It’s simple to align your investments with your personal values


Laura Oldanie, 49, would like to see more investing strategies in companies that look to regenerate the planet.

Source: Laura Oldanie

Investing in equities is investing in ownership.

Whether it’s individual stocks or a group of companies within a fund, you are putting your money into actual businesses. However, you may not believe in the mission or practices of certain companies or industries.

Instead, you may want to make a positive impact with your money.

Increasingly, investors — especially millennials — are using their idealism to make a difference.

“My money matters, and where I put it potentially impacts the world beyond me,” said Jessica Byrne, 26, a software engineer in Cooperstown, New York, who has a personal finance blog.

“Morally and ethically, I’ve been thinking what my giving strategy is,” Byrne said. “What can my money do besides just making me more money?”

What’s in a name?

This kind of investing goes under a couple of names — ESG or SRI, or more broadly, impact or values investing. (Not value investing, though — that’s an entirely different strategy, and one that Warren Buffett embraces.)

Here’s a rundown of what all the terms mean.

ESG stands for environmental, social and governance factors.

Environmental issues might be climate change policies, greenhouse emissions goals, carbon footprint and renewable energy, such as wind and solar.

More from Invest in You:
Here’s how to invest like Warren Buffett
Tips from people who didn’t save till their 40s or 50s
You’ll probably regret that timeshare, car payment

Social factors look at an organization’s treatment of its employees: diversity, pay, benefits and workplace safety. Its stance on social justice is another consideration.

Corporate governance examines the board of directors and how the business is run. Executive compensation is a key topic.

SRI used to mean socially responsible investing but some people say it stands for “sustainable, responsible and impact investing.”

Excluding versus including

ESG excludes companies, and SRI is more focused on choosing companies the investor believes are better at complying with certain guidelines, says Mike Kerins, founder and CEO of RobustWealth, a financial services provider in Lambertville, New Jersey.

“It’s what’s important to you,” he said, pointing to tilting a portfolio away from owning tobacco. Others might want to include companies based on what they see as positive attributes: carbon-reducing versus carbon-contributing, for example.

Investors should think about how to reward good behavior. “You say, ‘I am still going to own energy but I am going to only own the energy companies that are doing something about it,'” Kerins said.

It’s a way to have more impact with your investing dollars. Look at which companies have the most renewable energy as a percentage, which ones have the fewest oil spills, which firms invest in batteries or excel at protecting private data.

Otherwise, you paint an entire industry with too broad a brush.

Stay diversified across your portfolio. “If people are doing it themselves, they need to make sure they don’t put all their money into it” Kerins said. “Keep it to 10% to 15%.

“If they want to do more, they need to talk to an advisor about how it impacts your overall portfolio.”

Investing for the planet

Laura Oldanie, 49, says she has about 25% of her retirement assets in SRI and ESG funds. She plans to invest the rest into more local investments she considers regenerative.

jia yu | Moment | Getty Images

Companies can either extract from the planet or help it to regenerate, says Oldanie, who lives in St. Petersburg, Florida. Her personal finance blog looks at the impact of investments and actions on the planet.

“Mining fossil fuels are taking from the Earth, extracting from it,” Oldanie said. The alternative is trying to restore the Earth using sustainable technologies.

“I think [SRI and ESG] are a very good start,” she said. “I like them because they are better known. It’s a vote that carries a good bit of weight.”

While millennials have the reputation of being the demographic most interested in SRI and ESG investing, recent research shows it is gaining popularity with investors of all ages.

Do well by doing good

You don’t have to choose between investing in socially responsible funds and actually making money. “You can do well without investing in industries you don’t want to support, such as guns or tobacco,” Kerins said, as long as the fund holds enough stocks to be able to track the broader market.

Byrne would like to have a good portion of her money invested in socially responsible companies. She’d also like to take a more active role in choosing a fund, but says if it takes too long to dig in, some of the robo-advisors have investing options that include ethically responsible companies.

As impact investing becomes more mainstream, the number of options is growing.

The S&P Dow Jones Indices launched its own ESG index based on the S&P 500. Major fund providers offer investments with a social or environmental conscience.

Vanguard and Fidelity have their own SRI or ESG lineups. Schwab has socially conscious exchange-traded funds.

Inspired almost daily by the news, Byrne is researching and learning about the options.

“Greta Thunberg is really prodding us to think what our priorities are in terms of the environment and climate change,” Byrne said, referring to the 16-year-old Swedish girl who admonished world leaders at the United Nations last month. “Her speech has really impacted me. We can’t wait. We need to act now.”

CHECK OUT: 4 of the top money lessons a CPA learned from his CPA dad via Grow with Acorns+CNBC.

Disclosure: NBCUniversal and Comcast Ventures are investors in Acorns.

Source : CNBC