When it comes to investing, market research is the most important step before buying any stock, mutual fund, or ETF. Research takes the guess work out of investing, and allows the trader to invest with confidence. It will not remove all risk, however, but proper and thorough research will mitigate risk, which allows confident bidding.

Mutual funds are funds that have holdings in more than one company within one or more market sectors. Alternative energy mutual funds will focus on companies with holdings in the alternative energy sector. This sector has been a recent hotbed of activity because of political climates. The vast majority of people on the planet depend on fossil fuels to power their homes, cars and lives. There is a limited amount of fossil fuels, which shows the need for development of renewable energy sources. Alternative energy sources include solar power, wind power, biofuels, and hydroelectric power. Each has its own applications and advantages. Advantages of solar energy, for example, include:

• free source of energy (sunlight)
• unlimited source of energy
• environmentally friendly

These renewable or 'green' sources of energy have the potential to replace fossil fuels as the major source of energy, and provide an affordable source of energy to the earth's population. Because there has been a shift towards alternative energy, many companies are investing in research and development to produce more cost effective and efficient means of harvesting these energy sources.

These companies that are actively pursuing this research are the companies that should be looked at when considering an alternative energy mutual fund. They will more than likely outpace the market sector because they will be producing advancing technologies. Look for companies that have excess capital, with which they will be using to further their products' technological development.

Be sure to perform analytical research on companies in the sector that you invest. Every investor needs to understand this concept of research and analysis. In the area of alternative energy, there aren't many alternative energy mutual funds available, but there are plenty of ETFs. ETFs are an effective investment vehicle because they allow you to trade broad sectors or very specific sub-sectors the way you trade a normal stock. For example, the PowerShares Global Wind Energy ETF (PWND) is a fund that tracks global wind energy companies. If you want to add wind energy exposure to your portfolio, instead of having to invest in several companies, this one fund will give you a diversified mix of global wind energy companies.

Do your research. Look at the history and read press releases on the stocks or funds you are interested in. This research will help you to make wise investment choices.