Most people live by a value system that guides their choices and behavior. This may include a desire to help other people, protect the environment or encourage innovation.
According to the United States Wealth Report 2014, published in September 2014 by RBC Wealth Management and Capgemini, more than half of the high net worth individuals surveyed described driving social impact as very or extremely important and nearly nine out of ten (88%) described it as important.
The desire to make a social impact is also having an affect on investment choices. A 2012 study by the Forum for Sustainable and Responsible Investment, an investor group, reports that values-based investing accounts for $3.74 trillion or one in every eight to nine dollars under professional management.
When it comes to investing, you don’t have to leave your values behind. Instead, they can become a roadmap for the development of an investment portfolio.
Socially-responsible investing
A popular investing strategy based on values is called socially-responsible investing. It typically employs five approaches.
1. Engagement – Leverage ownership rights to influence corporate boards and management.
2. Negative screening – Avoid companies that don’t align with your values.
3. Positive screening – Seek companies that meet specific socially-responsible criteria.
4. Thematic investing – Focusing on companies that offer innovative solutions to challenges.
5. Impact investing – Provide a loan to a worthy cause to fund a specific purpose.
There is also an opportunity to choose a focus area for a socially-responsible investment allocation.
• Cause investing – Environmental concerns – Address issues such as clean technology, pollution, climate and broad environmental concerns.
• Environmental, Social, Governance (ESG) – Address issues such as labor relations, human rights, executive pay and others in tandem with environmental concerns.
• Values-based (Religious) – Generally use faith-based criteria to select investments.
Municipal bonds
Purchasing municipal bonds is another way to make a difference in your community. A municipal bond is typically issued by a local government or their agencies. This type of investment often goes toward supporting the civic good: infrastructure (roads, bridges, sewer and water systems), schools and health care facilities.
Charitable gifting and charitable remainder trusts
Investing for the social good can take other forms as well. Many people may have a favorite charity they want to support. Making monetary donations or transferring shares of appreciated stock to a charity helps the organization; the ability to deduct the donation makes a difference for you at tax time.
Beyond a single donation, you may want to consider another method of gifting – a charitable remainder trust. By donating stock to a charitable remainder trust, you can reap additional benefits from your gift. The proceeds of a charitable remainder trust could be a source of income during your lifetime. After you die, the trust would pay the principal to the charity you designated to receive it.
Designating a charity as a beneficiary
Beyond supporting a worthy organization during your lifetime, proper estate planning could mean a charity can benefit after your death.
Designating a favorite charity as a beneficiary of your life insurance policy or retirement investment account such as an IRA or 401(k) can benefit both the organization and your heirs who may find some relief from estate taxes upon your death.
It is possible to make investments with personal values in mind. Before making investment decisions, consult with a professional financial advisor who can assess your needs while also considering factors such as your time horizon, risk profile, liquidity needs and investment objectives.
This article is provided by Pamela J. Carty, AWM, a Financial Advisor at RBC Wealth Management. The information included in this article is not intended to be used as the primary basis for making investment decisions. RBC Wealth Management does not endorse this organization or publication. Consult your investment professional for additional information and guidance.
RBC Wealth Management, a division of RBC Capital Markets, LLC, Member NYSE/FINRA/SIPC
