The S&P 500 set another all-time high last week. Investors followed the Fed’s lead and believed inflation will be transitory. One of the key measures of inflation rose again, but by less than expected. All major US banks passed their stress tests as well.
As we think about investing, many people also consider their personal values, and the societal impact different companies have. It’s important to remember that for-profit corporations are formed for the benefit of their shareholders. They exist to take the capital that has been invested in them and provide a return on that investment to their owners, which may be an individual with a small business, or tens of thousands of individuals with a large publicly-traded company.
Over the past few years, some investors have chosen to tailor their portfolios for ESG – Environmental, Social, and Governance – goals, looking beyond just the financial return on investment. Traditionally, we have done this with screens, meaning we choose not to own investments that violate our values. For smaller investors, we can use mutual funds that do not invest in alcohol, tobacco, gambling, or fossil fuels, to name a few. Some mutual funds are focused on faith-based screens, some on environmental, some are based on social justice concerns. For larger investors, we can screen out individual securities that do not align with certain values.
The more recent trend is not to screen out companies that do not align with your values, but to look for and invest in companies that do align with your values, known as sustainable investing. For example, you may look for companies that have a diverse board of directors, or hold certain environmental standards. You can also choose to invest in B Corporations. A B Corp is a corporation that holds a second mandate beyond maximizing shareholder value. They may focus on an environmental or social mandate not because it makes money, but because it does good. Some well-known B Corps include Patagonia and The Body Shop. Here in our office, we purchase hand sanitizer from Sierra Sage Herbs, a woman-owned B Corp in Colorado.
The bigger question is how these investment decisions affect returns. The research is split on this. And recently, a former executive with a well-known ESG fund company claimed that these socially responsible investments are not resulting in any meaningful social impact. My personal thoughts are nuanced, and investor specific. If you have firmly held beliefs and are willing to accept the possibility of lower returns to align your portfolio with those beliefs, that can easily be accomplished. Others may choose to invest for maximum returns and then donate to non-profits who are making an impact. One of my favorite easy “wins” is holding savings at small community banks that lend to underserved communities. There are many ways to make an impact, and I encourage you to have this discussion with your advisor.
This adds on to our action items of the past few weeks. If you’ve been tracking your spending, and looked at your values, ask yourself if they align. If you really want to travel more, or pay for your children’s college, saving for that goal needs to be a fixed expense item. For many of us, we are fortunate enough that stopping at a coffee shop each morning isn’t going to impact our ability to pay our electric bill or buy groceries. But that unconscious spending can mean we aren’t reaching our more meaningful goals. Your action item this week is to align your spending with your values.
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Securities offered through LPL Financial, Member FINRA/SIPC. Investment advice offered through Great Valley Advisor Group, a Registered Investment Advisor. CovingtonAlsina and Great Valley Advisor Group are separate entities from LPL Financial.
All performance referenced is historical and is no guarantee of future results. All indices are unmanaged and may not be invested into directly.
Companies mentioned are for informational purposes only. It should not be considered a solicitation for the purchase or sale of the securities. Any investment should be consistent with your objectives, time frame and risk tolerance.
The opinions voiced in this show are for general information only and are not intended to provide specific advice or recommendations for any individual. To determine which strategies or investment(s) may be appropriate for you, consult with your attorney, accountant, and financial advisor or tax advisor prior to investing.