As social consciousness is becoming a more vital part of many Americans lives, investors are wanting to do more with their money than just simply invest. While making money to meet future goals is the most crucial aspect of wealth planning, many people are wanting to invest in issues that matter to them, hoping that they can make the world a little better for those who live in it.
While the typical rules still apply to investing, such as being vigilant about risks and returns, and staying diversified, investors can still put their money in investments and companies that they believe can make a difference. So for investors who are interested in trying their hand at sustainable investing, below are five tips to help out.
1. Find Sustainable Funds
What used to be referred to as "socially responsible" or "socially conscious" funds are now often collectively known as sustainable funds, or ESG funds (environmental, social, and governance funds). The good news is that these funds are numerous and diversified making it a lot easier for investors to make them part of their portfolio. A good place to start a search is at the U.S. Forum for Sustainable and Responsible Investment where investors can find no-load funds that might correspond with causes they hold dear. Investors can also consult with their wealth manager who can match them with funds that meet with their social and monetary concern.
2. Diversify Funds
A common mistake that many investors make when investing in sustainable funds is concentrating the bulk of their portfolio in a specific industry to ensure that all of their investments go towards companies that share their social vision. The problem with concentrating all of the funds in one group is that if that group experiences some ups and downs the investor could end up losing much of the investment. Make sure that the funds are diverse and spread out over some higher risk, and conservative funds. This will help create a solid core for an investor's portfolio and provide some stability and means to continue to build wealth.
3. When Choosing, Consider Fund Performance as Well as its Sustainability
The next step towards sustainable investing is deciding which funds to build a portfolio with. Those new to sustainable investing may primarily put their focus on companies whose social performance and social cause is what resonates with them. While an important part of sustainable investing is choosing funds where investors feel their money will do good for society, they also need to make sure that their portfolio is designed to grow their money and provide them with the wealth they need to be able to retire in comfort. To help choose funds that work well as investments, first look at funds that perform well, including ESG funds, and from that list choose ones that fit with your desired social goals.
4. Regularly Monitor Fund Performance
A vital step in sustainable investing is making sure the funds are performing up to expectations. Make sure that all the work that went into selecting the right funds does not go to waste by failing to properly monitor the fund activity. This will help the investor determine which funds are worth owning and which ones may be better to trade out for new ones. Set a monitoring schedule with monthly or quarterly reviews. If working with a financial advisor, they will be able to provide regular reports on how funds are performing and provide advice on steps that might be beneficial.
5. Make Adjustments to Align With End Goals
Helping to promote social change by investing in companies that have similar social goals as you do is crucial to sustainable investing. Yet, it is also important to remember that sustainable investing is still about investing and the end goal is to provide the money needed to enjoy retirement. If an investor feels that their money is not performing up to their desired goals, then it may be time to switch funds up. The good news is, there are plenty of sustainable funds to invest in, so finding another good cause should not be difficult.
Investors don't need to be experts to be able to embark on the path of sustainable investing. With a wide range of funds to choose from, sustainable investing is easier than ever for those new to investing or even those more seasoned.
Erickson Braund is the Founder and Chief Financial Officer at Black Walnut Wealth Management. He is a Certified Financial Planner®️ professional and a Chartered Retirement Planning Counselor®️. Eric brings over 20 years of experience working with high net-worth individuals and families, helping them achieve their goals of protecting and growing their wealth for retirement and for generations to come. Because Eric is a CFP®️ professional, he adheres to high ethical standards and engages in at least 30 hours of approved continuing education in the financial industry each year.