Value-Based Investing: What You Need to Know

Once again, millennials have managed to shake things up! Over the past decade, millennials have gotten serious about investing. In fact, 8 out of 10 millennials already have at least some money saved for retirement—and that’s a really good thing!¹ But as they invest, millennials and others are asking a serious question: What investments help me build wealth and have a positive social impact?

What Is Value-Based Investing?

You may have heard the terms evironmental, social, and governance (ESG) investing, socially responsible investments (SRIs), or impact investments. These all relate to value-based investing, which is an investment approach that looks at the environmental and social impact of a company’s actions, products and leaders. A growing number of people want to invest their money in companies that have a positive impact on the environment, culture, society and government. They want to make money, but not at the cost of the causes and values they support.

In a 2019 survey, 85% of respondents said they were interested in making investments in companies or funds that aim to achieve financial returns and a positive social or environmental impact.² This is especially the case for younger investors, as 95% of the millennials surveyed said they were interested in this type of investing.³ One thing is clear, investors increasingly want their wealth building to match up with their values.

That demand has led some investment advisors and financial professionals to do more legwork as they dig into corporations’ activities, products and personnel. Then the advisors can recommend companies or investment products that match their investors’ preferences and beliefs. Some investors have zero tolerance for certain activities or products, but they may be more flexible about others.

Some of the common areas of concern for investors include:

• Animal welfare
• Carbon emissions
• Child labor
• Clean technology
• Toxic emissions and waste
• Water stress
• Community relations
• Health and safety of employees
• Diversity
• Nuclear power

Obviously, these are only a few of the things that value-based investors could be concerned about. Because each person is different, the list of possible concerns is endless.

The Pros and Cons of Value-Based Investing

Millennial or not, there are good reasons for socially responsible investing. For one, it ensures that you’re not putting your money toward something you oppose for moral or religious reasons. And that makes sense.

But there are valid questions concerning this approach as well. One problem is the difficulty of measuring a company’s impact—sometimes it’s tough to get accurate information about what a company is or isn’t doing. Another problem is accountability. A company may claim to use clean technology, for example, but who’s in charge of making sure that company follows through on its promise? Because socially responsible investing is so new, there are still lots of kinks to work out.

The good news is that because people are asking questions about corporations’ social impact, multiple companies and fund managers are responding. Many now publish a Corporate Responsibility Report, which is just another $20 phrase that means companies are self-reporting on their efforts to have a positive impact on the environment, social causes and culture overall. You can look online to find these reports for thousands of companies.

Should I Invest This Way?

We can’t tell you whether or not to invest based on your values. That’s your call because they’re your values. But here’s our stance on investing in general: If you don’t understand it, don’t invest in it. If you’re confused about anything, ask questions. Make sure you feel comfortable investing in something before you hand over your money. If you don’t understand how an investment advisor or fund manager chooses companies to invest in, get clarification. It’s your money, so you have the right to know. If your advisor gets frustrated or angry, take your business elsewhere and find another investment pro.

Market chaos, inflation, your future—work with a pro to navigate this stuff.

We recommend investing your hard-earned money in stable, long-term investments that consistently perform well over time. Spread your investments over four classes of mutual funds—growth, growth and income, aggressive growth, and international. If one sector tanks for a while, the funds in the other sectors can help balance things out and keep them moving in the right direction. When you invest, you have to think long term and wait patiently for your portfolio to grow over decades, not overnight.

Find a Financial Advisor

Our last piece of advice is this: Work with a financial advisor, whether you’re just starting out or you’ve been investing for years. Knowing about your investments shouldn’t be an excuse to go solo. 

A financial advisor can help you make confident decisions about your investments so you feel good about your retirement plan. Need help finding a qualified pro? Try our SmartVestor program. With SmartVestor, you can find top-rated financial advisors who understand your goals and can help you make smart investing decisions.

Find your investment pro!