We talk a lot at She Spends about spending money in ways that align with our values. From values-based budgeting to making time for volunteer work, we know our readers care about the world around them.
There may be a blind spot, though, where your finances don’t align with your values -- to no fault of your own. Your investment accounts, like a 401(k), may profit off private prisons or fracking. Rather than shrugging it off, millennials are increasingly moving toward socially responsible investments or ESG (environmental, social and governance) investing.
Here’s how it works: You put your money into an index fund or individual investment that not only will give you a financial return but will also do some good for the universe. This can include things like investments targeting climate change solutions like green bonds, or it can mean avoiding certain investments, like companies that make guns.
Initially, ESG investing was seen by many as something that sounded nice but didn’t garner the returns other types of investments did. That has changed in recent years, as returns on these investments are starting to achieve parity with traditional investments.
There are tons of ways to invest in socially responsible funds. Betterment, for instance, has a Socially Responsible Investing Platform, where you can invest in a portfolio of U.S. large-cap stocks (read: major companies based in the United States). It’s important to note that this portfolio isn’t incredibly diversified, as it only includes large companies. However, it could be a good place to put at least some of your money.
Beyond that, Stash, an investing app, offers an index investment called “Do the Right Thing,” which allows investors to park some cash in companies that “make positive impacts on society and the environment.” The index Stash invests your cash in is actually iShares MSCI USA ESG Select Fund, which includes large and mid-size companies. It excludes any tobacco companies and has returned roughly 17% this year. This is compared to the S&P 500, a benchmark for stock performance, which rose 16% during that same time period.
WealthSimple, a robo-advisor that operates in a similar manner to Betterment, also has socially responsible offerings. WealthSimple’s ESG offerings are some of the most diversified, as the firm offers six different indexes for its investors. These include municipal bonds (aka local debt, used to grow small communities), mortgage-backed securities for affordable housing and global stocks with a low carbon footprint.
One more option is Ellevest, which is sort of a unique pick for socially responsible investing. The firm is dedicated to investing on behalf of women and focuses on women’s specific needs for retirement and other milestones in life. While Ellevest doesn’t offer a specific ESG index, it is a woman-owned and operated company, which we know is important to our readers. Female portfolio managers are a rarity in finance, so putting your cash toward a firm focused on women is a unique way to get at that ESG angle.
- Alicia McElhaney / She Spends Issue #28