Why small investors can't dump Big Oil

Thousands rally for climate change action
Thousands rally for climate change action

The crusade against climate change has intensified in recent days as protesters take to the streets and wealthy investors like the Rockefellers vow to ditch fossil fuels.

But for most of us, "dirty energy" will continue to hold a prominent place in our portfolios, regardless of where we stand on the issue.

Here's why:

The unrelenting reign of Big Oil: It's not called Big Oil for nothing. With a market value of over $400 billion, Exxon Mobil (XOM)is the second largest company in the world. Chevron (CVX), ConocoPhillips (COP), and Occidental Petroleum (OXY) aren't too far behind. And all them are listed in the S&P 500, the popular index of America's largest companies.

Related: Apple or Exxon: Which is a better buy?

Many mutual funds and exchange traded funds (ETFs) mimic the S&P 500 by buying all the stocks in it or else use the index as a benchmark. That means anyone who has an American stock fund in their retirement portfolio probably owns some Big Oil.

Wall Street's job is to make money, and as long as the major energy players are generating profits, capital will continue to flow to them.

Furthermore, the increased pressure on dirty energy comes at a time when the industry is enjoying an unprecedented boom in domestic production. Phil Flynn, an energy analyst with the Price Futures Group, thinks that those looking to shed their oil and gas investments are missing the big picture.

"I don't think oil and gas are going away anytime soon, and nor should they," he said. "There's not a viable alternative that can grow the economy and lift people out of poverty."

Related: How North Dakota's economy doubled in 11 years

There are alternative energy companies, but they're risky: While rich investors like the Rockefellers often employ dedicated teams of finance pros to evaluate potential clean energy investments, the rest of us are left to fend for ourselves in a sector that can be rocky.

Take Tesla (TSLA), for example. It's a favorite among "momentum traders" who play the ups and downs of stocks as well as green energy enthusiasts. The stock has skyrocketed in recent years, but it's had a bumpy ride. Consider that the stock is down 8% this month alone as investors fret about its high valuation and ability to be more than the niche automaker to the rich.

Related: It's official: Nevada gets Tesla's Gigafactory

Critics also charge that the company relies heavily on tax breaks to do business.

Fuel cell stocks were all the rage earlier this year when Plug Power (PLUG)announced it got an order from Wal-Mart (WMT) to help power forklifts in some of its distribution center. Plug Power and FuelCell Energy (FCEL)have both skyrocketed this year, but are down 30% and 20%, respectively, this month. Both companies regularly report quarterly losses.

First Solar (FSLR), the darling of the solar panel industry, is up 23% this year, but it's gotten socked 5% this week.

In short, there are opportunities to make real money in renewable energy, but many of the publicly traded stocks available to ordinary investors are highly speculative. It's the early days for many of these companies.

So what should you do?: Those determined to eliminate or reduce fossil fuel companies from their investments can do it, but it is difficult.

From an investment perspective, the advice is typically to start small and diversify as much as possible. Buying a basket of green energy holdings, for example, through a mutual fund or ETF is often better than betting on just one or two stocks.

Examples of popular clean energy exchange traded funds include the iShares Global Clean Energy and Powershares Cleantech ETFS, which follow dozens of green tech firms across a broad range of sectors including utilities, air and water purification, and information technology.

But to have zero fossil fuel investments in a retirement or other investment portfolio may mean sacrificing returns or paying higher fees, at least for awhile.

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