Forbes: Adding Values To Portfolios Can Make Investing More Engaging
When it comes to spending, consumers prefer good memories over goods and services. In fact, 76% of consumers would rather spend their money on experiences over material things, according to a recent survey of over 3,200 consumers.
But when it comes to saving and investing money, people are still seeking ways to make the process feel less transactional, mundane and opaque. Investors want to know what they own and feel more connected with what their dollars are doing in the world when they invest in their 401(k) or brokerage accounts.
In the last decade, the investing industry created more engaging and exciting experiences by gamifying short-term investing, with digital trading apps like Robinhood leading the charge. Unfortunately, the focus of the experience was to drive suboptimal investing behavior, often to the detriment of the investor. And it remained transactional in nature.
Instead, investors are now increasingly incorporating personal values into investing to create a deeper experience while aligning with positive financial outcomes. And there’s no question about its momentum and popularity, not only among Millennials and Gen-Z but across all age groups. When asked, more than 80% of investors aged 40 and older are interested in aligning their investment portfolios with their values. For people between the ages of 24 and 30, it’s over 90%.
When investors align investments with values, they convert deeply held beliefs into tangible and measurable actions by funding–or defunding–company behaviors related to the earth, people and overall corporate integrity. This approach transforms investing from a binary process built around risk tolerance, time horizons and desired returns to a multidimensional and more engaging experience that incorporates values and beliefs alongside those traditional factors. The result is an investment portfolio that delivers a deeper connection to our dollars–all while seeking to reach financial goals.
In fact, good financial returns are known to accompany values-aligned investments. According to Morningstar, sustainable equity funds significantly outperformed relative to their traditional fund peers in 2020. Three out of four placed in their category's top half, and far more sustainable funds ranked in the top quartile (42%) than in the bottom quartile (6%). Investing alongside values doesn’t inherently come at the expense of good returns, especially given that more ethical corporate behavior, in theory, lowers their risk for controversy and costs that might hurt returns.
Many investors rely on financial advisors to help with investment decisions, so the right advisor can not only deliver the right investment solutions, but the experience of those investments, through deeper assessments of investor priorities as well as customized portfolio analytics and reporting that go beyond typical metrics.
For example, advisors can use technology to visually show clients where their money is invested today and what effect those dollars might have by empowering certain kinds of corporate behavior. They might also show the more tangible effects of moving money into a more values-aligned portfolio, with metrics like carbon footprint reduction, for example. An investor may also be able to view specific details about companies in a portfolio, and how each company’s behavior might present risks or opportunities to the investor.
Beyond putting money into investment portfolios, there are many ways to achieve the fulfilling experience of values-aligned investing. For example, with a donor-advised fund (DAF), investors can create an account managed by a third party, where cash or assets can be given to charities over time. And investors can claim a tax deduction each year they contribute to the DAF.
As it gets easier and more interesting to better align values in portfolios, it’s clearly just the beginning for investors looking for a better and more engaging investing experience.
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