Aligning Your Investments with Your Values
Aligning Your Investments with Your Values
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 consideration.1
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.
Discover your Financial Personality
Our scientifically-backed financial personality assessment for investing (similar to a Myers-Briggs® Type Indicator) is designed to draw the strongest positive connection between you and your money. Before starting the investment process, we take the time to understand what drives your financial decisions along these dimensions:
- Purpose: having a positive impact on the world through ethical and Socially Responsible Investing
- Faith: Ensure elements of your faith are reflected in your portfolio
- Security: Understanding your need for security and peace of mind
- Touch: Linking your investing with a desire for meaningful relationships
- Viewpoint: Exposure to themes you feel are changing the world
Learn more about your financial personality by taking the short assessment here.
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 an advisor 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.
Faith-Based Investing
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 Investing
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 globally.2 The ultimate goal of impact investing is to help a business or organization produce a social benefit.
Complementary Factors
In addition to identifying investments based on your values, there are other actions you can take to complement your efforts.
Values-Based Purchases
Values-based thinking also applies to spending. Nearly eight in 10 Americans indicated they would like to support brands that align with their beliefs.3 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.
Charitable Giving
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.
Parting Thoughts
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? Schedule a meeting with us here to discuss incorporating your values into your investments.