Finding the Right Balance When Investing With Conscience

By Kathleen Nemetz, MBA, CFP®, CDFA®, CPFA®
Wealth Advisor & Partner
Stratos Wealth Partners

Investors wanting to align their personal beliefs and faith with their investments often seek advice in how to best accomplish this goal.

Socially responsible investing takes into account both financial returns and social impact. Other terms describe this same approach, including sustainable and responsible investing, green investing, impact investing and socially conscious investing. Generally speaking, the idea is to make a positive difference in the world by directing capital into socially beneficial areas of the economy. Depending on your values, you may favor investments that focus on protecting the environment, for example, or that consider fair-trade practices a requirement for investing. Still other investments may be guided by religious tenets.

In the public markets, investors may choose to still prioritize profit and performance in these choices, in using ESG- shorthand for environmental, social and governance – considerations in their selections of investments. In the private capital markets, sometimes investors forego, or accept less profit for an investment, to accomplish another goal, such as community empowerment.

Applying criteria based on such social goals, investors can put their money to work in a variety of ways. Some may prefer to buy individual stocks and bonds for these types of investments. For example, they may choose to invest in companies that donate a large amount of cash or a percentage of their profits to the community or to charities. Or investors may prefer to buy municipal bonds to build or maintain schools, thus supporting educational goals. Other investors may want more diversification, focusing on the dozens of publicly traded mutual funds that ascribe to various principles to filter investments, rather than looking exclusively at performance.

Whatever the criteria, the performance of the underlying investments can and should still be considered. Scores of socially responsible mutual and exchange traded funds have performed well over in recent years according to . But beyond performance and social impact, you must also consider the tax consequences and how well the allocation of these investments fits into your overall portfolio and strategy. For instance, holding a mutual fund may mean you will experience taxable distributions of capital gains when positions are traded within the fund, so keep this in mind when choosing a fund over an individual stock or exchange-traded fund. Exchange traded funds do not typically distribute gains during the holding period.

With individual securities, you can have more control over whether and when to take a gain or loss, in managing the taxation of a portfolio. But you may experience a higher level of standard deviation when holding individual securities vs. a more broadly diversified fund.

Whatever your reason of wanting to build a portfolio that manages your money’s impact as well as its balance of risk and reward, a conversation with a financial advisor can save time.  As professionals we are trained to listen to our clients in finding the best fit of any security with goals for income, deviation, asset allocation, and best fit for social, environmental, or humanitarian concerns. 

People sometimes ask how the screening process works. At an industry level, for instance, if an investor is concerned about water use and carbon emissions, he or she may want to steer clear of travel and hospitality.  Companies within this sector often face challenges of waste management, including safe disposal of hazardous waste, and airborne emissions.  The investor might be more inclined to favor another type of industry such as software, if carbon considerations are paramount. However, software companies can sometimes have governance issues around gender and racial diversity for instance in the workforce or at a board level.  That said, there are individual companies that excel in various rankings.

Investing with one’s personal values in mind is not only gratifying, it can be a course of action that mitigates eventual problems with companies that lack ethics, or that mismanage their employees and environmental issues. Another benefit is the proxy representation of many fund companies who pressure company boards to do better, on behalf of values aligned shareholders.

Feel free to engage us in conversation on this wonderfully diverse topic, to find the best fit for your own investment needs. 

Stratos Wealth Partners

100 E. Sheldon Street #105

Prescott, AZ 86301

928-460-5507

http://www.PrescottWealthManagement.com

This material is not intended to be a recommendation or investment advice, does not constitute a solicitation to buy, sell or hold a security or an investment strategy, and is not provided in a fiduciary capacity. The information provided does not take into account the specific objectives or circumstances of any particular investor, or suggest any specific course of action. Investment decisions should be made based on an investor’s objectives and circumstances and in consultation with his or her advisors.

Investing involves risk; principal loss is possible. There is no guarantee an investment’s objectives will be achieved. An investment which includes only holdings deemed consistent with applicable Environmental Social Governance (ESG) guidelines may result in available investments that are more limited than those that do not apply such guidelines. ESG criteria risk is the risk that because the criteria excludes securities of certain issuers for nonfinancial reasons, an investment may forgo some market opportunities available to those that don’t use these criteria.

Securities are offered by LPL Financial, member SIPC and FINRA. Investment advice offered through Stratos Wealth Partners, a Registered Investment Advisor and a separate entity from LPL Financial.

Footnote reference:

*https://charts.ussif.org/mfpc/?

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