When most people think about investments, they think about financial products and rare assets like gold. Water, of course, is anything but rare. But that doesn’t make it a bad investment. In fact, common resources can be some of the best investments you make. Investing in water can help you diversify your portfolio with a generally stable, long-term asset. Here’s how it works.
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How to Invest in Water
When you invest in water, you’re investing in usable supplies of freshwater. This is water that people can use for drinking, farming, manufacturing and other purposes. Like all commodities, there are a few ways to invest in water. The most direct approach is to buy shares in companies that own water resources or transport water. But there are other ways, including three that are common.
You can invest in water without actually buying shares in a water company’s stock by purchasing shares of water-related exchange-traded funds. These ETFs can hold a wide variety of assets that track the value of water as an asset and range from investments in the commodity itself (through futures contracts) to companies that profit off other companies that use water heavily.
If you’re interested in researching water as an investment, examples of popular ETFs include the Invesco Water Resources ETF, the First Trust Water ETF and the Fidelity Water Sustainability Fund. You can also consider assets that track major water-related indexes such as the S&P Global Water Index or the Dow Jones U.S. Water Index.
Many water utilities are publicly traded companies that you can invest in, such as American Water (AWK) or American States Water (AWR). As publicly regulated utility, water companies are a relatively stable investment asset. Your profits can rise and fall with supply and demand, but are limited within the boundaries set by local laws and regulation. For most investors, this is likely the closest an individual can come to directly investing in water as a single asset.
One of the most common ways to invest in water is by buying shares of a publicly traded company that relies on it. Some industries are particularly exposed to the moving price of water. These include three types of companies:
- Beverage companies. From soft drinks to beer, companies that make beverages use water as the base for their products. Investing in these companies can be a form of reverse-investment. As the price of water falls, beverage companies will see their costs go down. When the price of water spikes, it gets more expensive to make beverages and profits dip.
- Agriculture companies. These use water to grow crops and maintain animals. As an industry, it is more exposed to the weather than many others (the amount of water a farm has to buy depends entirely on rain and natural assets like springs and wells. This could also be a reverse-investment. As the price of water falls, it gets cheaper to run a farm, and the reverse holds true as the price of water rises.
- Water management companies. These work to manage water from the makers of irrigation equipment to treatment plants and industrial plumbing. As the price of water falls, investors seek out companies that help the industry use more water. Pumps and irrigation will likely expand as it gets cheaper to use water. But when the price of water goes up, investors look for water meter companies and others that reduce waste and use.
Investors who want to diversify their portfolios could invest in water as a commodity. You can do this through water-related ETFs, utilities and companies that either own water resources or rely heavily on water for production and management.
- Commodities can be a volatile investment class and a financial advisor could help you determine whether its a good fit for your portfolio. SmartAsset’s free tool matches you with up to three financial advisors who serve your area, and you can interview your advisor matches at no cost to decide which one is right for you. If you’re ready to find an advisor who can help you achieve your financial goals, get started now.
- Deciding on which commodity to invest your extra money can be tough. This guide breaks down different types of commodities and the role they play in financial markets.
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