Things to think about before you invest
Every day, people make choices that reflect their values. Maybe you care deeply about where your food comes from, or reducing your carbon footprint, or empowering women. Whatever your priorities are, they probably influence decisions across your life. And more and more, people are bringing those values to into their investments, too. (Side note: Yes, you can make money and stay true to your values.)
It all starts with a little forethought. Once you know what matters to you, you can identify potential investments that meet your standards and your financial goals.
Figure out your priorities
In the absence of goals and dreams, wealth is a purposeless dollar amount. We believe that when you connect your money with your priorities, your wealth can actually make a bigger and more lasting difference in your life. The research indicates that using your wealth to go after your dreams may bring more fulfillment than just using it to wear an expensive watch.
Why are you investing in the first place? What does a financial plan mean to you? What does it mean for your children or grandchildren? Do you have a specific end-goal in mind, like funding your retirement or paying for your kids’ education? Are you planning your legacy, or looking to fund research or work on a particular issue?
What issues matter to you? As a consumer, do you select or avoid certain products or companies because of your personal principles? Do you have strong feelings about the environmental impact, social policies, or ethical responsibilities of businesses? Investing in the things that matter to you can help align your wealth with your values.
Set your thresholds
Translating your aspirations into concrete goals and values can help you evaluate different approaches. Most investments involve fine-tuning the relationship between return, timeframe, and risk. For mindful investors who want to integrate their investments and their principles, a fourth factor — impact — enters into the equation.
Keep your eye on the ball. What’s your number? Once your personal priorities are clear, start thinking about the financial picture. How much do you need to achieve your dreams or life goals? Figuring out what you need to fund your goals will help you determine what rate of return you’re after.
What’s your timeframe? When will you need or want to cash out your investments? Are you on a 10-year plan to quit your job and start an Etsy empire? Are you hoping to buy a house before you turn 40? Retire at 55? Are you managing for the next 15 years, or for the next generation? Whatever your life goals are, give them a timeline.
How much risk are you willing to take? All investments have risk. How much money could you afford to lose if the market went all bearish on you? How much time do you have to recover from potential losses? Will ups and downs wreak havoc on your emotional wellbeing? Your personal risk tolerance is an important guide in determining what kinds of investments you should make.
What’s your impact tolerance? What issues and practices are deal-breakers or deal-makers for you? Are there things you absolutely require of your investments, and things that you just won’t tolerate? You have to know your standards before you can hold your investments accountable to them.
Make a plan
What’s your starting point? Do you have debt that is costing you money? Do you have assets that are not making you as much as they could? Are you leaving money, say from an employer contribution for your 401K, on the table? Get your financial house in order and figure out what your current investments or debts are doing for you (or to you.)
Think big picture. Where to begin? There’s not a one-size answer to this question. But, we’d suggest charting the most thoughtful and simple path you can find. If you have debt, think about ditching your most expensive liabilities first. Get out a calculator and a calendar, and figure out a sensible order of operations, based what you can reasonably commit to your plan. When does it makes sense to reallocate (or rebalance) your contributions from debt retirement, to building your emergency cushion, to longer-term investing that supports your dreams?
Find your peeps. You don’t have to be cultishly devoted to a school of thought. But have a look at different investment philosophies, and look closer at those that seem like a good fit for you. We’re big fans of long-term, value and values-driven investing. Many mindful investors fall into the camp of being responsible investors. The idea is to be informed about a general approach that fits your needs, based on those thresholds we talked about earlier.
Learn about your options
This is be a good place to disclose our business: You should know that Censible is a registered investment advisor. It’s our legal duty, and we consider it our ethical responsibility, to look out for the interests of our clients first. We exist to help our clients align their investments with their values. We’re not here to talk smack about other financial service firms, but you should be aware that we have a marked preference for a long-term, value and values-driven investing, based on financial and ESG data analysis.
Until very recently, personal-values-driven investing has been limited to investors with the means to hire an asset management team. If you’re of more modest means, you have a number of other options.
If you want professional help, you might decide to engage a financial advisor. They go by lots of different names: advisors, wealth managers, brokers, dealers, planners…. Some of them have fiduciary duty (Censible, as a registered investment advisor, does), and others don’t — which means they may prioritize their own interests, even if it might mean compromising yours (within reason). Some get paid on commission to sell you a product. Some of them earn money by the hour, and some charge flat fees.
If face-to-face isn’t your gig, but you still want some support, an online (or robo) advisor might be right for you. These services often make use of mathematical algorithms to identify potential investments and tend to offer more sophisticated portfolio management at a lower price than old-fashioned, in-person financial advisors.
You could go it alone, and become a DIY investor, although the time and skill required for the research and analysis makes this impractical for most of us. With 9,500+ mutual funds, 40,000+ public companies (4,300+ in the US alone), and vast amounts of ESG data, DIY analysis can be a bit daunting.
There are a number of branded investment products, like green or socially responsible funds. This can seem like an easy option, but you could end up investing based on someone else’s idea of what’s important. There’s a possibility that you’re still funding companies that conflict with some of your values. And, frankly, some of these have pretty disappointing track records, even on the issues they claim to support. Another word to the wise: watch out for higher fees, which diminish your financial return.
Every firm and every financial product has its own way of approaching investment. Do your own homework, and ask questions until you feel like you understand how it works, and whether you trust it. Choose an investment option that is right for you.
Of course, once you’ve made your initial choices, and you’ve got a sweet portfolio going, you’re not actually done. You are now the proud partial owner of the businesses that are behind those stocks. So you’ll want to pay attention.
Review your holdings periodically with your plan in mind. Ask yourself if your portfolio is delivering value — financial and otherwise. Is it still in line with your criteria and risk tolerance? Are your allocations in balance? Have your goals changed?
Mindful investing isn’t just a theoretical approach. It means feeling your ownership. As consumers, it’s pretty easy to feel the responsibility of our purchases, but we tend to forget this power as investors. With more than half of the US stock market ultimately owned by individuals, the public markets provide an extraordinary opportunity to express your values and influence companies. When you invest mindfully, you are choosing companies that support your values and life goals. You’re holding businesses accountable to your standards.
And while we’d always say mindful investing is more than a feel-good approach, we have to admit: creating value by supporting the kind of world you want to live in? That feels pretty good.