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Money Talks | Feb. 12, 2015

Progressive Investments: How to Increase Value with Your Values

By Melissa Myers and Michael J. Tucker, Feb. 12, 2015

99671872Melissa Myers: Helping people decide how to best invest their assets has always been one of my roles as a financial planner, and I’ve noticed an increasing interest by folks attempting to align their personal values with their investment strategy.

Michael J. Tucker: Do you mean they want to invest in progressive companies?

Myers: Yes. In general, they want to invest in companies that don’t pollute, that have transparency in governance or companies that don’t make harmful products like weapons or tobacco.

Tucker: Some companies pride themselves on workforce diversity or an active and positive presence in communities. This type of corporate behavior is not only competitive in terms of hiring, but it also matters to some investors.

Myers: There’s some good news for investors with this focus.

Tucker: Why’s that?

Myers: Because, as the demand for investment products screening for these issues has increased, the options have expanded as well.

Tucker: According to the 2014 report from the US Forum for Sustainable and Responsible Investment (US SIF), one out of every six dollars under professional management in the United States – $6.57 trillion – was invested according to an investment discipline that considers environmental, social and corporate governance (ESG) criteria to generate long-term competitive financial returns and positive societal impact.

Myers: Exactly, one in six dollars! Now, there are several motivations for this approach to investing.

Tucker: For one thing, the investor’s personal values and goals.

Myers: Yes, but it can also be motivated by an institutional mission. Let’s say a state’s retirement plan is governed by a policy that its assets be invested only in companies that, along with strong financial performance, can demonstrate that they contribute to advancements in social, environmental and governance practices. Missions like this governed the retirement plan investment objectives of many universities, foundations, nonprofit organizations and religious institutions.

Tucker: Some individual and institutional investors are motivated to utilize an ESG strategy because they believe the returns will be better in the long run. It may not be so much about the values as it is about the return.

Myers: What a concept. There is a growing body of academic research that shows a strong link between ESG and financial performance. Imagine that, “doing good” might help lead to positive financial performance.

Tucker: How does an individual invest with a social conscience, Melissa? What tools are available to the ordinary investor?

Myers: Mutual funds, one of the most dynamic segments within the ESG investing space, are an investment vehicle made up of contributions from many investors for the purpose of investing in securities such as stocks, bonds, money market instruments and similar assets. These are also operated by money managers who invest the fund’s capital and attempt to produce capital gains and income for the investors.

Tucker: The money manager of an ESG fund will decide which companies meet the criteria of the fund and which ones don’t. The investor relies on the fund manager to screen the holdings within the fund.

Myers: According to US SIF, the number of ESG mutual funds has grown from 333 to 456 in the last couple years, and their collective assets have increased from $641 billion to $1.93 trillion, an increase of more than 200 percent.

Tucker: More and more employer retirement plans, such as 401(k) plans, now offer at least one choice in this category.

Myers: It is important for an investor to clearly understand the objectives of the fund and make sure it is a good match in terms of risk as well. Always read the prospectus and seek professional advice when choosing any investment.

This material has been provided for general informational purposes only and does not constitute either tax or legal advice. Investors should consult a tax or legal professional regarding their individual situation. Neither Camelback nor Commonwealth offers tax or legal advice.


BIO_MMyersMTucker_WEB

This material has been provided for general informational purposes only and does not constitute either tax or legal advice. Investors should consult a tax or legal professional regarding their individual situation. Neither Camelback nor Commonwealth offers tax or legal advice.