Social Investing: What it Means and How to Make it Happen
As pensions become more and more rare, being replaced by retirement plans like the 401(k) and IRA, more investors are becoming active in their financial planning.
With this shift in activity, as a financial advisor in New Jersey, investors are starting to ask more than just how their portfolio is performing; they want to understand what they’re supporting. Is there a way to merge your personal beliefs and values with your financial endeavors?
The short answer is yes!
A few decades ago, this was difficult to do. But as more and more younger investors start planning for their futures, social investing has grown tremendously, and we’re being asked about ethical, sustainable investments that align with clients’ belief systems.
There are several different ways that you can invest according to your conscience.
How to Screen for ‘Good’ Investments
There are two ways to create a socially responsible portfolio.
First, you can avoid companies that are involved in specific industries, such as tobacco, gambling or firearms.
Second, you can add companies to your portfolio that are involved in causes you care about, such as environmental impact or fair work practices.
At Foran Financial Group, we can use a mix of negative and positive screens to identify companies that align with the values you do want to invest in, while avoiding those you don’t want any part of. Of course, you also need to make sure the returns on your portfolio coordinate with the financial goals you’re trying to reach.
Do you know what you’re investing in? Schedule a no-obligation conversation with the team at Foran Financial Group and get a conversation started.
6 Types of Social Investing
Like any investment strategy, there’s not a one-size-fits-all route to take. When it comes to social investing, we see 6 common types.
Sustainable and Responsible Investing
Sustainable and Responsible Investing (SRI) seeks to build a portfolio that is rooted in social good, while also providing a strong financial return. These portfolios generally include broader investments that focus on screening out companies deemed as “immoral” while screening in companies with strong social and environmental values.
Who It’s Best For: Investors who want to avoid investing in industries like gambling, firearms, tobacco, alcohol, and oil
Ethical investing is typically more niched down than SRI (our last category). Instead of focusing on an overarching set of guidelines when choosing securities, ethical investing focuses on specific issues based on your personal beliefs.
Who It’s Best For: Those who want to invest in companies that support (or avoid) specific causes or movements
Biblical investing, also known as faith-based investing or Biblically Responsible Investing (BRI), allows Christians to invest in a way that aligns with their Biblical values.
Biblical investing is similar to social and responsible investing, but it takes it a step further by strictly excluding companies in “sin industries.”
Who It’s Best For: Christians who want their investments to align with their Biblical values
ESG focuses on 4 elements:
- Environmental factors, such as climate change policies and carbon footprint
- Social factors, such as diversity, social justice and workplace safety policies
- Governing factors, such as its board of directors and executive compensation
- Financial statements
These companies get assigned a score on a scale of 0 to 100. Higher scores indicate a company with better ESG policies and transparency.
Who It’s Best For: Investors who want to support companies with transparent environmental, social and corporate governing policies
Investing for good isn’t a zero-sum game. You don’t have to choose just one of these types of investing to build a sustainable portfolio.
That’s where social investing comes in.
Social investing uses a mix of Biblical investing, ethical investing, ESG investing, sustainable, and/or responsible investing to achieve an investor’s financial and social goals. Social investing is more of an umbrella term that encompasses the more specialized approaches mentioned above.
Who It’s Best For: Investors who want to use a mix of Biblical, ESG, ethical and/or sustainably responsible investing to achieve their financial goals
Socially Responsible ETFs
Many investors choose Exchange Traded Funds (ETFs) over individual stocks and bonds when building their portfolio because it can be a big time-saver. Instead of having to research individual investments, ETFs allow you to invest in a basket of 100-plus securities through one fund.
As ETFs as a whole have grown over the years, so has the sector of social ETFs. In fact, the number of socially responsible ETFs has doubled since 2012. Today, there are more than 300 social ETFs – a number that keeps growing every year.
Talk to your financial advisor about whether social ETFs are right for you.
Who It’s Best For: Investors who want to passively build a diversified portfolio of social investments
Why Invest Responsibly
When you invest, you’re not just putting your money in the stock market. You’re buying ownership in a particular company. Making sure that company aligns with your values, morals and ethics can be a win-win for investors, as they save for the future while helping support causes they’re passionate about.
How Social Investing Impacts Returns
It’s important to remember than social investing is still investing. So, how does it impact returns?
Building a portfolio centered on social investing takes time and experience. And at the end of the day, no single type of social investing may align perfectly with your beliefs. That’s why it’s important to work with a financial advisor who can help you create a portfolio that incorporates your goals and concerns.
If you have questions about how to incorporate social investing into your wealth management plan, contact me directly. We can review your entire financial picture to make sure you’re on track to reach the goals you set for yourself – whether that’s investing responsibly, saving for retirement or buying a new home. As a financial advisor in New Jersey, I enjoy working with young investors and helping them develop a plan for retirement.
Get involved. Get the conversation started. Feel good about your investments. And get a plan in place to help you reach your financial goals.
The financial professionals associated with Foran Financial Group may discuss and/or transact business only with residents of the states in which they are properly registered or licensed. No offers may be made or accepted from any resident of any other state.
The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. All performance referenced is historical and is no guarantee of future results. No strategy assures success or protects against loss. Socially Responsible Investing (SRI)/Environmental Social Governance (ESG) investing has certain risks based on the fact that the criteria excludes securities of certain issuers for non-financial reasons and, therefore, investors may forgo some market opportunities and the universe of investments available will be smaller. ETFs trade like stocks, are subject to investment risk, fluctuate in market value, and may trade at prices above or below the ETF’s net asset value (NAV). Upon redemption, the value of fund shares may be worth more or less than their original cost. ETFs carry additional risks such as not being diversified, possible trading halts, and index tracking errors.