As the markets go through their ups and downs this quarter, this may be a good time to see how sustainable your portfolio looks. Risk management becomes prudent at this point and adding an ESG (Environmental, Social and Governance) screen to your IRA or 401k is an added step to screen for outside risks. It is well known that companies addressing issues like energy efficiency and diversity are starting to seperate from their peers. Below is a list of ways that you could feel a bit better when reading your most recent brokerage statement.
- Switch to SRI or ESG mutual funds and ETFs
There are now hundreds of mutual funds and ETFs that now do the sustainability screening for you. If you want a “low carbon” ETF, there is an iShares offering. If you would like more gender diversity in your portfolio, SPDR has you covered. The list goes on and on. Don’t think you have to stay in your Vanguard or American Funds because that is what you’re Dad or the advisor who dresses fancy at the coffee shop told you. The options are all over and they exist in every asset class. You want dividend paying stocks that are sustainability screened. Done. Value-play. Covered. Don’t be told there aren’t enough options. There are many.
- Demand your HR person to have more SRI options in your 401k or 403b
Do you stare at your 401k plan paperwork and end up just picking a fund because it sounds cool? Well, that’s not cool. Part of your Human Resources director’s job is to find a 401k plan that fits it’s employees. Send them an email asking if there are any Sustainable Fund or ETF options and if not, could we please add some. You may be surprised how easy this really is for them to fix. If they say we can’t do that, grab other eco-minded employees and ask again. Then grab a few-more and ask again. It works.
- Get rid of Grandmom’s Exxon stock
Ok, so you were lucky enough to inherit Grandma Nana’s old Exxon stock she has had since the 50s. And good job Nana on picking the stock when oil was the hip thing to invest in. Exxon is actually one of the worst performing stocks over the last few years. In fact the energy sector has been the worst performing sector in 2017, 2018 AND 2019! Wowsers. It’s time to realize that Nana would be totally fine with you divesting of that stock and reallocating into a world where her great grandchildren can still breathe. Yes, there may be tax-consequences, but it’s always better to have to pay tax on capital gains, then to not have gains at all. Has anyone seen the revenues of Chevron over the last 5 years? It’s not pretty. The dirty fuel’s sector weighting in the S&P 500 has dwindled from more than 12% at the end of 2011 to 3.9% in 2019. Get out while you still can.
- Work with an advisor who gets it (ahem…us) and don’t just stay because they are so nice
If you aren’t going to do it yourself, OR if you rely on your Dad’s old Fidelity stockbroker switch to an independent fee-only sustainably focused investment advisor who charges an annual management fee of less than 1%. Yes, that sounded like a plug for Sustainvest, sorry but we just took on a new client who was paying 1.50%! Unreal. In all honesty, most people have busy lives and careers and the thought of staring at their Schwab or Fidelity account without much know-how or care doesn’t sound fun. Hence why many investors see the value in paying an advisor to do it for them and do it in line with investors’ risk profile and timelines. Yes, paying a small percentage in my opinion is WAY worth it compared to just sitting there leaving one to sweat at night how they are allocated.
Stay away from those firms out there who are doing SRI or sustainable investing as “part” of what they do. It’s like saying we are an organic coffee company, but only part of our coffee we are serving you is actually organic. Don’t be swayed by the Morgan’s and Merrill’s who say they are committed to SRI. They aren’t. Sorry, it’s true.
- The board you sit on has a fiduciary duty.
If you sit on a board or a finance committee or are part of a family foundation, you may want to listen. As an elected member, you may have a duty to pay attention to how an endowment is invested. Have you checked off the “ESG/Sustainable Screen” on your investments? If not, this may want to be reviewed as one would have to believe that if this is not being done, then there may be a slight breach of fiduciary duty. In other words, if you haven’t checked to see if what % of the endowment is invested in dirty coal or big oil or tobacco companies, you may want to call your advisor and ask them and then make a note of this. A big grantor may want this information and if you can’t come up with it, then they may take their money elsewhere.
We hope this gives you some added confidence as we enter a bumpy and interesting 2020. Regardless of market movements and political situations, we are all human and really this should be a no-brainer as we all breathe the same air and where your money goes has a lot do with what the future may look like.
If you are interested in a free consultation to see how sustainable your current portfolio is, feel free to reach us at firstname.lastname@example.org
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