Hey, whether you want to make the world a better place or just grow your portfolio, socially responsible investing is a good way to pursue your goals and it’s getting HUGE!
I have no doubt in my mind that 2020 will go down as a “social activism year.” With every challenge, people are rising to the occasion and opening their eyes to what they can do to create a change they want to see.
And the economic realm is no different. So it’s no surprise that socially responsible investing (SRI) is popping up in everyone’s mind.
Today we’ll cover:
- What is socially responsible investing?
- Why everyone (including me) has an interest in this
- 5 reasons socially responsible investing is growing like crazy
- Why it makes sense for you to get in on the boom
What is Socially Responsible Investing?
Socially responsible investing (SRI) generally means you’re only investing in companies with a cause. The cause can be poverty, diversity, environment, and or tons of other stuff but your investments will weigh in “feel-good” factors alongside financial gain.
Different companies and funds are “socially responsible” to varying degrees, and they have come up with a pile of names and acronyms to go with it (ESG, SRI, and impact investing). But you get to choose what matters to you and how extreme you want to be. The one thing they do have in common is some focus on growth and some extreme growth to go with it.
Why people are really into Socially Responsible Investing
There are a lot of reasons why people want to care about a cause. Poverty, their neighbours, the environment, animals. Whatever.
- It feels morally upright
- You get warm fuzzies inside
- Jesus says it’s good.
- Other religions say they are good
- Or in my case, Arnie told me to Give back. (seriously it’s part of Arnie’s process)
Whatever it is, here we are all trying to grow our money and with a lot of money we can really make an impact. This could look many different ways:
- Giving to charity
- Private equity to world benefiting start-ups or even interest-free loans (through something like Kiva)
- Volunteering and mentoring
- Starting something charitable myself
- And of course, socially responsible investing.
And while diving into the research on socially responsible investing, I’ve come to learn that doing good for the world can be good for my portfolio too.
In fact if I were a betting man (which I’m not) I think it’s growing so quickly that just being on its rising edge could mean huge returns.
But let me explain why SRI is going so crazy.
5 reasons to socially responsible investing is getting huge
1 – Super momentum!
If you’re thinking that this is just a fad that will go away soon, I wouldn’t be so sure.
In less than ten years, socially responsible investing has almost tripled globally! And SRI growth in the US appears to be accelerating year after year. In fact, many countries have an excess of fifty percent of their assets involved in SRI initiatives. Look at all these crazy charts!
How does that impact you?
An interesting side-effect to trends is that their popularity alone tends to increase their value. (Remember ___ cryptocurrency used to be worth nothing?)
The fact that socially responsible investing keeps experiencing such a huge cash injection will only make the companies they represent grow more – thereby helping to ensure their growth and success.
The SRI trend has been rapidly growing for nearly a decade and it doesn’t seem to be stopping soon.
2 – There’s no financial downside
I’ll come straight out and say it (for the gazillionth time.) I’m a huge fan of index funds (like S&P 500 ETFs) and treat them as the gold standard of stock market performance. Whether you’re seasoned or entry-level, index funding investing is usually the way to go.
I have to mention that there are other studies that conclude that there are, in fact, some minor losses but they’re not huge.
It makes some sense. You limit the market you can invest in, which should lower your gains. But those companies attract more investors and likely get sued/regulated less often. After, that most of these funds are just back to being index funds (with only approved socially responsible holdings).
Even the fees are trivially different!
To be honest, I was blown away by how negligible the consequences were! But that’s exciting!
If you’re already interested in socially responsible investing, you have little to lose by jumping in.
3 – Millennials and Gen Z is pushing the trend even harder
Ahh, millennials. Society’s most hated generation…until people meet Gen Z!
“Young people,” as they call us, have always been known for bending political and social trends, and we definitely tend to lean toward a more progressive stance when it comes to economics. Both millennials and Gen Z are more willing to spend more money on products that are socially responsible, sustainable, or fair trade.
So it’s no surprise where the investment trend is headed.
Right now millennials hold just 3% of total US investments, and they’re already pushing the SRI agenda. You can sure assume that as their portfolios grow and take market share, the demand for socially responsible investing will only go up.
The demand for SRI is already strong among millennials and Gen Z, and they’re only getting started in investing.
4 – Fund manager approved too!
I’m not usually a fan of “fund managers” but I’m not about to go against the grain when they’re on to something.
According to research by KPMG, almost all fund managers expect to fill an increasing demand in socially responsible investing (referred to ESG in images below for environmental, social justice, and corporate governance.)
And it’s not just about feeling warm and fuzzy on the inside. Fund managers care about things like risk metrics and SRI tend to reduce risk (I assume it’s due to decreased lawsuits).
You may support it because it’s a passion, but people with a passion for nothing but money have their eyes on SRIs too.
5 – Warm & fuzzy feelings are worth something too!
You know that nagging feeling in the back of your head that you should be contributing more to the universe. That you were meant to help people?
Well, you can pop those thoughts once-and-for-all by just pushing your money into socially responsible investments. Even payday loan lenders have seen the light and are getting socially responsible.
Then you can redirect that brain-power into what matters now. How to get a raise and what makes for better naps? Hammocks vs beds.
Imagine how it would feel to know your investment portfolio is also providing clean water to people who need it, while you sit on your butt.
For the most part, growing your wealth is more about numbers and less about feelings but it seems like it is possible to have both.
New businesses know that to stand out and experience rapid growth, they have to be socially and environmentally responsible and that’s because people are speaking with their money.
I’m not saying you should give all your money away to charity or lend it interest-free to a passion project. However, if you have that nagging “give more” feeling to satiate or you just want to do more with your money, SRI seems like it might solve your needs.
It’s good to give back, especially if you are always thinking about it!
What is my SRI plan?
I admit haven’t moved any of my money into SRIs yet but I plan to.
I do think it’s a good move, maybe even an index beating one and I also want to help the world.
But my first act of charity is going to be to buy an apartment building so that I can teach you guys about the highs and lows from first-hand experience. So I’ll be cashing out most of my liquid investments soon for that, thus I won’t alter my current course yet.
After that, I think I’ll go all-in on being more charitable with SRIs.
TL;DR – Socially Responsible Investing
Socially responsible investing is here to stay and it makes sense to rise with the tide because:
- SRI’s popularity is already growing like crazy world-wide
- There’s no significant downside compared to index funds (the gold standard of stock market investing)
- Millennials and Gen Z – are pushing the trend upwards
- Fund managers back SRIs for risk-aversion purposes and are planning for a significant increase in demand
- It’s good to invest in causes you care about