With economic uncertainty, questions about how to be a successful investor are on many people’s minds. The internet is filled with tips on how to invest for better returns, but we have a different take on what it means to be a better investor. We believe it’s about understanding that true success comes not only from reaching your financial goals, but by doing so in a way you feel good about.
There’s an old misconception that ESG and impact investing – putting money into companies that make positive change – is nice in principle but isn’t profitable. But sustainable investments have proven resilient in volatile markets. We saw it¹ early in the pandemic, and then again in the market slump of 2022 when, though not immune to their non-ESG counterparts’ lows, ESG equity funds² suffered less. These kinds of investments often do well in the long term as they can provide a hedge against ESG risk, which can have negative impacts on a company’s profitability.
With these five steps, it’s possible to satisfy your personal values while aiming to achieve your desired financial outcomes.
1. Identify your core values
It seems like a simple question, but it stumps a lot of people: what values are important to you?
Investing values are deeply personal and can include everything from showing leadership in sustainability to supporting human rights. Take Carol Newell, for example. When she came into a significant inheritance at age 36, the President of Renewal Partners took a hard look at her values. She felt she had more than enough money to live comfortably, and was concerned with the destruction of the natural world, so she chose to make her capital “mission money,”³ supporting organizations that drive choices that are better for the planet and people.
Determining your values can be as straightforward as brainstorming. “Everyone has a few things that are really important to them,” says Lusher. “Start with that.”
2. Work with a values-aligned investment management firm
There can sometimes be a mismatch between values and financial goals. For example, alternative energy companies may tick the sustainability box, but they could be more volatile than your risk tolerance allows.
A values-aligned investment management firm can help you navigate that tension, as long as you find the right fit. Though many firms pitch themselves as values-forward, you’ll want to be aware of greenwashing and impact washing. “Look for companies that have been doing this for a while,” says Lusher. “If they’ve been managing clean funds, ESG, ethical or fossil-free funds, like Genus has, for quite some time, they have a track record.”
The right investment management firm can help you find where your core values and your financial needs intersect to build a customized portfolio and action plan.
3. Measure your investments’ net impact
Portfolio managers should also provide transparency around your portfolio.
Lusher says Genus uses a measurement system called a Net Impact Score⁴. It’s based on the United Nations’ Sustainable Development Goals⁵. Net impact looks at how a company contributes both positively and negatively to those goals, and creates a net score.
“We’re using independent analytics to measure and show that the portfolios are doing what they’re doing,” says Lusher. “There has to be some sort of transparency outside of a firm just saying that this is a values-based firm.”
4. Understand your portfolio’s ESG risk
Unpacking the ESG risk of your portfolio is another way an investment management firm can provide transparency. Lusher says a company’s Environmental, Social and Governance factors say a lot about the business.
“In my opinion, companies with high ESG scores tend to be well-run and perform better over time, and conversely, companies that aren’t well run tend to have controversies that earn them lower ESG scores. Generally, those companies will not do well financially over the long term because they’re constantly putting out fires,” says Lusher.
With the right guidance, Lusher says choosing your investments based on your values can be a wise move, precisely because it’s so personal. “If you invest in a portfolio that is more aligned with what you believe in, you’ll be a better investor,” says Lusher.
5. Don’t forget the basics
Time horizon, income needs, return potential, risk tolerance – it’s important to answer big questions about your financial goals and why you’re investing in the first place.
“There’s not much difference in return from a traditional portfolio to one that’s values based,” says Lusher. “We’re building the portfolio differently, but we’re looking for the same type of outcomes.”
Formalizing your personal investment philosophy can help determine⁶ how and where you invest your money. Include things like financial goals, your timeline, return expectations, comfort with risk and volatility, as well as your values and interests.
Consider, too, where you fit in on the impact investing spectrum⁷ – are you interested in starting with responsible investing or are you ready to tackle impact investing? Once you’ve set your values and your financial goals, it’s easier to get help in figuring out where they intersect. Then you’ll be well on your way to becoming a more informed – and overall better – investor.
Interested in exploring how our wealth managers can help you? Contact a Genus advisor to get started.
- Hale, J. (2020) Sustainable funds weather the first quarter better than conventional funds, Morningstar, Inc. Available at: https://www.morningstar.com/funds/sustainable-funds-weather-first-quarter-better-than-conventional-funds (Accessed: 24 May 2023).
- Timmullaney (2022) The market’s most political stock picks had a bad year, but they’ll be back in 2023, CNBC. Available at: https://www.cnbc.com/2022/12/27/the-year-of-esg-was-worse-in-politics-than-stock-market-performance.html (Accessed: 24 May 2023).
- (2022) Watch on demand – aligning your values with your investments, Genus. Available at: https://genuscap.com/watch-on-demand-aligning-values-with-investments/ (Accessed: April 30, 2023).
- (2021) Do you know your investment portfolio’s net impact? we do. and here’s why you should, too, Genus. Available at: https://genuscap.com/do-you-know-your-investment-portfolios-net-impact/ (Accessed: April 30, 2023).
- (2022) How our impact portfolios align with the United Nations’ Sustainable Development Goals, Genus. Available at: https://genuscap.com/how-our-impact-portfolios-align-with-un-sdgs/ (Accessed: April 30, 2023).
- (2021) How to create your personal investment philosophy, Genus. Available at: https://genuscap.com/how-to-create-your-personal-investment-philosophy/ (Accessed: April 30, 2023).
- (2022) Where am I on the impact investing spectrum?, Genus. Available at: https://genuscap.com/where-am-i-on-the-impact-investing-spectrum/ (Accessed: April 30, 2023).