Hello everybody! This is the long-anticipated part 2 of the “money and how the heck” series. Last time, I talked about banks, and how some, aka most, banks actually use their clients’ money to invest in fossil fuels. I also listed some banks that don’t do this and generally tried to provide some tips on how to handle your money more sustainably.
“Eighty percent of the time, the person will say, ‘Yes, I’m interested as long as my return doesn’t get affected by it.’ There’s this persistent myth that you can’t get as good returns with investing for impact.” – Cathy Curtis, CFP®, a member of CNBC’s Digital Financial Advisor Council
Today, we are going to talk about stocks. This is something that I have been interested in for a while, but it took me a long time to actually starting learning about it. Why? Maybe because I never thought I could or maybe because no one ever assumed I would, who is to say. It was never expected of me, and I am not very good with numbers, so it just never clicked. But I think it is incredibly empowering to understand how this works, and use it to support those who create actual good, sustainable change in the world, while actually also making your money work for you, and not the other way around.
But first, a disclaimer: before we get into this, it is important to me that you know that I am not an expert, and I am only here to share my own personal thoughts and choices. I am not a financial advisor, so be sure to talk to actual specialists and professions, instead of solely relying on me. I don’t think I can handle being responsible for that, not in regards to something I only so recently have had a grasp of. Another disclaimer: I am not here to make mad bank, I am not here to become stupid rich, my overall goal is sustaining myself and my future without working myself completely to the bone, and investing can help me create a buffer to do that. So go somewhere else if you’re here to learn how to be the next stock market billionaire, you’ll be seriously disappointed in me and my values in that case, homeslice, this is not the place.
According to a 2018 report by Morningstar on the sustainable fund landscape in the U.S., sustainable funds performed better than the rest of the overall fund space in 2018. The report found that the returns of 63% of sustainable funds ranked in the top half of their respective categories, up from 54% in 2017.
First of all, what are stocks and how do they work?
A stock is a type of investment that represents a small percentage of ownership of a company. When you invest in a company’s stock, you buy a small piece of that company, also called a share.
Stock prices change every day and are constantly affected by the external market forces, and how the company is doing internally. If more people want to buy than sell a stock, the price will go up (demand is higher than supply). And on the other hand, if supply is higher than demand, the stock will fall, because more people are interested in selling than buying.
You can earn money by buying stocks when they are low, and selling them when they are higher in value. But you don’t only earn money from your stocks if you sell them. You can also earn shareholder dividends, which means that you earn a profit from the company’s earnings. These are either paid out to your bank account or paid in the form of additional shares of stock.
There are also bonds. You buy them the same way as stocks, but they work differently. While stocks give you a share in a company, bonds are a loan from you to a company or a government. The biggest difference is how they create profit, because stocks go up in value, thus earning shareholders money, while bonds pay fixed interest over time. This means that stocks come with higher potential profit than bonds, but simultaneously stocks also come with higher risk.
Okay, so how to invest?
There are a couple of different ways to go about it, and depending on what your desired outcome is, how long you are planning on having your money in stock for, or the amount of money you want to invest, some might be better than others. I’ll talk you through the options here, and also tell you the options I’ve chosen for myself.
Choose and buy your own stocks: it’s pretty easy to get started, all you need is an online broker or an investing platform. Stockbrokers are individual companies that you can sign up with, and through them, you can start making your own investments. Furthermore, some banks actually offer these services as well. So logging on to your online bank account can also give you access if your bank offers this service. Then you will be able to see the stock’s value, how much it goes up and down, the cost, and all other information you need. Then you decide how much to buy and your stocks will become visible on your bank account. Pretty cool.
Outsource the work to a third party: there are tons of services and companies that specialize in dealing with stocks as a third party. This might be a good option if you don’t have any experience with dealing with stock and just want to get started. You tell your broker or advisor how much money you want to invest, and how willing you are to take risks. Then a set of experts will deal with your stock on your behalf. They might know tons of tricks on how to make the most of it, and they are more likely to see when it is a good time to invest or pull out than someone who has never done it before. These companies make money by taking a small percentage of your earnings, or by having an annual membership fee, depends on the service.
This is honestly a really great option, and in many aspects, this sounds perfect, also for someone like me without tons of experience. But, and there is a but…
What I Chose:
…you won’t necessarily have a lot of insight into what companies your money will be invested in, and as someone who refuses to invest in any kind of fossil fuel-related company that is a big no-no for me. It is possible to fund advisors and third-party investment guidance that focus on sustainability, there are some US options:
- Aspiration. In addition to electronic banking services, Aspiration provides sustainable individual retirement accounts (IRAs) and professionally managed funds that are 100% fossil-fuel-free.
- Earthfolio. This robo-advisor provides exposure to online ESG portfolios.
- Impact Labs. Impact Labs allows you to choose which causes matter to you, and then it algorithmically builds a personalized index of companies optimized for your preferences as well as for a return.
- Motif. Motif provides a wide variety of algorithmically driven investment products, including ESG products.
- Newday. Newday lets you build a portfolio in minutes that includes companies that are leaders in environmental and social policies. There are no minimums to get started.
- Sustainfolio. Sustainfolio is a technology-based investment platform that enables clients to integrate sustainability into their portfolios digitally.
My bank actually offers an investment service like the one above, but I saw that there was not enough opportunity to specify which types of companies I would like to support and should never see a cent of my money.
This is why I chose the first option. I handle all my own stocks, I invest myself. I would honestly love to outsource this process elsewhere, but I have not seen an option to do so sustainably. So I can’t go through third parties without giving up some seriously important transparency, I am making the best of it and really trying to learn, however. I invest in renewable energy companies, as well as companies that I know from my work do a lot of good, like local production practices, sustainability initiatives, etc. When researching for the video, I have talked to professionals myself and made my decisions with their help. I started by making an appointment at my bank about investing and talked to an advisor for over an hour about the different options, and what the pros and cons are. If you don’t know where to start, booking an appointment with an investment advisor at your bank is really helpful.
How to Invest Sustainably:
There are basically 6 layers of “sustainability” when it comes to investing, and it can be pretty handy to be able to tell them apart, especially if you are working with a broker. Knowing the terms and being able to differentiate between mechanics can make it easier for you to communicate your values and how you want to proceed. These are the layers:
- There are investors who only prioritize profitable financial outcome, sustainability is not a factor here
- There are investors who include what is called “ESG factors” in their analysis, this stands for “environmental, social and governance”, but these factors will not be prioritized if they pose a risk to financial performance.
- Then there are investors who by default exclude polluting and/or controversial industries from their portfolios. This could be both fossil fuel companies as well as tobacco companies, alcohol, weapons, and animal testing companies, pornography. Basically, any kind of *spicy* business can be but in this category.
- Then there is the “best in class” category, in which the investor chooses the company to invest in which is “the most sustainable” in its field or among its competitors. This can be good, but also includes big companies like Amazon, Microsoft, or Inditex (who owns Zara) because they might be a tiny bit better than billion-dollar corporations.
- Then there are investors who only include companies with a positive impact on the planet, for instance by using renewable energy or incorporating sustainable food systems.
- And finally, there is the philanthropic approach where financial performance comes last.
Ideally, if one is investing sustainably, one would rely on 4-6 or even 5-6. Of course, 6 often comes with some finical privilege already, if financial profit is not a priority. But as a mindset, I think that it is good to note to yourself that sustainability is not about overwhelming wealth, or really making a bank, but simply sustaining and assuring our needs. At least that is how I see it.
Diversify your investments
When looking to invest sustainably it is easy to end up investing all your money in the same industry or field. But in order to get the most out of your money, you need to spread them across different types of industry. While one might decrease in value for a while, another might increase, and it is easier for you to profit if your eggs aren’t all in one basket. For instance, invest some in sustainable food companies/systems, invest some in renewable energy, some in forestry, and some in textile, etc.
Here are some industries I would likely invest in, or already have:
- Green power investments
- Water stocks
- Wind power
- Solar energy
- Pollution controls
- Green transportation
- Waste reduction
- Organic farming
- Plantbased food innovation
Here are some industries I would never invest in:
- Fossil fuels
- Animal agriculture
- Air travel
- Fast fashion textile production
How to monitor your stocks
See I am the type of person who is likely to check up on my stock every day to see if they have dropped or spiked in value. But after talking to an expert myself I have found that that is perhaps on the best idea. It can be super stressful, and while it is a good idea to monitor your stocks regularly, it can definitely also cause some distress that might lead to selling stocks too soon. From what I was told, many stocks go up and down, and just because some is down right now, does not mean that it won’t go up again. So checking in every other week, or once a month is much better and will really give you’re a better overview.
Quick tips to get started:
- Work with an expert or ask your bank for advice
- Invest in socially responsible ESG funds
- Diversify your investing across several fields
- Monitor your stock responsibly
- Research your investment possibilities before investing