Planning to grow your money with causes in mind.
Mike Fassi, CLU, CHFC
Can investing change the world? Some millennials, Gen Xers, baby boomers and elders hope the answer is “yes.” Billionaires, like Bill Gates and Richard Branson, are pouring money into green business ventures and projects intended to improve education and the quality of life, and millions of other households are directing portions of their portfolios into socially responsible investments. Impact investing, which was once largely ignored by Wall Street, has gone mainstream.
Ethical investing has evolved since the 1960s. At first, it was about not investing in certain companies – such as firms that effectively profited from South Africa’s policy of apartheid, and corporations whose products were environmentally destructive or morally objectionable.
During the 1990s, the goal of simply screening portfolio choices gave way to a new focus on making socially responsible investments. A new sector of investment products emerged, created with the dual purpose of effecting positive change and generating significant yields. In 2005, there were about 200 such investment vehicles; less than a decade later, investors could choose from nearly 1,000.1
A generation ago, socially responsible investments had their share of critics. Couldn’t their money managers see that corporate profits came first, and environmental stewardship, second? Surely these investment vehicles were destined for substandard returns.
Looking at the performance of two key benchmarks, it appears those critics were wrong.
Impact investments actually outgained the S&P 500 during a 25-year period. From 1990 through 2014, the Domini 400 – the benchmark index for the socially responsible investment sector – yielded an average yearly total return of 10.46%. The S&P’s average annual total return across the same time frame was 9.93%.2
Public opinion can affect corporate profits. Firms built around the manufacturing or distribution of tobacco, alcohol, opioids, and weapons can garner some bad press, and, if it is sustained, that tarnishes their brand. A scandal can quickly affect their share prices. By comparison, companies that seek to make a “green” mark on the world may receive more favorable press coverage – and, as more and more world leaders, media outlets, and investors see a need for sustainability, the better impact investing looks.
Few investors will find a “perfect” socially responsible investment product. Typically, these investments own shares of hundreds of different companies, and some of those firms may be socially responsible to varying degrees. Pooled assets from retail investors may be directed into shares of a big bank, a major plastics manufacturer, a company with a distinct stand on some divisive issue, or purveyors of largely unhealthy fast food – indeed, there are environmentally and socially responsible companies that also have these characteristics.3
Even so, more and more investors have embraced these portfolio options. Right now, about one out of every sixth invested dollar in America is held in an investment vehicle managed according to a socially responsible investment strategy.4
Everyone wants to invest in congruity with their values. That propensity attracts people to ethical investment options. The fact that their average yearly total returns have been up to par has only led more people to consider them.
Mike Fassi, CLU, CHFC is a Representative with Centaurus Financial Inc. and may be reached at Fassi Financial, 970-416-0088 or firstname.lastname@example.org.
This material was prepared by MarketingPro, Inc., and does not necessarily represent the views of the presenting party, nor their affiliates. This information has been derived from sources believed to be accurate. Please note – investing involves risk, and past performance is no guarantee of future results. The publisher is not engaged in rendering legal, accounting or other professional services. If assistance is needed, the reader is advised to engage the services of a competent professional. This information should not be construed as investment, tax or legal advice and may not be relied on for the purpose of avoiding any Federal tax penalty. This is neither a solicitation nor recommendation to purchase or sell any investment or insurance product or service, and should not be relied upon as such. All indices are unmanaged and are not illustrative of any particular investment.
1 – tinyurl.com/jd24ehu [2/28/16]
2 – marketwatch.com/story/socially-responsible-investing-has-beaten-the-sp-500-for-decades-2015-05-21 [5/26/15]
3 – tinyurl.com/z97as9z [6/19/16]
4 – wisebread.com/a-simple-guide-to-socially-responsible-investing [5/25/16]