices don't rise that much, you wont get a huge bang for your buck.  On the other hand, the stock market investment returns money against itself.

In other words, if you spend $20,000 making your home more efficient, but it only saves you $10 bucks a month in energy costs, then you can probably find a better use for that money.  But, if you have a smaller amount to invest initially then spending that on energy conservation will return greater dividends.

Some things to note:

  • There is a chance the market will go down (like it has over the past few years) but good energy conservation decisions will always pay back!
  • I am only including the Federal tax incentive for some energy efficient purchases.  The incentive will not apply for all of your efficient purchases.  You may also qualify for a state tax incentive or rebate from your utility.  Check my post on tax incentives and rebates for more info.
  • Notice that you will always pay tax on money earned in the stock market, but you don't pay any tax on money you save by conserving energy!

My advice would be get an efficient home first, then focus on building your other "nest egg"!  But use the efficiency calculator above to determine what works best for you!

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Thanks for sharing such a greate and valuable information with us.

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