Are your investments aligned with your values? If not, you have the opportunity to join an increasing number of investors who are putting their money where their minds are. A recent study from Charles Schwab found that when making a financial decision, 69% of Americans say supporting causes they care most about is a key.
Investors now have plenty of opportunities to align their investing with their values. Whether you’re passionate about climate change, human rights, or faith-based investing – in this article, we’ll explore how to get started in values-based investing.
Defining Your Values
The first step is asking yourself what’s most important to you as you start to consider values-based investing. Begin with your own unique life experience. Think of the people, companies, or charities you most admire. For example, if you are a school teacher, you may be enthusiastic about companies that create a better future for children. If you’re concerned about ocean wildlife, you may consider investments in companies that avoid single-use plastics.
You can also ask yourself, what do you think will be most important in your life ten years from now? Reflecting on what will matter to you over the long term can help you hone in on your fundamental values.
Then, talk to your family and see which values align. Defining what matters as a family means you can share in the journey to do good through your investments.
Next Steps: Incorporating Values into Your Investment Strategy
Once you’ve established your values, you may begin to think about how they fit into your investing plans. If you have a financial advisor, introduce the idea of updating your portfolio to reflect the values you have defined.
You can invest directly in the stocks of companies that align with your values, or you can look into exchange-traded funds ETFs) that screen for your values or have a thematic tilt in an area of interest. Finally, you can work with a specialist who has a focus on investing in the area you value most.
Types of Values-Based Investing
There are plenty of different ways to align your investments with your convictions and the causes that matter most to you. Here are a few approaches you might consider.
These investors tend to make investment decisions based on their religious beliefs and values. Practitioners of certain faiths may avoid investing in weapon-producing firms or so-called “sin stocks” like tobacco, adult entertainment, and gambling, while others may not contribute to businesses associated with alcohol or collect interest. Some faiths may steer investors toward causes that help fight climate change or social injustice.
Environmental, Social, and Governance ESG
ESG, a popular type of values-based investing, can be defined as investing in companies with certain environmental, social, or governance criteria, including:
- Environmental: Climate change, conservation of the environment, energy efficiency, waste management, clean water, and biodiversity
- Social: Consideration of people and relationships, human rights, gender and racial diversity, labor standards, data protection, and privacy
- Governance: Standards for running a company, lobbying, executive compensation, political contributions, bribery, and corruption
ESG investors might consider how a company safeguards the environment, treats its employees, or how much diversity it has on its board.
Socially Responsible Investing
Socially responsible investing SRI entails choosing or disqualifying investments based on specific ethical criteria. This strategy aims to achieve financial gain while also bringing about a positive societal impact.
Impact investors aim to solve problems and leave a mark on their communities – or the world – through their investments. The market for this style of investing has been expanding and as of October 2022, it had an estimated value of $1.164 trillion 2 globally. The ultimate goal of impact investing is to help a business or organization produce a social benefit.
In addition to identifying investments based on your values, there are other actions you can take to complement your efforts.
Values-based thinking also applies to spending. Nearly eight in 10 Americans
3 indicated they would like to support brands that align with their beliefs. That could involve shopping at locally-owned businesses, buying US-made clothing, or restocking items at zero-waste stores. It could mean buying solar panels for your home or investing in an electric vehicle. While some emerging technologies and environmentally-friendly options may cost more upfront, they could lead to savings – and intrinsic benefits – in the long run.
Another way families can express their values is through charitable giving. Thinking about the philanthropic component of your financial life is another way to approach a values-based financial plan. Modern donor-advised fund DAF platforms may be able to help families enjoy the tax benefits of charitable giving while also helping them identify charities and underlying DAF investments that align with their values.
For years, values and investing were viewed as separate disciplines. Not anymore. That’s why it has become increasingly common for investors to incorporate their values into their overall planning. Note that investing based on your values cannot guarantee higher returns. Additionally, by pursuing values-based investing, you may end up excluding entire sectors of the economy from your investments, potentially limiting your ability to build a more diversified portfolio.
If you choose to adopt a values-based approach to investing, it’s critical to review your investments periodically, especially since your values may evolve over your lifetime. Share your plan with your family and prioritize your values early to foster alignment and understanding. Most importantly, enjoy the satisfaction of knowing your investments are in tune with what matters most to you and the ones you love.
Need help getting started? Connect with the Exemplar team to discuss incorporating your values into your investments. firstname.lastname@example.org
This material is intended for informational/educational purposes only and should not be construed as tax, legal or investment advice, a solicitation, or a recommendation to buy or sell any security or investment product. Investments are subject to risk, including the loss of principal. Some investments are not suitable for all investors, and there is no guarantee that any investing goal will be met. Certain sections of this material may contain forward-looking statements. Forward-looking statements are not guarantees of future performance and involve certain risks and uncertainties, which are difficult to predict. Past performance is no guarantee of future results. Third-party links are provided to you as a courtesy. We make no representation as to the completeness or accuracy of information provided at these websites. Information on such sites, including third-party links contained within, should not be construed as an endorsement or adoption of any kind. Please consult with your financial professional and/or a legal or tax professional regarding your specific situation and before making any investing decisions.
Exchange-traded funds (ETFs) are subject to market volatility, including the risks of their underlying investments. They are not individually redeemable from the fund and are bought and sold at the current market price, which may be above or below their net asset value.
Environmental, social, and governance (ESG) criteria are a set of non-financial principles and standards used to evaluate potential investments. The incorporation of ESG principles provides a qualitative assessment that can factor heavily into the security selection process. The investment’s socially responsible focus may limit the investment options available to the investor. Past performance is no guarantee of future results.
Diversification does not guarantee a profit or protect against a loss in a declining market. It is a method used to help manage investment risk.
1, 3 Shariff, Hibah. “The Rise of Values Investing: Schwab’s Modern Wealth Survey Finds Values Are Driving Spending, Saving & Investing Decisions of Americans More than Ever.” The Rise of Values Investing: Schwab’s Modern Wealth Survey Finds Values are Driving Spending, Saving & Investing Decisions of Americans More Than Ever | Charles Schwab, May 18, 2022. https://pressroom.aboutschwab.com/press-releases/press-release/2022/The-Rise- of-Values-Investing-Schwabs-Modern-Wealth-Survey-Finds-Values-are-Driving-Sp ending-Saving–Investing-Decisions-of-Americans-More-Than-Ever/default.aspx.
2 Hand, Dean, Ben Ringel, and Alexander Danel. “GIINsight: Sizing the Impact Investing Market 2022.” The GIIN. Global Impact Investing Network, October 12, 2022. https://thegiin.org/research/publication/impact-investing-market-size-2022/.
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