Assuming that you have decided to make values-driven investing part of your investment process, how do you actually do it? There are four main methods that we’ll discuss here. 1. Do it yourself. 2. Use funds. 3. Use a separately managed account. 4. Use a combination of all three.
You can certainly purchase, or not, their individual stocks and bonds. Your decisions will increase or decrease the price, therefore raising or lowering the cost of capital for the business/government. (This will lower investor returns) This method gives you the most control because you can choose, or not, each individual company. Unfortunately, it does come with the added burden of researching and choosing the investments as well as monitoring all the securities over time. This can be a burdensome task.
Additionally, unless you are VERY wealthy, you will not have enough money to significantly impact their behavior by influencing the stock price. You just don’t have enough capital to push the price up or down enough.
Another alternative is to use a values-focused fund such as an ETF or mutual fund. While you won’t have as much control, you and all your like-minded investment partners will speak with a much louder voice. Why? Because you are pooling your money now, you can move the price. You can also use the media to shame and otherwise influence the investees into acting right. The fund will also monitor the investment potential as well as the ethical behavior of your portfolio. This method gives you the least control, but the most impact.
A third choice is to use a separately managed account where you can set the specific tone for the values decisions question (No on abortion but yes on energy security, family values, 2nd Amendment, and border security, for example) and have the ability to specifically exclude certain companies/countries from your portfolio. This option may give you the best of both worlds because you can participate in the larger values-based initiatives (Larger voice, PR, etc.) of the firm you are working with, yet have much of the control you would have choosing or boosting specific companies or governments. It’s the middle path.
Finally, you can blend the three in a way that lets you have the best chance for your desired outcome. If you have no time or expertise, forget doing it yourself. You may even want to delegate it all to a fund rather than a customized separate account. If you have some time and expertise you may want a small account you invest yourself combined with some funds and/or a separate account. You can customize these three methods to your preferences, wealth, and abilities.
In summary, the four approaches are, do it yourself, use a fund company, use a separately managed account with specific client input, or use all three. Using all three is going to make more sense for wealthier households.
Don’t wait, get started matching your values to your investments today!
