Feminist Gloria Steinem said, “It is more rewarding to watch money change the world than watch it accumulate.”
While we love a worthy cause, what if you could have the best of both worlds – use your money to make the world a better place while also building your nest egg?
In this issue, we’ll show you how to discover and invest in companies that align with your values, lifestyle, and overall investment strategy.
Invest Without Sacrificing Your Values
Values-based investing, also called socially responsible investing, is when you choose a company with a worthy cause, or that does business in a way you approve of.
Socially responsible firms might make a profit, but they’re also using their resources to make the world a better place. Their mission could be social change, cleaning up the planet, or donating a percentage of their proceeds to a worthy cause.
And, contrary to popular belief, investing in companies you believe in doesn’t mean you’re giving to charity, or you’ll earn low returns. In fact, according to TIAA, socially responsible investments tend to meet or beat the general market.
How to Find Socially Responsible Companies
The big question is how to find companies that are acting responsibly or supporting causes close to your heart. After all, just because a big bank makes the news for their employees donating time to Habitat for Humanity doesn’t necessarily mean the rest of their business practices are in alignment with those values.
Here’s how we find socially responsible companies when we’re looking for new places to park our money:
Check Certifications
If your priority is saving the planet, for example, look for publicly traded companies that have made a public commitment to reducing their carbon footprint.
Climate Neutral and 1% for the Planet both have directories that allow you to see which brands are actively involved in these initiatives.
What’s more, Climate Neutral also highlights recently certified brands, which allows you to discover and immediately reward companies. This strategy can pay off because you might be able to have insight before the general public, giving you a head start by investing in them before other social crusaders catch on.
Access an Insider List
Did you know that there’s an investing platform that has conveniently grouped companies into themes based on categories like growing diversity, American manufacturing, and veganism? Public, an online trading platform, has grouped hundreds of companies into 38 themes ranging from cannabis to the space revolution.
Consider ETFs
Let’s say you are a big proponent of the cannabis industry. You know that mass legalization across the United States will result in a “green rush,” and you’re pretty sure that widespread cannabis use will reduce reliance on pharmaceuticals.
The only problem is that you don’t know which companies are the best to invest in, and you don’t have countless hours to spend researching and analyzing individual stocks. If that’s the case, consider buying an ETF (exchange-traded fund), which is a fund that consists of several stocks combined.
A cannabis ETF, for example, might hold a variety of stocks involved in the cultivation, production, marketing, and distribution of cannabis and their related products. By owning an ETF instead of an individual stock, you can take advantage of growth at every step of the supply chain, not just the performance of an individual company.
Even better, you don’t have to own stock in each of the companies to get this benefit. All you need to is buy an ETF, which is traded just like a stock on the major exchanges.
Financially Back the Companies that Make Products You Already Use
Look around you and take a mental inventory of your favorite items. If you’re using something every day and loving it, chances are there are millions (or at least thousands) of people that also love your favorite brands.
There are bound to be some obvious winners on your list – Apple, Microsoft, Google, and Nike products are prevalent in a lot of households, but if you’re looking for opportunities off the beaten path, really do a deep dive here.
Check Your Labels
Open up your pantry and take a look at your favorite brands. You might be surprised to learn that big food giants are buying up natural companies in droves. Back in 2008, General Mills acquired Larabar, and since then, these types of deals are increasing, though they might not always make the news.
Other recent and notable acquisitions include:
- M. Smucker acquired Sahale Snacks
- Campbells Soup acquired Garden Fresh Gourmet
- Mondelez International acquired Enjoy Life Foods
- General Mills acquired Annie’s, Inc.
As more major brands jump on the natural food bandwagon, you’ll have even more opportunities to own financial pieces of your favorite snacks.
Consider Experiences
Once you’ve torn apart your house checking labels for investment opportunities, now it’s time to think about your overall lifestyle.
- When you go out on the town, do you use Uber or Lyft?
- What’s your favorite airline?
- Do you prefer hotels or Airbnb when you go on vacation?
- Do you like to go on cruises?
- What’s your favorite app? Did a publicly-traded company develop it?
- Is your go-to date night restaurant a chain or owned by a corporation?
Align with Companies that Fit Your Overall Investment Strategy
Depending on where you are in your investing journey, you might have a varying strategy. Some younger investors might be willing to take on more risk in exchange for massive rewards, because even if they lose it all, they have time to recover.
Older investors might prefer conservative investments where they trade off the potential for higher returns thanks to limited risk.
A balanced portfolio, which most financial advisors recommend, has a blend of different types of stocks, allowing for diversification and hedging.
The strategy for discovering and investing in companies based on these strategies varies somewhat.
Value Investing
Warren Buffett is the unofficial king of value investing. This strategy involves buying stocks whose prices are lower than what their actual value is. Think of it like stocks on sale.
You already know that the key to winning the investment game is to buy low and sell high, but that’s easier said than done. However, there are some key metrics that will help you identify if a stock is undervalued. It’s vital to look at the numbers because it’s not unusual for a stock price to be in the toilet because the company is a turd.
There’s not a single right or wrong way to determine if a stock is undervalued, but here’s what investing giants look for:
- Return on Equity (ROE) – How much income stockholders are earning from their shares
- Debt-to-Equity (D/E) – This ratio measures how much debt a company has relative to owner equity
- Profit Margins – Look for healthy and increasing profit margins
- Other Market Factors – For example, is the company reliant on commodities like oil to operate? Have they been in business for a long time?
- Intrinsic Value – Do the company’s earnings, revenue, and assets align with the current market capitalization compared to other stocks in the industry?
Growth Investing
A growth investor looks at stocks in high-growth companies, which might not be profitable at the moment but could be poised for massive growth a-la Amazon, Microsoft, and Google in the early days.
Many new companies fall into this category because it’s easier to grow in the double digits when you’re first starting. The bigger you get, the more money you need in sales to reflect any growth whatsoever.
Income Investing
Also known as dividend investing, income investing is when you get cash payouts in the form of dividends for each share of stock you hold. Companies that pay dividends are often stable and mature. Traditionally, older investors flocked toward dividend stocks, but young investors are also seeing their benefits.
One of the biggest reasons to invest in dividend stocks is that you can reinvest those dividend payments and continue to acquire more shares, all the while, hopefully enjoying an appreciation in the stock price over time.
The Bottom Line
As you’ve read each of these strategies, you’ve undoubtedly connected the dots that you can own a company that ticks all three of the criteria we discussed.
