Millennials putting their money where their morals are

Millennials have lived through the longest war in United States history, as well as the worst recession since the Great Depression. Coming of age amid such trying, tragic times, millennials are motivated differently than other generations. This unlucky generation wants to feel like they are a part of something that is making a difference — for the common good, for happiness, for hopefulness, for un-unluckiness — in the world. So, with a cohort so acutely concerned with how they are impacting the world, how does that impact their advisers and their investment choices?

Setting principled parameters

There are many factors that a financial adviser considers when building a portfolio and financial plan for his or her client. Some of these constraints are: time horizon, liquidity, legal and regulatory factors, tax concerns and the client’s unique circumstances. Under this last guideline, it is common for clients, especially millennials, to give their financial adviser parameters for what they feel comfortable investing in or what they don’t.

Socially Responsible Investing (SRI) is essentially an investing strategy that considers environmental, social and corporate governance (ESG) criteria to not only create competitive returns but provide positive societal impact. When a client approaches an adviser with highly attuned social or ethical principles, a good financial adviser will be prepared with SRI strategies that satisfy those dictates of conscience.

The evolution of conscientious investing

SRI is not a new concept. However, it has evolved drastically in the last decade. It was common for baby boomers and Generation X’ers to not allow their financial advisers to invest in companies that dealt with alcohol or tobacco — often called “sin” stocks. But with advancements in technology and a new investing generation that has been through the wringer, SRI has really evolved.

Today, SRI is known by many names: “sustainable,” “socially conscious,” “ethical,” “green” or “impact” investing. Investors not only care what products or services a company provides, they also care about the environmental and social impact that company has on the world — where and how it sources its materials, the byproducts of production and its effects upon consumers. Is the company and its products or services tied to poverty? To obesity? To the environment? According to the Forum for Sustainable and Responsible Investment, SRI investing grew 929 percent, a 13.1 percent compounded annual growth rate, between 1995 and 2014. And in the last few years, there has been a significant increase in the U.S. of SRI assets, growing from $3.74 trillion in 2012 to $6.57 trillion in 2014 in the U.S. and $13.3 trillion to $21.4 trillion during the same time period globally. Clearly, millennials and other socially aware investors are putting their money where their morals are.

Good performance not a sure thing

Today there are mutual funds and electronically traded funds (ETFs) that are solely dedicated to socially responsible investing — more than 100 sustainable mutual funds in the United States alone. One of the first was the MSCI KLD 400 Social Index, a capitalization-weighted index of 400 U.S. securities that excludes companies whose products have a negative social or environmental impact. Originally called the Domini 400 Social Index, it was launched in 1990 by stockbroker Amy Domini, who decided to listen to clients’ qualms and compunctions, including one avid birdwatcher who had inherited stock in a paper company that used a chemical in its manufacturing that was harmful to birds. According to MarketWatch.com, as of May of this year, the MSCI KLKD 400 has enjoyed an average annual total return of 10.46 percent compared with the S&P 500’s 9.93 percent!

Despite that, please remember that investing guided by lofty ideals won’t necessarily bring lofty returns. Like any investment, profit in SRI isn’t guaranteed. But for many millennials, it’s not about how much money they’re making, but the difference they hope to make.

Jennifer Pagliara is a financial adviser with CapWealth Advisors, LLC, and a proud member of the millennial generation. Her column, which appears every other Saturday in The Tennessean, speaks to her peers and anyone else that wants to get ahead financially.

Related Article

Provable Integrity®