Jan 29, 2013

5 Reasons To Try Sustainable Investing (SRI)

Author: Tom Nowak

Photo Courtesy of Flickr User StockMonkeys.com
If you have already looked into the possibility of sustainable or socially responsible investing (SRI) and put it aside, you may want to look again.  If you have not yet been introduced to this area of investing, it is likely that you will be seeing more about it.  

Recently, author, educator and environmentalist Bill McKibben toured the nation during Do the Math to introduce a fossil free divesting campaign.  McKibben popularized aligning our investments with those cautious of our future--SRI can help launch your own divestment campaign.  

If you put your investments on autopilot, you are almost certainly becoming an owner of a large number of companies, including the fossil fuel industry, that are not acting at all in alignment with your worldview.

The traditional concept of sustainable investing is to use your investment dollars to reward companies that participate in sustainable practices.  For instance, if you identify a company that produces a wonderful product or service, and does it while treading lightly on the earth, you could provide investment dollars to them to help them grow (i.e. by buying their bonds at an attractive rate to the company, or buying stock in the company).  Conversely, if you avoid investment in companies that make a product you find offensive, or provide a service that seems contrary to the needs of an advanced civilization, you are making it more difficult for this company to operate (e.g. have access to cash via the bond or equity market).  Of course, you may think that your actions are a drop in the bucket.

Here are 5 points to consider or reconsider regarding sustainable investing:
  1. Your actions are not insignificant. The collective amount of “socially screened” activity continues to grow. According to the US SIF: The Forum for Sustainable and Responsible Investment “Nearly one out of every eight dollars under professional management in the United States today -- 12.2% of the $25.2 trillion in total assets under management tracked by Thomson Reuters Nelson--is involved in sustainable and responsible investing.”

  2. Your point of view can be reflected in your existing investments. If you are having trouble finding a fund in alignment with your worldview, you can review screening criteria for hundreds of existing funds at ussif.org (US SIF site). 

  3. You may have heard that some SRI portfolios do not yield returns that meet or beat the established benchmarks.  In fact, any portfolio that is not designed to replicate the established benchmark may or may not outperform it in a given time period.  Keep in mind that one does not buy organic produce with the primary expectation of paying less than the benchmark price.  As in other areas of sustainable practices, the rewards may be less immediate, yet of longterm significance.  

  4. You may think that you need a bundle to invest in this area.  You may already be investing sustainably and not realize it.  For instance, the savings account that you have at the local credit union may be using your savings to efficiently provide loans to fellow members of your community.  The funds in the CD you own may be invested in a community bank providing affordable housing options, etc.  As your financial means increase, it takes only a little homework to identify other areas where your dollars can provide a positive impact while providing you a fair return.

  5. It won't be as costly as you may anticipate. You may be turned off by the moderate to high fees that investment managers charge for offering you the privilege of targeted investing.  One general strategy for improving performance, the use of passive index funds or direct investment in a diversified collection of individual stocks, can be applied to socially responsible investing as well. Various discount brokers allow investors to directly access index funds or provide low-fee access to direct stock investing (e.g. vanguard.com, folioinvesting.com or motifinvesting.com).

About the Author
Tom Nowak, CFP®, is the author of “Low Fee Socially Responsible Investing: Investing in your worldview on your terms”. Tom is founder and Principal of Quantum Financial Planning LLC, a Fee-Only financial planning and Registered Investment Advisory firm located near Grayslake, Illinois. As an hourly Fee-Only planner, Tom works solely for his clients and does not receive commissions from the sale of any financial products. Tom resides just outside of Grayslake, Illinois, in unincorporated Libertyville Township, with his wife, Julie, and has two daughters. Tom’s outside interests include traveling and gardening, with an emphasis on the use of native plants. 

Check out more at www.lowfeesociallyresponsibleinvesting.com or contact him at info@quantumfinancialplanning.com.


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