How to Invest With Values
Editor’s Note: This is second of a two-part series on sustainable investment.
Start with a PlanThe first step in this journey has nothing to do with values at all. It focuses on what you are trying to financially accomplish with your money. To put it simply: You have a certain amount of money today and wish to have a larger amount at some point in the future.
Growth in investor balances stems from additions from personal earnings and growth from dividends, interest and capital gains. This financial plan is critical to investor success: A great investor who adds too little to his or her account will likely come up short.
Fortunately, most discount brokerage firms — such as Vanguard and Fidelity—have free tools to help investors create some simple plans for themselves. Such tools typically use past returns for different asset types (stocks, bonds, money markets, etc.) which may or may not be accurate reflections of what the future holds. But each investor needs to start somewhere.
It is important for such simple tools to attempt to profile each investor and assess their attitudes toward volatility. Ups and downs in financial markets are just facts of life for investors. But if investors abandon their long-term plans because of the inevitable bear markets, they will not reach their goals. It is therefore critical that investors create plans whose volatility they can live with.
Building a PortfolioOnce investors have created a plan, they can then begin to consider how their values can be factored into the equation. Think of the “plan” as the blueprint for the house. Step two is deciding on the specific materials.
To continue with the building analogy, at this stage, the values investor needs to build their list of preferred materials: an accounting of what they care most about. While it’s unlikely that all of an investor’s social priorities will be met, it is still worth the effort. Progress over perfection is the applicable phrase here.
The table below shows a wide variety of investment vehicles, how they fit into a portfolio, and some of the social issues they seek to address.
Investments labeled “Core” are the building blocks of a portfolio; “Satellite” holdings add diversity and unique characteristics but should play a supporting role. Investments focused on “Growth” have the potential to appreciate over time, but with more price volatility. “Income-oriented” funds, on the other hand, add stability and cash-flow-generating characteristics to a portfolio.
Investors have other options for how to deploy their cash, from deposits at local credit unions to short-term interest-bearing accounts with socially focused, unconventional “lenders.” Most of these are accessible online, often with minimum investment levels of just $1,000. For starters, visit RSFSocialFinance.org and CalvertFoundation.org to learn more about how these organizations lend investor money for socially beneficial purposes, from microfinance to social entrepreneurship to renewable energy. Interest rates are competitive with conventional alternatives.
For Further ReadingGreat sources abound these days for investors seeking free information on responsible investing. Websites such as MorningStar.com or Fossil- FreeFunds.com are great resources for culling through the increasingly long list of possible investment vehicles. SocialFunds.com has more general-purpose information that may be helpful.
Sustainable investment, and sustainability in general, has been fertile subject matter for authors in recent years. Paul Hawken’s 2008 Natural Capitalism: Creating the Next Industrial Revolution is credited with being a pivotal work, awakening companies to the opportunities inherent in more sustainable business models. More recently, Hawken co-authored Drawdown: The Most Comprehensive Plan Ever Proposed to Reverse Global Warming.
Volumes specifically on sustainable investment are also abundant. Some favorites include Matthew Kiernan’s also pivotal 2008 book, Investing in a Sustainable World: Why GREEN Is the New Color of Money on Wall Street. Cary Krosinsky has written at least four books on sustainable investing, but the most approachable one is likely The Short Guide to Sustainable Investing, published in 2013.
Digesting new concepts can be daunting, but the tools are there to help. Unfortunately, markets are notoriously unpredictable and require a long-term mentality. Ultimate financial success depends on many factors, some of which are beyond an investor’s control.
But volatility and the potential for loss are the price investors must pay in order to have the chance to grow their assets over time. Once a person has decided to take these risks, it’s a matter of how best to make their investment fit who they are and what they care about. Fortunately, the evidence suggests that investing to fit values can be a solid strategy for building long- term wealth.
Scott Sadler is founder and president of Boardwalk Capital Management, an independent registered investment advisor specializing in sustainable investing. For more information visit BoardwalkCM.com.