Podcast Ep. 12: Values-Based Investing

Podcast Ep. 12: Values-Based Investing

Invest In Your Life Podcast

Episode 12: Values-Based Investing

This week's episode comes directly from a listener question. Dani in Tampa wants to know more about ESG (values based) investing. ESG stands for environmental, social and governance. This week, I go over both the good and bad of this new brand of socially responsible investing.

Full Transcript

00:04  Welcome to the Invest In Your Life Podcast, the show where we explore the connection between personal growth and personal finance. My name is Patrick King, and in each episode we'll talk about what you can do to live a life that's truly rich. Don't take this the wrong way, but I am not giving you advice. I only give advice to clients who have hired me to be their fiduciary financial advisor. If you're not one of those folks than just consider this to be helpful tips and information and be sure to consult with your financial advisor, your attorney, your CPA, your witch doctor, or your mom before you try this at home.

01:02  Well, hello folks. Welcome to the show. This is the Invest In Your Life Podcast. I'm Patrick King, your host. Thank you so much for joining me today. we've got a great episode in store for you today. How to invest according to your values – should be a good one. This is actually – instead of having a Q&A, we had a question come in this week and I thought I'd just do the whole episode about this because there's a lot to it. But before we dive in, I want to let you know about the Five Secrets of the Ultra-Wealthy. You know, over the years I've worked with CEOs, all-star athletes, Grammy winning recording artists, and dozens of other ultra-wealthy individuals. And in that time, I've been able to see firsthand how they think and invest. And if you've ever been curious how they do that, go to www.investinyourlifepodcast.com today and download those secrets. I think you'll be a little fascinated to get a little window into how some of America's wealthiest families invest their own money. That's at www.investinyourlifepodcast.com. You'll see it right there when you go. Check it out today. So, so let's get into the show today. Let's start with gratitude.

02:31  All right. My gratitude for this week is – I am recording this right before Memorial Day and we are heading to the beach. I am so excited. We're going down to 30-A down at the Gulf Coast. It's about a little over five hour drive here from Atlanta. And I just love the idea of going and having some peace and quiet and relaxation being in the sun a little bit. I am going to use more sunscreen this year. Uh, yeah. I got the nickname “lobster” last time, which was an oversight on my part obviously. But excited about that and I'm just grateful, grateful that I've built a business where I can take a couple of days and take the laptop with me and do everything I need from the beach and then take some days off on top of that, which feels edgy to me. I think I've talked about that before in a prior episode. It's a – sometimes you build a business and you get focused on working so much. You forget to take time off. So I'm excited about it. That's gratitude for this week.

03:38  All right. The topic of today, how to invest according to your values. This is really the Q&A this week. This question comes from Dani in Tampa and Dani asks about ESG investing. ESG stands for environmental, social and governance and, uh, it's a three-letter acronym. I do love a good TLA, right? Just like all of us. Used to be, the TLA for this one used to be, um, uh, my gosh, I forget what it was, but it was more like a values kind of thing, but they've kind of changed. They've gone away from that over the years because as these values-based investing products have evolved over time. They've, well shoot man, let's just get right into it. The truth is that initially a lot of these investments focused on not investing in some of the, you know, sin industries like tobacco or alcohol or firearms or what have you.

04:58  And initially they were started by a lot of fundamental fundamentalist Christian type folks who wanted to have investments available that spoke to their values. So, you know, obviously those aren't everyone's values. So, it's kind of gone more towards skewing towards these companies that are environmentally conscious, socially conscious and have good governance. So, some of those old sin-company eliminating funds are still around. But if you type in “ESG”, if you're looking for some of these socially responsible investments – it's ESG now. So, Google that and see what you want to learn about it if you're interested. But it is an interesting topic and it's something that I've been tempted to employ in my client portfolios. In fact, I went so far as to build out sample portfolios that were ESG options of my core portfolio.

06:14  Now, just to kind of get into a little bit of like how these suckers work. They have screens. The companies that make these investments, they're usually mutual fund mutual funds or ETFs. I've done videos in the past about the differences between the two, so go check that out if you're interested. But they will screen companies one way or another to either include them or exclude them from the fund. So, so ideally you screen toward companies that have great environmental track records, that have some sort of social socially conscious tilt towards them, and have good standards of corporate governance. Right? And you could also tilt away from those companies that do not have those things, obviously. So, one of the classic questions around these socially responsible investments is, do you pick one, or the other, or both of filtering out the bad ones, filtering in the good ones or some sort of combination of one or both?

07:25  And then also comes the question, what if a company has a great environmental track record but has terrible governance practices? What do you do with those folks? You know, that's a tough one. Whether you include them in your investments are not. And unfortunately, having these type of investments creates incentives for companies to what they call “green wash” their activities. So, obviously they want folks to think of them as being highly environmentally conscious, let's say, when in fact they may not be. Your classic example of this is Volkswagen with their “clean diesel” scandal where they had to pay over $1 billion to the United States because of the diesel cheating. And if you don't know about that, there's a documentary on Netflix called “Dirty Money”, and I think it's like the first episode, but it's fascinating everything that went into that diesel cheating scandal.

08:37  So, having these types of things like the environmental awareness can create a negative incentive for some of these companies. And then finally, some of these, some of these investments can be expensive to own. So, if you think you're doing good, that's fantastic. But it can also like eat away at your returns if you're paying exorbitant fees for these investments themselves. One thing I want to say is I've been around this type of investing for a while now. I've seen it talked about in theory and I've seen it done in practice, ideally or not. Ideally, if you play by the numbers and you start eliminating companies from your investments, you know, let's say if you're a passive investor and you're just an indexer, you would expect to have a lower return.

09:36  You start, basically, doing active investing. I come down pretty hard on active investing in prior videos and prior podcasts. So, you would expect to have a lower return of these ESG funds over time. Now in practice, I've seen that they have done okay. They've lagged a normal investment strategy on some occasions and then they've beaten it during certain quarters and years. So, if you are willing, if it's important to you to invest according to your values, understand that you may – over time – be giving up some amount of return. Whether that amount of return is significant is a valid question. It may not be. And certainly it's something to ask whether it's worth it to you personally. So, I'm not against ESG investing at all. I feel like I have a very social tilt, personally and love what these stand for, but I'm also a recovering engineer.

10:51  So, I feel like, for my clients, I need to do the absolute best I can to give them returns and then we can all make decisions personally about what we do and these areas and the things that matter to you in these areas that you value. So, there's two ways to think about that. What I am going to do is, in my free resources area, include a sample ESG investment allocation. And what I'll do is include the funds that I like that have very low expenses and low transaction costs. And so you can take a look at that. So, go to www.investinyourlifepodcast.com. Look in the free resources section and look for the “Invest According to Your Values” sample page and see what you like. Let me know what you think, too.

11:46  It's an interesting strategy and something not to be dismissed. I think so. So yeah, that was a lot. That was a lot for like one question and it gets kind of technical, too. I wanted to hit the high spots, but kind of feel like I washed over some of that stuff. So if you've got more questions about ESG or values-based investing, hit me up: patrick@investinyourlifepodcast.com. I’d be happy to answer your questions. It's a thing – and it's a good thing. All right, that's enough of that.

12:27  Okay. I'm going to skip right to the Pura Vida section today. So, Pura Vida. Pure life. Pure living. One thing I want to do with this section is a little different today. Being an entrepreneur is hard. I talked about taking time off being a challenge, having like the mental block of not wanting to take time off, owning my own business. And so I don't want to – I really love what I do and I'm not sure I would ever go back, but I don't want people to think that building the life that you want is easy. Sometimes it can be very difficult. It doesn't mean it's not worth it. But it can take effort sometimes. And you know, I just want to say that the mental aspects of, of building this firm had been pretty tough. And I think building a business as an entrepreneur can be tougher than most people realize. It's certainly tougher. I knew it was going to be tough, but it was tougher than I thought when I started out. And I think if everyone really knew, no one would start their own business.

13:47  You kind of just have to be that kind of jackass to start your own business sometimes. The successes have been a hard won, but super sweet when they come. You know, starting out, there's a huge sense of urgency, which can be both good and bad, to grow the business and to get new business and make sure that you're successful and you've got great cash flow. And it's hard to turn that off after doing it. And that's the challenge. I spoke to the challenge of slowing down earlier. It's hard to turn that off once you've been going for so long and you feel so connected to the outcome of having a successful business and that's not always healthy. So, I've got that edge around slowing down and enjoying time when I'm not working.

14:40  It’s not been an easy go of it. I just want to be real here and I don't want to – I'm bringing this up because I don’t want to sugarcoat any of this. You know, making changes for the better in life is uncomfortable sometimes. But at the same time, I would never trade it back in. I would never trade it in to go back. It's been an amazing experience. So yeah, it's kind of like that for me – it's like pure living because it's effort and it's difficult and it's also in the service of creating the life that I want. And that's it. That's Pura Vida today.

15:26  Okay folks, that's the show today. Short and sweet or I at least, I think it was short and sweet. I mean, shoot, we've been at this for 15 minutes already. Man, I went on about the ESG stuff and thank you for sticking with me so far. I appreciate you being here. If you've got questions like Dani did about a values-based investing, hit me up, patrick@investingyourlifepodcast.com or visit www.investinyourlifepodcast.com. I would love to hear from you. I’m always looking for great ideas for the show. What do you want to hear? And until next time, cheers and talk soon. Thank you for joining me today to find out more and get access to my free financial resources visit www.investinyourlifepodcast.com.

16:23The thoughts and opinions expressed here are my own and or for general information only. They are not intended to be recommendations or specific advice for anybody. I'm not a doctor or a licensed therapist, so please consult with your healthcare provider if you had any issues regarding your physical or mental health. Any investment performance this referenced here is historical and of course has no guarantee of future results. Last but not least, the Easter Bunny isn’t real.

Podcast Ep. 13: Taking Action

Podcast Ep. 13: Taking Action

Podcast Ep. 11: Complaining About Your Finances?

Podcast Ep. 11: Complaining About Your Finances?