Financial Planning for Regular Folks
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Make a Difference With Socially Responsible Investments

 

 

 

NOTE: ALL RIGHTS RESERVED. No part of this report may be modified or altered in any form whatsoever, electronic, or mechanical, including photocopying, recording, or by any informational storage or retrieval system without express written, dated and signed permission from the author.

DISCLAIMER AND/OR LEGAL NOTICES: The information presented herein represents the view of the author as of the date of publication. Because of the rate with which conditions change, the author reserves the right to alter and update his opinion based on the new conditions. The report is for informational purposes only. While every attempt has been made to verify the information provided in this report, neither the author nor his affiliates/partners assume any responsibility for errors, inaccuracies or omissions. Any slights of people or organizations are unintentional. If advice concerning legal or related matters is needed, the services of a fully qualified professional should be sought. This report is not intended for use as a source of legal or accounting advice. You should be aware of any laws which govern business transactions or other business practices in your country and state. Any reference to any person or business whether living or dead is purely coincidental.


 
Most investors choose investments that they feel will strengthen their portfolio and yield an interesting profit over the term of the investment. But have you ever stopped to think about where the money you invest is going?

Businesses use the money you invest as funding for their projects. These projects have a direct impact on the world you live in, and will continue having an impact for future generations.

It’s important to find out more about what your money funds and to think about your values. You probably go out of your way to be kind to others, avoid polluting the environment, and set a good example for your children. So why shouldn’t the companies you invest in do the same?

Socially responsible investments are about making your money work for you while funding businesses that will have a positive impact on the world. With this approach, you’re in control of the values you support through your investments.

If you’ve been picking stocks and other financial products based on the expected yield and risks without really thinking about what you’re financing, it’s time to review your portfolio and ask yourself if the decisions you’ve made as an investor are a true reflection of your personal values.

Making socially responsible choices doesn’t mean you have to sacrifice profits. In fact, one out of nine dollars invested in the U.S. goes towards a socially responsible business or cause.

Not everything that can be counted, counts; and not everything that counts can be counted.
 
– Albert Einstein

 

What Kind of Investments Have a Negative Impact?

socially responsible investments  - report cover image
 
Some sectors come to mind right away when thinking about negative values. However, some businesses, services, and products might not have any negative connotation at first. So it’s important to define your values and choose activities that you want your money to fund.

These sectors and businesses may have a negative impact:

1. Any business or industry with negative environmental consequences.

Even though there are rules and regulations regarding polluting, it’s undeniable that some activities have disastrous consequences on the environment.

• Investing in oil can be tempting, but oil companies spill oil into the environment.

• Any business that imports wood might be financing deforestation.

• Any business that deals with chemicals or produces non-recyclable items isn’t socially responsible.

• In investing abroad, you might be financing activities that aren’t regulated by any kind of environmentally conscious laws or guidelines.

2. Businesses and industries that may not share your values.

• You may want to avoid investing in alcohol-related businesses if you feel that these companies are targeting young people in their ads or not promoting responsible drinking.

• If you don’t endorse gambling, stay away from investments that would fund casinos.

• Even though investing in the tobacco industry can be lucrative, cigarette manufacturers are indirectly responsible for the deaths of millions of smokers and focus on creating addictive products rather than allowing health concerns to come first.

3. Some investments may seem ethical at first, but any business could implement practices that go against your values or choose to work on projects with negative consequences.

These are a few examples of what could happen:

• A technology company could decide to go for a defense contract and work on developing weapons.

• Any business in the health, beauty, and pharmaceutical sector might be testing products on animals.

• Regardless of the sector, any business can engage in unethical practices, such as treating employees unfairly, failing to implement environmental measures, or selling unhealthy products.

Companies should not have a singular view of profitability. There needs to be a balance between commerce and social responsibility. The companies that are authentic about it will wind up as the companies that make more money.
 
– Howard Schultz

 

Going Over Your Portfolio to Find Investments that Go Against Your Values

If you’ve been investing for a while, chances are some financial products you purchased aren’t a good fit for your personal values. You may not have knowingly invested in such businesses, but you might want to go over your portfolio now to look for investments that, on second thought, may not support your values.

Do Some Research on the Businesses You Invested In

Regardless of your position regarding socially responsible investments, it’s always important to do some background research on a company before buying shares.

Checking these items helps you learn more about a company:

1. Website.

Look at their official website to get a better idea of how the business defines its mission and to learn more about the projects they’re currently working on.

2. Reviews.

Look for reviews written by clients and employees. A large number of negative reviews from clients who were unhappy with the products or services and from employees who were not treated fairly are definitely a red flag.

3. Financial reports.

Check the financial information shared by the companies in which you invested. These businesses should release quarterly reports showing how they used available funds and might release additional information, including the details of the shareholders’ meetings.

4. More information from the business owners or staff.

Don’t hesitate to contact the businesses you invested in to ask questions.

Find Out Where the Money You Put in ETFs is Going

Buying shares from an ETF is a good way to gain exposure to an entire sector without putting all your eggs in one basket. However, you might have invested in an ETF that includes shares of companies you don’t know much about.

Contact the investment company you went through to purchase the ETF shares to get a comprehensive list of what is included in this fund. Indexes, bonds, and commodities should not be an issue, but buying shares of an ETF that includes stocks means your money could end up funding activities that go against your values.

It’s tempting to reach for the passing short-term gain of a patent infringement, a callous treatment of employees, an indifference to the community where you’re located, an exploitive deal with a customer in urgent need of your product. Long term, it’s a net loss. It results in the creative executive who goes elsewhere, the lathe operator who works listlessly, the customer whose door is closed the next time you visit.
 
– James Houghton

 

Taking Control of What Your Money Funds

You can become a socially responsible investor by adopting a pro-active attitude towards managing your portfolio. Make it a priority to find investments that support your values.

These strategies will help you become a more socially responsible investor:

1. Clarify your goals.

Ask yourself what kind of investment goals you want to achieve with socially responsible financial products. Decide what kind of yield you’re looking for, how much you can afford to invest, and how long you want to keep these investments.

2. Sell any investments you’re not comfortable with.

Check the price history of these financial products. You might want to wait a short while so you can sell at a more lucrative time, but take note of them and remember to sell these.

3. Decide what percentage of your portfolio should be dedicated to socially responsible investments.

It’s possible to make socially responsible investments in a wide number of sectors, but you can also balance your portfolio with some neutral investments.

4. Look into shareholder advocacy.

As the shareholder of a company, you have the right to attend meetings and present new ideas. Owning a few shares of a large company may not be enough for your voice to be heard, but your actions could really make a difference if you attend shareholder meetings at smaller companies.

5. Remember that creating a socially responsible portfolio takes time.

You cannot expect to transform your behavior as an investor overnight. Set some reasonable goals and look for ways to create an even more responsible portfolio in the future.

6. Manage your portfolio actively.

Become familiar with all the financial products you purchased and keep an eye on what the different businesses you invested in are doing. Stay up to date with financial reports and check financial news to ensure your investments continue to reflect your values.

7. Educate other investors about how their money can make a difference.

Talk to your friends, relatives, and colleagues about socially responsible investments. Let them know about the positive impact you’re making in your investment choices.

Know what you own, and know why you own it.
 
– Peter Lynch

Examples of Socially Responsible Investments

If you’re ready to start making a difference and want to rethink your portfolio, the next step is to learn more about different kinds of socially responsible investments. These are a few examples of investments that will have a positive impact while helping you maintain a healthy portfolio.

Green Energies

Green energies are a smart addition to your portfolio due to the important growth this sector has seen. You could invest in a wind power plant, a solar panel manufacturer, a lithium mine, or a tech company known for its green and innovative projects, such as electric cars or green appliances.

There are several ways to gain exposure to green energies:

• Buy shares of companies that manufacture or distribute clean energy.

• Invest in ETFs that combine stocks from several businesses in this sector. For instance, an ETF that
tracks the MAC Global Solar Energy Index or the Wilderhill Clean Energy Index could be a good choice.

• Purchase shares of larger energy companies that are financing green energy research (GM, Siemens, or GE for instance).

• Don’t hesitate to invest in foreign companies. Countries like Spain, China, or the Netherlands are ahead of the U.S. when it comes to relying on cleaner sources of energy.

Human Rights

Some businesses have very little regard for human rights and force their employees to work in inhumane conditions. We aren’t really exposed to these situations in the Western world, but millions of employees, who are often children, work in horrible conditions in South-East Asia, Africa, and other parts of the world.

Eliminating the financial products tied to these activities is a good start. If you’re considering investing in a business that operates in a country where human rights aren’t respected, do plenty of research to get a better idea of how employees are treated.

Businesses based in Western countries sometimes outsource their production abroad or purchase products manufactured in factories that treat employees poorly. Some major brands and retailers have been found guilty of outsourcing production or distributing products made in sweatshops where children work.

You can make a difference by being careful when purchasing shares of foreign companies and by avoiding investments in businesses that outsource production to sweatshops.

If you currently own stocks in a company that has little regard for human rights, look into joining a shareholder advocacy group so you can help bring this issue to the attention of the board or CEO. However, they may be well aware of what they’re doing in the name of profit.

Employment and Equality

Businesses that create jobs for all races are making a difference. The U.S. Equal Employment Opportunity Commission is responsible for enforcing the laws that keep businesses from rejecting candidates based on sex, race, age, or religion. However, some businesses don’t have a diverse workforce or do very little to create new jobs.

You can get a good idea of how much a business values equality by simply looking at the diversity of the workforce, especially in the higher positions. Some companies go the extra mile by reaching out to minorities and financing programs designed to foster equality, education, and job growth.

Look at the financial reports shared by the businesses you invested in to get an idea of how many jobs have been created. A business that wants to have a positive impact will focus on creating jobs that allow employees to support a family, gain new skills, and sometimes get access to an education.

On the other hand, some businesses only create part-time positions with very little opportunity for professional growth and no access to benefits.

You can make a difference by buying shares of the businesses that make an effort to create good jobs and to make these positions accessible to everyone.

Micro-Lending

What if your investment could directly impact someone’s life? This is the idea behind micro-lending. Several organizations specialize in putting investors in touch with individuals in need of a small loan.
Typically, the loans are used to launch small businesses or purchase capital that will help a small business perform better. These businesses are often located in South America, Africa, or Asia and are run by a family that depends on this income to live.

You can easily finance a small business, such as a food truck, or help a family purchase additional farm animals or equipment while making a profit when the loan is repaid.

It takes very little for a family to have a regular source of income, but having parents who run their own business makes a huge difference for the children. They usually gain access to better nutrition and living conditions and may even have time to go to school.

Micro-lending is a risky investment since there is no guarantee the loan will be paid back, but it’s a great way to positively impact someone’s life.

Non-Profits

Unfortunately, it’s not possible to purchase shares of a non- profit organization.

However, you can help non-profits make the world a better place with indirect investments:

1. Invest in the Nonprofit Finance Fund (NFF).

The NFF is an organization that specializes in helping non-profit organizations find financing. The NFF provides non- profits with funding options such as loans with low interest and recoverable grants.

2. Invest in businesses that donate to non-profit organizations.

Search for businesses that have donated to non-profits over the years and that clearly make helping non-profits a part of their mission.

In the next decade, the most successful companies will be those that integrate sustainability into their core businesses.
 
– Jim Owens

 

Conclusion

Becoming a socially responsible investor doesn’t mean you have to be satisfied with a lower yield or dedicate your entire portfolio to green energies.

Being socially responsible is about realizing that the money you spend on financial products is used by companies in ways that reflect their values and missions. Investing in companies with similar values to yours lets you make a positive difference while making a profit.

The way the businesses you invest in spend this money has an impact on their employees, clients, communities, and the environment.

You can become more socially responsible by looking for investments that reflect the values you believe in and the causes you care about.

The purpose of life is not to be happy. It’s to be useful, to be honorable, to be compassionate, to have it make some difference that you’ve lived and lived well.
 
– Ralph Waldo Emerson

 
 

 

 
 
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