Investing in good companies is a smart money move.
You may not care that 8 million metric tons of plastic are thrown into the ocean each year. Or that the earth is warming at an unprecedented pace.?Even if these metrics don?t hit your radar, it may interest you to know that it now pays good money to be a good steward of the planet and its people. It is possible to make great investment returns with sustainable investing and even outperform other types of investment strategies.
Here’s why it pays to get into sustainable investing.
Sustainable investing is sometimes called Impact Investing. Here are the top reasons to get into these socially responsible investing strategies.
The myth that you have to give up performance for purpose has long since been debunked. If done right, socially responsible investing does not hurt returns. In fact, with the right strategies, the opposite is usually true.
As it turns out, socially responsible funds have been on par or beating the market for decades.?You do not need to sacrifice returns for purpose.?The socially responsible index (MSCI KLD Social Index) has outperformed the broad market index (S&P 500) for over 20 years.?
There isn?t a price to be paid for being good. In fact, the inverse may be true. There is a price to be paid for not investing in good companies. Why?
Investors are always on the look-out for ways to reduce risk.
This is why Environmental, Social, and Governance (ESG) factors are becoming increasingly important in valuing companies. Investors are realizing that these metrics can greatly impact company value, either positively or negatively.?According to Cornerstone Research, intangible assets such as human capital, intellectual property and ?brand? now represent 84% of a company?s market value. ?
That means you as a consumer have more power to pressure companies to do the right thing while capitalizing on your investment.?Voting with your values is no longer simply the right thing to do, it is the smart thing to do.
4 ways to make money with sustainable companies.
You can now outperform the market and invest with purpose. There are several ways to invest in good companies.
1)? Invest in individual companies.
Research and find your own companies with high ESG scores. This is a time-consuming process. It is also high risk because you?re putting all of your eggs in one basket. If the company does well, you win. If the company doesn?t perform, you lose. The risk sits entirely on one company.
Cost is low. The only fee is the commission to execute the trade. You?ll also need to open a brokerage account to place the trade. Robinhood Trading is a newer trading platform that now offers commission-free trades.
Time: Very High
Effort: Very High
Return: Very Low to Very High
2)? Invest in socially responsible mutual funds.
Another option is to invest in a socially responsible mutual fund. There are hundreds of funds in this category. Use this tool to find and compare fund cost and performance.
The biggest issue with mutual funds is their expense. They tend to have a higher expense ratio and higher turnover. ?The expense ratio is the fee that the fund company charges to manage the portfolio. Turnover represents the percent of the fund assets that have been bought and sold that year. The higher the turnover rate of assets in and out of the portfolio, the higher the taxes.
Believe it or not, sometimes mutual funds both underperform and are more expensive than alternatives like ETFs (exchange traded funds). On the other hand, some funds have great thematic strategies for social responsibility investing. The good ones take a fully integrated approach to ESG investing. When the research team is strong, this could create excess returns that make the extra expense worth it. Meaning: do you care about the expense ratio that much if the fund is outperforming their peers? Bottom line: it pays to research. Doing thoughtful research will take some time.
Risk: Low to Medium
3) Invest in socially responsible ETFs.
Exchange Traded Funds, or ETFs, have become all the rage in recent years thanks to their low cost. There are 58 socially responsible ETFs, 23 of them launched this year alone. That number is likely to go up year-over-year. ?Like stocks and mutual funds, it pays to do your research. Make sure you?re not investing in a socially responsible ETF that simply ?ticks the box? of ESG factors. Finding one that is actually making an impact can take some time.
Return: Medium to High
Risk: Low to Medium
4) Invest in impact portfolios.
Robo advisors and impact platforms combine the best of both worlds. You get the thematic approach of mutual funds at a lower cost.?There are several robo advisor platforms out there, including Wealthfront, Betterment, and Wealthsimple. Some have recently introduced social responsibility portfolios. ?
We are also seeing the dawn of socially responsible robo advisors. Motif is a values-driven robo advisor backed by Goldman Sachs. Depending on how you feel about a big bank Wall Street backer, Motif could be an option. You?ll need $300 to start investing.
Another option is Swell Investing. Swell is an impact investing platform backed by Pacific Life. Their focus: deliver profit and purpose. With just $50, you can invest in one or more values-driven portfolios designed to impact our world in positive ways, while producing high growth. We took a good look at Swell here.?Their portfolios include Green Technology, Renewable Energy, Zero Waste, Clean Water, Healthy Living and Disease Eradication.
Return: Medium to High
Start impact investing with Swell
You can start investing with purpose and for profit today with Swell Investing. We did a deep-drive review of??their services. Here’s why we like them:
Anyone can join for $50
Choose from any of their?six impact portfolios, from renewable energy to disease eradication and zero waste
No expense ratio fees or trading fees
Very transparent?and low fee structure (only one)
You own the companies in the portfolios
Very easy to set up?with their user-friendly app and website
Your investments are insured
Your money grows for profit and for good
Get on your way to making a real impact with your investment dollars. Your money matters.?
When we invest with our values, we can grow profit and drive positive global change.
Check out our interview with Swell Investing CEO Dave Fanger and CMO Teresa Orsolini.?Our partner Pedram Shojai from Well.org had a great conversation with the Swell team about investing for growth and impact.
Solar panels aren?t a viable option for everyone. Some people live in buildings that don’t allow solar panels. The price of the solar panels may also be a deterrent. Now you can change your power bill to a clean energy bill, without solar panels.
If you?re paying an electric bill, Arcadia Power can switch your bill to clean energy.
Here?s how they do it.
How Arcadia switches your power bill to use clean energy
Arcadia Power buys Renewable Energy Credits (RECs) from national wind farms and pays the utility companies on your behalf for your energy usage. The process is very easy to set up and only takes 5 minutes.
Set up an account with Arcadia Power.
Direct Arcadia Power to take over payment of your energy bill by linking your utility account.
You pay Arcadia and Arcadia pays the utility bill and matches your usage with Renewable Energy Credits (RECs).
All of this is managed on the platform.
What it costs: Free plan: switch 50% of your energy bill to clean energy. Meaning: you just continue to pay what you would have paid for your power usage. Alternatively, there?s the Premium plan:switch 100% of your power bill to renewable energy for $0.015 per kilowatt hour (that comes out to $5 – $20/month more depending on your energy usage).
Arcadia gives you a nice dashboard showing your energy consumption and how much came from traditional v. renewable energy. We liked this dashboard because it helped us become more conscious of our energy usage (e.g. turning off the lights when you walk out of a room).
Once you?ve set up your account, you get $20 off your next energy bill.
That?s it. 5 minutes to do some good in the world and save yourself 20 bucks.
Why is this so easy?
The availability of RECs, Arcadia?s network of wind farm partners, and Arcadia?s ability to pay your utility company on your behalf makes this whole thing possible.
Here?s how RECs work. Renewable energy has two components: the physical electrons and the corresponding Renewable Energy Certificates that track clean energy production. Think of RECs as the currency of the renewable energy market.
When electricity from a wind farm is produced, it is fed into the grid. Once it?s in the grid, there is no way to distinguish clean energy electrons from any other type of energy (nuclear, fossil fuel, etc.). That?s where RECs come in. RECs track how much energy was sent by the wind farm to the grid. Once a REC is used for payment, it cannot be re-used.
When you direct Arcadia to pay your power bill on your behalf, and by matching your usage with RECs, you are helping drive up demand for renewable energy. This is helping our world, and it only takes 5 minutes.
We tried it!
We switched our energy to Arcadia Power. Here?s the actual process.
Step 1: ?enter your email and land on their dashboard
?Pretty straight forward. After you enter your email, you’ll be taken to their dashboard. After you go through the process, this dashboard will show your traditional energy usage v. renewable (aka clean) energy usage.
Step2: Link your utility account.
Select your state and your utility company. Easy. Once you link your account on Arcadia’s secure system, they’ll monitor your current and historical energy usage.
Step 3: Select a membership.
There are two options.
FREE PLAN: Arcadia pays 50% of your power usage with renewable energy credits (this costs you nothing extra ? just pay your power bill as you normally would). You also get a few other freebies like Price Alerts and the Dashboard.
PREMIUM PLAN: Switch your entire energy bill to renewable energy. This is $0.15 per kilowatt hour more. That?s about $5 – $20 more per month added to your power bill, depending on how much power you use. Start or stop anytime. There are no contracts.
Step 4: DONE!
Congrats. They get your account set up with the utility and send you a confirmation email. That’s it.
Now it?s your turn to use your power as a consumer. Take a few minutes to make this important change and save yourself $20 on your next power bill.
Do you feel ready for the next step in your career but can?t seem to land that promotion? Here are three strategies to help you get there.
1. Stop asking for permission
People get so caught up in pleasing others and playing by the rules that they often leave their individuality at the door. The result? They’re pigeon holed into a role. Break out of that mold. Bring your whole creative self to the job and see how far you can go.
Address the problems you see in front of you. Is there a process that needs improvement? It could be as simple as configuring all copiers to print double-sided to save on paper.
Disagree with your boss (respectfully, of course). You don?t always have to follow the party line. If you see a better way to do something, speak up. Your boss will appreciate the effort because you are looking out for the team. Good bosses are not looking for a bunch of Yes gals and guys. They value critical thinking, especially if you?re helping them avoid risk.
Educate yourself. Maybe your boss? presentations seem dull and uninspiring lately. Take a PowerPoint course and figure out how to make the story sing. Or take the free courses available to you for CRM reporting so that you can bring greater insight into the numbers. Or learn to code. You get the point. Gaining a new skill will make you more valuable.
Think strategically. Get smart about your sector and adjacent industries. Make connections and bring these big ideas to the team. Is there a product you produce today that could be re-purposed for an adjacent industry? Is there a new partnership, joint venture or acquisition that your company should take a look at? Good ideas are good ideas, no matter what your role. Strategic thinking is like a muscle. You have to practice to get good at it.
Help the company grow. One of the biggest challenges facing companies is organic growth. Every manager knows how to cut costs. That?s their go-to solution because it?s the only thing they can really control. Demonstrate your leadership by offering true growth strategies. Your official title at the company doesn’t matter. Anyone with a growth mindset can help. Check out this book for good ideas: Double Digit Growth.
2. Act the part before you get the part
Companies are constantly looking for ways to reduce risk. ?If you were the boss, who would you promote: the person already taking on next level responsibilities or the person waiting to up-level until they’re promoted? Demonstrate that you can handle the new role now.
Look around corners. Ask yourself what your boss would do with the information you?re about to present. Then do that before she asks you.
Put in more hours. This may not be possible for everyone but it?s usually needed, especially if you?re looking to get promoted. The extra time doesn?t have to happen at the office. Technology is a wonderful thing. But make your extra hours count. Empty hours and ?up managing? for optics is a waste of everyone?s time. People see through it.
Check the drama(and your ego) at the door. No one has time for complainers or office gossip. Do what?s needed to help your tribe thrive. Be known as a doer.
Make your boss? job easy. Show and tell her why you should be promoted. That means coming up with a strategic plan, including milestones. It also means doing those things on the plan. When the time comes, the promotion will feel like a natural extension of what you are already doing.
3. Cultivate your tribe
No person is an island. Think about the stakeholders around you. That includes your immediate colleagues, bosses and employees. It also includes your suppliers, strategic partners, the planet and the community. All of these stakeholders are part of your network. Figure out how to help them prosper. If they win, you win.
Organize your company?s service days. Many companies now offer paid time off to volunteer at various community organizations. Organize an outing at a food bank, animal rescue center, or University. Choose organizations that resonate with you and your company. It?s amazing what can happen when you work together towards a common goal outside of your regular day-to-day routine. Try it out.
Become a corporate steward. How can you help transform the company?s DNA to improve people and planet? Taking initiative demonstrates true leadership. Here are three ideas:
Lead your company?s initiative to offer sustainable 401K investment options. Not many people know that they can ask for different investments. You don?t have to be stuck with what?s offered by your plan sponsor. Here is a toolkit that can help you negotiate green and sustainable funds for your 401K plan.
Help your company strengthen their supply chains?by making them cleaner. Here are the top 10 reasons to have your company clean up their supply chain. Done right, it?s long-term profitable for the company and the planet.
Help someone at your office every single day. Go out to lunch with colleagues in other departments. Put the notice out on Slack or your email bulletin board. Break your daily routine by learning something about someone new, every day.
Share information. Gone are the days of zero sum corporate culture. Create the environment you want to see at work. That means communicate and share your valuable data with colleagues. Don?t be a data hoarder. And don?t worry about communication overlap or people stealing your ideas. True leadership will come out on top. Sharing is a shortcut to building trust.
Beyond the promotion, these strategies can help you in other areas as well. If you adopt these behaviors, you will start thinking differently. You will begin thinking like a leader. Leadership mindset takes time to cultivate. Invest in it.
Buying that great pair of jeans after a hard day can make us feel good. We work so hard, why not enjoy life? But like anything else, moderation is the key.?Too often these ?comfort buys? can improve our mood but the feeling is short lived. Many people feel remorse after the purchase is made.
Left unchecked, retail therapy can have a devastating impact on our financial health. As we spiral deeper into debt, our anxiety increases. We then look to reduce that anxiety by shopping. It?s a vicious cycle.
Taken to the extreme, retail therapy can sometimes evolve into compulsive spending. When this happens, people are driven to buy things in order to fill a need. But the purchase does not quench the need. The person may not even know what need they are trying to fill. They cannot help themselves and will continue to shop, even after facing negative consequences. If this feels familiar, these resources could help.
You are not alone.
So how big is this problem? Let’s use credit card debt as a proxy. Here are a few staggering statistics about the state of our credit card debt.
The average American household credit card debt is $5,700.
According to a recent press release by the New York Fed, America now has $784 billion in credit card debt.
Here?s what?s worrisome: credit cards delinquencies are increasing at a rate not seen since the 2009 recession.
Retail therapy, or the act of shopping in order to make ourselves feel happier, is a big contributor to credit card debt.
So what can we do to stop the madness?
5 questions to ask yourself before you buy anything.
Changing a habit is not done in one day. It?s a process. Here are 5 questions to ask yourself before making your next purchase.
Do I really need this or do I want this? Is this a necessity or a splurge? It?s OK either way, no judgement zone. Simply asking the question will help you reframe things in your mind.
What Impact will this purchase have on the planet? That new toy is wrapped in a bunch of plastic. Ask yourself if your kids really need another piece of plastic from China. Is there an alternative that would bring your family just as much joy?When feeling anxious, sometimes it helps to focus on something outside of our own immediate needs. ?Taking a moment to consider the broader impact that our purchases have on people and planet could have the added benefit of reducing unease.
What impact will this purchase have on my community? Is the purchase helping my community in some way? Are you buying from a local merchant who is sourcing their materials sustainably? Is your purchase creating jobs that people enjoy?
Can I text a friend? Set up a code word with your friends. Any time you text ?Itch?, they?ll know you have a shopping itch that you need to scratch. Ask your friends ahead of time to talk you away from the mall or online store. Great friends are good at helping you refocus.
Can I take a walk? We?ve heard it before: if you exercise, eat healthy and sleep for 8 hours a night, all shall be well. But sometimes those things are hard to do in the moment.If you?re shopping to ease anxiety, see if you can do something else to make yourself feel better. Keep it small and simple. Instead of walking into the store, walk around the block. See how you feel about making that purchase once you?ve taken a little walk.
They say it takes 27 days to form a new habit. Start small, lean on people, help others, and above all, be kind to yourself.
Exchange Traded Funds (ETFs) are a collection of assets. ?An Equity ETF, for example, holds a group of companies (stocks) in its portfolio. ?When you invest in an ETF, you own a piece of every single company that is held in that fund. ETFs are a great vehicle for reducing risk, since you?re invested in a group of companies instead of a single company.
That also makes ETFs a great vehicle for voting with your dollars at scale, across many companies. This is an opportunity to have greater impact. Investors have caught on and are now demanding more socially responsible ETF options.?Another thing that?s great about sustainable ETFs:? fund managers can use our collective voting power to encourage companies to align with our values. Companies love being included in ETFs since these vehicles bring capital, investor exposure and brand cache.
For example, the CEO of an up and coming sustainable ETF told us that they were going to meet with a large company to explain to them why the company didn?t make the cut to be included in their new women-focused ETF. While the would reconsider in 6 months, they simply didn’t qualify today because they did not meet the standards. You can see the power that socially responsible ETFs have in encouraging good change within companies.
So why consider ETFs? Let?s look at the benefits of ETFs over mutual funds.
Benefits of ETFs over Mutual Funds
1. Lower cost.
ETFs have a much lower expense ratio than mutual funds. The expense ratio is the annual fee that the fund company charges to run the fund. Let?s say you invest in a mutual fund with a 1% expense ratio. That means that you will be paying $10 for every $1,000 invested. The fee is taken from your investment in the fund, which means you don?t have to write a check ? it is done automatically on your behalf. Expense ratios are also difficult to find ? they are often buried in the fund prospectus. When investing in any type of fund (ETF or mutual fund), make sure you look at the expense ratio and performance first.
On average, ETF fees are 1/3 the price of a typical mutual fund. In addition, because they are following an index, their turnover is low (i.e. when companies come into / out of the ETF). That?s good news for investors. ETFs have ? the tax cost of the average mutual fund. (source: www.ishares.com)
2. Potential for Higher returns.?
Many people wonder if ETFs outperform mutual funds. You?d think that mutual funds would have higher returns since they are actively managed and have higher expense ratios. As it turns out, mutual funds are often more expensive and have lower performance than ETFs.
Crazy, right??After subtracting fees, only 18% of active mutual fund managersbeat their benchmark. ETFs are designed to mirror the holdings in their benchmark and therefore follow benchmark performance.?The iShares Core ETFs have outperformed their mutual fund peers 84% of the time over the last 5 years
3. Greater buying, trading, and pricing flexibility.
Mutual funds are only priced once per day. ?Which means you can only trade them once per day. ETFs, on the other hand, trade on an exchange just like a stock. That means you can trade them throughout the day, any time the exchange is open. This gives you, as an investor, greater flexibility, and control over the timing of your trades.
And because ETFs trade like stocks, you have the option to use stop and limit orders. Some ETFs even offer put and call options.
It seems investors are catching on to the benefits of ETFs v. mutual funds. ETFs are now a 3 trillion dollar industry.
But Watch Out.?Not all sustainable ETFs are equal.
We are in the early days of sustainable investing.
That means there is a huge variation in financial products. Both in ETFs and Mutual Funds. Some are doing deep integration of sustainability, while others are simply ?box ticking.?
This is dangerous because it could reflect that sustainable investing is underperforming when it?s not.
The current state of sustainable investing is similar to that of cryptocurrency. Everyone knows Bitcoin and Ethereum. But there are 900 cryptocurrencies and most of them are crap. The bad ones will give cryptocurrency a bad name.
The same thing applies to sustainability investing. Truly integrated sustainable investing is not box-ticking, and it?s not simply screening to exclude bad stocks (e.g. tobacco, firearms, fossil fuels.)
That?s why some mutual funds might be worth the extra cost of active portfolio management, even though they might have a higher expense ratio.
Bottom line: ?do your research. That means look at the constituents of the fund, the fund management team and the criteria used to include assets in the portfolio, in addition to performance over time and expense ratio.
A quick view of Socially Responsible ETFs
Following are the top 10 socially responsible ETFs, grouped by category.
Top 10 Socially Responsible ETFs by Expense Ratio
The expense ratio for the socially responsible funds ranges from 0.12% to 0.95%. Not bad. They are all under 1%. By comparison, mutual fund expense ratios range from .9% – 1.35%.
Top 10 ETFs by Environmental, Social and Governance Scores
Finally, let?s take a look at the top 10 socially responsible ETFs by ESG Scores. ESG (or Environmental, Social, and Governance) Scores measure the fund?s level of commitment to the socially responsible criteria. There are many ways to measure.
If you have a brokerage account, you can buy ETFs from within your account. For example, if you invest with Schwab, Fidelity, E*Trade, TD Ameritrade or any of the other online retail brokers, you simply enter the ticker symbol and buy the ETFs.
Some brokers are now offering commission-free trades for certain ETFs. That means you don?t pay a commission fee to buy or sell the ETF. However, we have not seen any socially responsible investing ETFs included in the commission free trade offers. That means you?ll be paying a commission fee to buy or sell the ETF. Commission typically range from $4.95 ? $6.95 per trade.
If you?d rather not pay a commission, you can open an account on the Robinhood Trading app. They offer commission free trades, even on ETFs. Bonus: ?Robinhood gives you a free stock when you open an account.
Or, get the benefits of mutual funds without the cost.
Another way to invest in sustainable companies is to use a robo advisor. We like Swell Investing. They are an impact investment platform offering a suite of sustainable companies. These portfolios are managed via a Separately Managed Account (SMA). You?legally own the companies listed in their portfolio. The fee is only 008% instead of the typical mutual fund range of 0.45% – 3.38%.
The benefit: you get the benefit of having an active portfolio manager choose the companies in the fund. The portfolio manager takes an integrated approach at determining which companies should come in and out based on carefully chosen impact criteria. And you get all this without the typical cost of a mutual fund.