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#6 Social Values Investing: Let Your Money Talk Thumbnail

#6 Social Values Investing: Let Your Money Talk

Emily and Amanda discuss the use of your social values when it comes to your investments. With the advent of new investment products over the past several years, it's become easier than ever to align your money with your values.

Interested in social values investing? Take a survey on your values so we know where you fall.

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Emily Agosto (00:08):

Welcome to Connecting the Dollars, a personal finance podcast. I'm Emily Agosto, a CPA and financial advisor.

Amanda Vaught (00:16):

And I'm Amanda Vaught attorney and financial advisor, both Emily and I are co-owners at Propel Financial Advisors.

Emily Agosto (00:25):

Propel Financial Advisors is an investment management and financial planning company. We are fee only fiduciaries and independent registered investment advisors. I'm based in Chicago and Amanda is in New York city, but we work with clients nationwide.

Amanda Vaught (00:40):

The purpose of our podcast is to explore personal finance topics, including budgeting, investing, behavioral finance, current events, and other helpful information. We also hope you'll get to know us along the way.

Emily Agosto (00:54):

Thanks for listening.

Amanda Vaught (00:59):

Hey Emily.

Emily Agosto (01:00):

Hey Amanda. How are you?

Amanda Vaught (01:02):

I'm doing great. I'm excited to talk about our topic today. It's one of my favorites.

Emily Agosto (01:08):

Yeah. So today's topic is a bit more in the investing side of things, and it's a really popular topic that we've been talking to a lot of clients about lately, or they've been asking a lot of questions.

Amanda Vaught (01:19):

Yeah. And that's social values investing, which can encompass all different kinds of things. So hopefully today we can break it down a little bit for people who are interested in learning more about it.

Emily Agosto (01:34):

Yeah. So I guess let's start very basically, because this is still somewhat a new area of investing, but more what is social values investing?

Amanda Vaught (01:45):

So I think in general, I think of social values investing is just aligning your values with your investments. So I think similar to the old school way of doing it would be to put your money in the stock market or bond market, whatever it may be, your investment portfolio. And then the goal was to just make as much money as possible. And then if you had some social value, say, um, a charitable organization, you liked, you would just take your money out of, out of your portfolio and you'd donate the money. In more modern times, you're more able to choose investments that align with those social values from the beginning. So for example, if you were an environmental, uh, anti-oil/fossil fuels type of person, you just had to suck it up and invest what you could in the stock market, and then just donate to your favorite green organization. But now you have the option to actually invest in line with those environmental values that you hold.

Emily Agosto (02:57):

So it's really only like the past few years that this has become a lot more accessible to clients or to just the general public, or has it been a lot around, a lot longer?

Amanda Vaught (03:09):

Well, the, the history of social values investing goes back to mostly to religious groups, like the Quakers who wouldn't invest money in companies that use enslaved peoples. So, um, that's just like an early form of social values investing. It's really, you know, putting your money where your values are. Um, and it's evolved since then. I mean, earlier in the 20th century, you could do things like exclude tobacco from your investments or firearms, or, um, it was more limited to religious values. Mm-hmm  or types of things you could find, but, um, you didn't have a lot of choices out there in terms of aligning your, your values with your investments, but in the past, I don't know, 10 years or so, but really in the past, like three years, it's really blown up with a lot more, uh, investment products on the market that you can choose from.

Emily Agosto (04:13):

Yeah. Looks like there's tons and tons of choices now. So how do you start to narrow down more? What is a good fund or maybe what the individual investors should be looking at?

Amanda Vaught (04:26):

Well, I say, um, there's two things we wanna look at. One is, you know, your own values and then also the best approach to take for you. So, um, if we just look at different approaches, there's three general categories or approaches to social values investing. So the first one is divesting. So that's, um, something that is usually a moral thing for people say morally, I cannot invest in a company that uses enslaved people. So I'm not gonna give them my money. That's divesting. If you don't want to make money off the oil and gas industry, you would pull all your money out of those types of stocks. Mm-hmm  um, the campaign in South Af--, rather against Apartheid in South Africa that was divesting taking your money of South Africa and using that as a way to sort of force a social change or a social value that you believe in. The thing with divesting,

Amanda Vaught (05:30):

I just wanna point out, is that these don't have impacts on the companies that you might think, because if you're buying a stock in a stock market, there's gonna be another customer who can come along and just buy that stock. So what that means is that the company doesn't really feel the pain from you divesting from it mm-hmm  mm-hmm . So if you're looking to have some kind of impact or some kind of change in the way, things work divesting is not necessarily the most effective way to get those companies to change. Okay. Um, so that's why I say divesting is, is a moral question. You know, can you sleep at night if you make money off of this activity? Yes or no. Um, it's not a way to invest to make money. Got it. So another approach for social values investing is what I is generally called impact investing.

Amanda Vaught (06:31):

So that would be investing in something that you believe in. So for example, if you believe that women should be in prominent positions within a company, then you're gonna put your money towards companies that have, you know, a lot of women on their board of directors, for example, or if you believe that we should have more green energy sources, you're gonna put your money towards green energy technology or that type of thing. Um, and so impact investing used to be more available for people with large sums of money, not like a regular everyday person, but I'm talking like millions of dollars where you can to invest it in a, say a certain company that's working on a certain technology that's going to help society. You already

Emily Agosto (07:26):

Diversified otherwise. And you're able to use a certain portion of your portfolio for this particular type of investing. Got it. Yeah.

Amanda Vaught (07:35):

Yeah. So, um, it would be a way, you know, for somebody who maybe used to give a lot of money to charity could say, I'm gonna give this large sum of money to help advance this organization or this cause like mm-hmm, , you know, uh, vaccine for malaria or right. You know, that takes like a huge sum of money to, to overcome that, that social problem. So tho those types of initiatives, weren't always available to regular people, but, but we, we're seeing more and more of them become available for people to put their money into those types of funds. And then typically on, on impact type investing, you can expect some returns, but it's generally not as big as, you know, a typical equity stock market return. OK. So I think of it sort of like as a hybrid between investing and charitable giving,

Emily Agosto (08:34):

That's a good way to think about it.

Amanda Vaught (08:35):

Yeah. And then, uh, a third category of, of social values investing is ESG. Um, so ESG are factors where the E is for environment S is for social and G is for governance. And these factors are generally investment factors that you take into consideration when you're deciding whether or not to invest in a certain company, you know, what does their environmental record look like? What does their social record look like? And what does the governance of the company look like? And the theory is that these factors are going to impact the long term performance of a company. So if say the company has good governance and they take care of their employees and they pay them well and give them good benefits, then the company will say, have low employee turnover. And they'll have happier employees who produce a better product, which then is better for the company, long term, that type of thing.

Emily Agosto (09:44):

And I've heard, or I've seen that certain companies will have like an ESG score and that will help you determine which companies are higher in these factors than their competitors potentially

Amanda Vaught (09:57):

Mm-hmm  yeah. The, the ESG scores you can find that are done by, um, MSCI is a big one, um, Morningstar more and more places are, are giving ESG scores to companies. These can be a good guideline to use if this is something you're interested in you all, but you just need to keep your eye out for, because these are subjective numbers. These are numbers decided by some other company, like what Morningstar thinks is a good ESG factor. But, but one example, you know, as if say you're somebody who cares about labor or unions, and Amazon has been in the news recently for having issues with union labor and its factories. But if then if you look at the Amazon's ESG score, it's pretty good. And you could say, oh, well, why is their ESG score so good if they're, you know, not good with the unions? So it's really, it I'd say it's something that you can use as a guide, but maybe don't use it as like the end all be all. Okay.

Emily Agosto (11:05):

That's good to know, too.

Amanda Vaught (11:06):

Which leads us into what I would say is the next step of like, where to start, if you're interested in this is to identify your values and what's to important to you, if it is labor issues, like I just mentioned, you know, that would trump, you know, some other factor that could be good for Amazon. Do you know what I mean? Mm-hmm  or, you know, can you say I really value environmental causes, but I also really value having a healthy, your retirement fund, you know, can I have both of those, which what's really important to me when the rubber meets the road. Can I still sleep at night if I have money in the oil and gas industry, right. And then, and then go from there and, you know, for some people, the answer is yes. And for some people, the answer is no. Um, mm-hmm, , I'm not trying to tell people they should do one or the other, you know, I would just say that if you are looking for, you know, social change, really in the oil and gas area, that one of the more effective ways for that is to do it through an ESG type approach rather than divesting, because once you're a shareholder of a company, you have more say in what goes on in that company, right.

Emily Agosto (12:23):

Are you sacrificing returns for investing in these specific types of industries?

Amanda Vaught (12:29):

I think it, it really depends. I think there's a big myth it's out there that you're sacrificing returns by doing social values investing. And that myth doesn't really hold up. Once you look at the numbers, especially, um, ESG investing, there's a lot of studies that show you actually get better returns by using these ESG factors in your portfolio.

Emily Agosto (12:53):

Yeah. I'm assuming that, well, I guess I shouldn't assume, but it seems like this now then since there's so many more funds to invest in, um, maybe that was a myth that came about because there were only so many funds prior and maybe they weren't doing as well years ago, but yeah, very true.

Amanda Vaught (13:10):

Very true. Um, I do think there was a, at one point I ran some numbers. You could buy a vice fund. Right. And so the vice fund was all the cigarettes and alcohol and guns. And I mean, that fund was beating the stock market, like crazy  and so, oh gosh. Um, or, but at the same time, if you looked at another fund, that's like the Ave Maria, one of their big funds that has been around for more than 20 years, that's a social values fund. And that has beaten the stock market for more than 20 years. So it goes both ways. I would say, that's why I say, start with your values. What, what is important to you really think about is the return really what I want and that's for a lot of people, the answer is, yes, that's all I want. Mm-hmm  um, and I'll just deal with it on the charitable end. Like I said, at the beginning of the episode, that's how a lot of people approach it. But for other people, they just, they want their money aligned better with their values and they have have more and more choices in order to do so. And it's something that you can take advantage of. Yeah.

Emily Agosto (14:22):

So if I'm interested in investing in a specific, a specific social value, let's say green energy, where's somewhere that I can find good sources of research for these types of funds.

Amanda Vaught (14:34):

Well, I would say your best source is your financial advisor. If, if you have one or if you're, you know, a client of ours, just talk to us and we will help you guide you to see what kind of funds that could be good for you and your personal values, if you are not using us. And you say, you wanna try to figure this out on your own. I mean, just, you could just start with Google, you know, um, just Google best, you know, energy funds and see what you get. And then don't go with just the first thing you see, you know, there is, especially because a lot of money has been flowing into these type of social values, investing. There's a lot more of these funds and ETFs on the market that you can buy mm-hmm  and some are labeled as green or ESG, when really it would benefit you to really look under the hood of those. And when it, they advise you to read the prospectus before you buy an investment, actually go look at the prospectus and see what they're really doing and see if it really is what you think it is. Yeah.

Emily Agosto (15:41):

That's super important. Especially if that is your main goal, you wanna make sure that they're actually doing what they say they are. Mm-hmm .

Amanda Vaught (15:50):

Yeah. And yeah. And I don't think if you are going to start pursuing this, this isn't something that you have to do overnight. Right? You can just start small change one thing at a time and sort of gradually phase into it as you get more comfortable.

Emily Agosto (16:04):

Well, I think that was really helpful. I definitely learned some things

Amanda Vaught (16:08):

And, oh, good. I'm trying to think if there was something that I didn't cover. I mean, the whole topic is so vague and there's so many different aspects to it, depending on really what your values are, you know, so it's hard to cover everything, um, and different issues that can come up with different things. But I just think it's important for people to know that there are a lot of options that out there. And then I would just say also for people's 401ks, a lot of people use their 401k as their main retirement savings vehicle. And more 401ks are starting to offer ESG funds or social values, investing funds, but a lot of them do not. And if yours does not, and you're interested in this type of thing, you can just email your HR or call them, whatever's appropriate, and request it. Yeah. That's, that's how these things change and

Emily Agosto (17:05):

Yeah, really good point there. Yeah. If anyone has any questions on this topic, feel free to send them over to Amanda via connectingthedollars@propel-fa.com. And I think we have a blog post, or also a webinar that we can link in our show notes where Amanda talks more about this subject.

Amanda Vaught (17:25):

So I do, I wrote a few blog posts about it. I did a webinar last year and I wanna do another webinar. I was thinking maybe for Earth Day, this year in the spring.

Emily Agosto (17:36):

Spring. No, that's a good idea. Well, thanks, Amanda. We'll talk to you next time. Okay.

Amanda Vaught (17:43):


Amanda Vaught (17:49):

During this episode, I mentioned a couple of funds that had good performance over the past several years. I just wanted to point out that these mentions of these funds are not recommendations and that past performance is no guarantee of future results. Thank you.

Emily Agosto (18:05):

For all links and resources mentioned today, head over to connectingthedollars.com.

Amanda Vaught (18:10):

Thank you for listening. This podcast is for informational and entertainment purposes only, and should not be relied upon as a basis for investment decisions. This podcast does not engage in rendering legal, financial, or other professional services.