Investing
Zoe Team and Christopher P Van Slyke, CFP®, CKA® (Zoe Network Advisor)
5 min read
Values-based investing lets you align your portfolio with personal beliefs to support or avoid specific business practices.
Choose from three main paths: managing individual stock picks, pooling money in value-focused funds, or using separately managed accounts.
Work with a financial advisor to balance your values with essential investment factors like diversification and risk tolerance.
It is a strategy where you select investments that influence the behavior of companies or governments to match your personal worldview.
You can pick individual companies yourself, invest in funds like ETFs/mutual funds, or use a separately managed account for custom exclusions.
No, you can combine these approaches to better align your portfolio with your values, which is often a common strategy for wealthy households.
The purpose of values-based investing is to influence the behavior of businesses and governments with your investment choices. Your decisions will increase or decrease the price, raising or lowering the capital cost for the business/government.
How many times in a day do you think about “helping” people or making a positive impact in the world around you? Most of us genuinely believe in changing the world for the better. A financial strategy that can help you do that is values-based investing.
According to Morgan Stanley, “84% of investors say they’re interested in impact investing, or putting their money behind companies that make a positive difference in the world.” Impact investing has become more popular year to year. Choosing where to start is key if you’re interested in giving back through your investments.
Today’s investors are highly engaged politically. Naturally, Americans’ political concerns extend to their investment preferences. For most, it is important to make sure that their hard-earned retirement capital is being used to support their worldview. They don’t want to invest in companies making products or supporting causes that don’t jibe with their views.
How do we choose where to invest? First, let’s assume that all the other important investing parameters are taken care of. Things such as diversification, timeline, tax considerations, and risk tolerance. For the sake of this article, those things have all competently been attended to. The missing element is the incorporation of your values. How can we implement and maintain a values orientation for our investment strategy? More specifically, how do we incorporate values-based investing to screen out bad actors, monitor company behavior, and update the portfolio?
The purpose of values-based investing, of course, is to influence the behavior of businesses and governments with your investment choices. Your decisions will increase or decrease the price, raising or lowering the capital cost for the business/government. This method gives you the most control because you have the choice to pick an individual company. Unfortunately, it does come with time commitment and the added burden of researching and choosing the investments. Monitoring all the securities over time can be a daunting task.
If values-based investing feels like a daunting way to align your values to your investments, other alternatives can help you meet these goals. Values-focused funds, such as an ETF or mutual fund, are good options. While you won’t have as much control, you and other like-minded investors will have a louder voice. Why? Because you are pooling your money. As a result, you can potentially move the price. You can also use the media to pressure the investees to improve their behavior. The fund will also monitor the investment potential as well as the ethical behavior of your portfolio. This method gives you the least control but the most impact.
A third choice is to use a separately managed account where you can set the specific tone for the values decisions (i.e., no gambling, no fossil fuels) and have the ability to specifically exclude certain companies/countries from your portfolio. This option may give you the best of both worlds because you can participate in the larger values-based initiatives (Larger voice, PR, etc.) of the firm you are working with yet have much of the control you would have chosen or boost specific companies or governments. It’s the middle path.
The three approaches are:
Do it yourself
Use a fund company
Use a separately managed account with specific client input.
It’s important to add that you can combine all three. This is especially true for wealthier households.
You’ve made it this far, which means you know what to do. Don’t wait. Start matching your values to your investments today. The process starts by asking the right questions. Who can you ask these questions to? Your financial advisor can help guide you through the time commitment required to invest in places where your values will be reflected.
Think of values-based investing as the butterfly effect. In the grand scheme of things, this might be a small time commitment. However, if done right, with the proper support and guidance, there may be various positive outcomes caused by your decisions.
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