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How to Invest in Things You Are Passionate About: A Primer on Socially Responsible Investing

Most people don’t think of investing as a passion project. Investing money is typically all about making more money, right?

While that’s historically been the case, a recent surge in the types of products and strategies available to even novice investors has allowed people to profit with passion. No matter what social cause or environmental issue resonates with you, there’s probably a product that will enable you to invest in a way that supports it.

And yet, most people don’t invest this way. Even among Millennials — the generation most responsible for the rise of conscious capitalism and consumer behavior — values-based investing is relatively rare, according to a 2019 study led by the Wall Street Journal.

This raises the question: Why?

Myths About Socially Responsible Investing

Most retail investors still don’t know what’s possible when it comes to aligning their investments with their values. ESG investing — which accounts for environmental, social, and corporate governance factors in the analysis of stocks or funds — has gained popularity, but it’s not yet a mainstream approach.

A lack of awareness about specific products and strategies isn’t the only reason many investors’ portfolios don’t truly align with their convictions. Some do know that values-based investing is possible, but they’re not sure how to get started. Perhaps this isn’t all that surprising considering that many financial advisors don’t know where to begin.

Others may believe that employing this type of strategy inevitably means they’ll have to sacrifice portfolio performance, despite the fact that research suggests otherwise. A corollary to this is the belief that portfolios that follow socially responsible investing strategies might not be sufficiently diversified because they have a narrower universe of potential investments. Again, there’s no shortage of uncorrelated investment products for those who want to support positive change.

Finally, some investors might assume that their portfolios aren’t large enough to make a difference. This line of thinking could be especially prevalent among young people (often the most passionate about addressing environmental and social issues) who might not yet have a significant amount of capital accumulated.

No matter the size of your portfolio, you can begin allocating money in a way that aligns with your values. Start by identifying the issues and causes that matter most to you, and then anchor them to your long-term investment strategy.

Here are some examples:

  • Environmental Issues: If you value sustainability, you may want to consider fossil-fuel-free strategies. These avoid investments in companies that engage in the exploration, production, transportation, or distribution of fossil fuels.

Examples of financial products aligning with this strategy include the Parnassus Core Equity Fund (PRBLXPRILX) and the Green Century Equity Fund (GCEQXGCEUX). Environmentally conscious investors might also be interested in strategies that prioritize companies contributing to the transition to clean energy, such as the Calvert Global Energy Solutions Fund (CGAEXCGACXCAEIX) and the iShares Global Clean Energy ETF (ICLN).

Fixed-income investors may be interested in strategies that include green bonds. The Calvert Green Bond Fund (CGAFXCGBIX) or the iShares Global Green Bond ETF (BGRN) both offer great starting points.

If you want to invest in individual companies, you can use services like Climate Counts, which rates companies based on metrics like their overall carbon footprint, impact on global warming, and transparency regarding disclosure of climate policies, among others.

  • Social Issues: If you’re passionate about helping women or people of color, you may want to consider strategies prioritizing companies that empower these groups through their hiring practices, management teams, or promotion policies. Funds like the YWCA Women’s Empowerment ETF (WOMN) and the NAACP Minority Empowerment ETF (NACP) from Impact Shares might be appealing.

Investors who are interested in supporting more niche issues such as organic food production, urban renewal, or gang violence prevention may find private equity or community bank investments to be the most effective options for addressing these issues.

On the other hand, you could buy stock in a specific company that’s doing something to further the causes you’re passionate about. If you want to demonstrate your support for LGBTQ rights, for example, use the “Buying for Corporate Equality” guide to see which companies score highest based on their LGBTQ policies.

A Word of Caution

Before investing in any fund or ETF, you’ll want to be sure that whoever manages it is doing more than just paying lip service to the issues that matter to you.

The funds mentioned above each employ different strategies when it comes to allocating money to companies that further their stated purpose, but the SEC requires all funds to invest at least 80% of their assets into the type of securities suggested by their names (e.g., XYZ Clean Energy must mostly invest in companies involved in clean energy production). However, that still means up to one-fifth of their investments could be in other types of products or businesses.

Carefully read the disclosures from any fund or ETF to make sure you understand its level of commitment to the causes you care about. The same goes for individual companies. Don’t rush into any investment; take the time to think about what’s most important to you while investigating what’s possible from an investment standpoint.

Fortunately, there are plenty of ways for modern investors to use their money to enrich the world.

This article is prepared by Pekin Hardy Strauss, Inc. (“Pekin Hardy,” dba Pekin Hardy Strauss Wealth Management) for informational purposes only and is not intended as an offer or solicitation for business. The information and data in this article do not constitute legal, tax, accounting, investment, or other professional advice. The views expressed are those of the author(s) as of the date of publication of this report, and they are subject to change at any time due to changes in market or economic conditions. Pekin Hardy cannot assure that the strategies discussed herein will outperform any other investment strategy in the future; there are no assurances that any predicted results will actually occur.

Matthew Blume is a portfolio manager of private client accounts at Pekin Hardy Strauss Wealth Management, and he also manages the firm’s ESG research and shareholder advocacy efforts. He earned a B.S. in electrical engineering from Valparaiso University and an MBA from Northwestern University’s Kellogg School of Management. Matthew is a CFA charterholder.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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