Do you know what ESG investing is? If not, you’re not alone. A new study by Northern Trust’s FlexShares ETFs revealed that “79% of women investors express(ed) interest in SI/ESG investing” compared to 42% of men, yet these women know a lot less about it.
Why? Women are not being told about these options, according to this study.
ESG is investing with a focus on Environment-Social-Governance values, also sometimes known as Sustainable Investing, though they are not identical.
But, 1 in 5 women who are particularly focused on aligning their investments with their ESG-related values won’t work with financial advisors who “wouldn’t/couldn’t add SI/ESG investments into their portfolio,” according to an email from the study’s authors.
An investment advice exercise
Since April is both tax season and Earth Month – and this Earth Day comes on the heels of newly-proposed climate disclosure rules by the Securities and Exchange Commission (SEC) – four financial advisors in my network for advice as a very small, non-random study.
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I asked these advisors how a woman 55 to 65 (a demographic that doesn’t get a lot of financial attention), could invest $25,000 as part emergency fund and part financial future. I did not give any other parameters.
The recommendations were quite varied.
Here are the recommendations, in no specific sequence:
1. A “fairly safe and plain vanilla” option: “I would put that $25K in something that is fairly safe and plain vanilla, from a financial point of view—I’d go for a balanced sustainability fund, maybe a 30-60 bond/equity fund that integrates sustainability and especially climate change….Most balanced funds have balances of stocks to bonds of like…60% stocks, though that ratio will wiggle over time as markets change. That’s what I meant by plain vanilla: a broad market sustainability balanced fund.” This is from a highly experienced, veteran investment advisor and ESG specialist who prefers to remain anonymous to not be construed as giving random investment advice.
2. More diversified option, with specific types of funds: “I would recommend for her $25,000 investment… diversified portfolio…include stocks (equities), bonds (fixed income) and often commodities and cash. Further, a diversified portfolio has representation from sub-asset categories. This recommendation is appx a 60:40 mix of equities to fixed income. However, in an actively managed portfolio there is rebalancing as is suitable.” This wealth advisor, a certified financial planner (CFP®) with additional certifications, gave more specifics:
“Equity, Large Cap: 36% S&P 500 Index;
Equity, Small Cap: 12% Russell 2000 Index;
Equity, Developed: 8% MSCI EAFE Net Return Index;
Equity, Developed: 4% MSCI EM Net Return Index;
Fixed, 35% Barclays US Aggregate Index;
Fixed, 5% FTSE 3-Month T-Bill Index”
3. Advice on how to make the investment decisions and a free resource: “Your financial plan should be a tool that helps you determine where to invest your money. If you have already maxed out 1. your retirement contributions (including catch up!) to your workplace retirement plans 2. IRA or Roth IRA annual contributions depending on your income and 3. don’t have any high-interest rate loans outstanding, invest the emergency fund money in a high yielding savings account, which sadly isn’t very high yielding but accessible and paying you more than it would be sitting in your checking account. For the money earmarked for your financial future, a globally diversified ESG ETF (exchange-traded fund that incorporates environmental, social, and governance criteria) would be my recommendation for a longer term investment.
“Your investing strategy should take into account your time horizon, risk tolerance, and financial goals you are trying to reach. In the case of the money for the emergency fund, it needs to be available at any time i.e. liquid, and you really don’t want to take much risk with it since it is for an emergency fund after all! The remaining amount for your financial future should be in the market if the goal is growth and time horizon is longer term i.e. 4+ years. Consider using an impact lens as well, and research the companies that you invest your money with to understand what their sustainability and impact strategy is as an organization as well.
“A good resource to help you choose a good ESG ETF for your taxable account investments is (Morningstar.com). There is a free version you can use to enter the ETF ticker. You should then look to see what the fees are, performance, Morningstar ‘star’ rating, and then you can click on the sustainability tab and see what the Morningstar sustainability ranking is with their ‘globe’ ranking system. If you are looking to purchase something in a retirement account, if it is with an employer you may be limited to what the plan offering is. If you are buying in an IRA or Roth account you can use the above.” This is from Kathleen McQuiggan, a long-time ESG-focused investment advisor who specializes in helping women and was a guest recently on my Electric Ladies Podcast. She agreed to have her name published with this advice.
4. Short and to the point advice: “1/3 money market….(find one that) pays a little more. FDIC insurance most important. 1/3 growth and income ETF…Low fees. Good historical performance. As we age, dividends are important. What makes a good ETF? Low fees, history, transparency, liquidity, and lots of other investors. 1/3 (in the stock of a company that) continues to change our path forward in technology.” This is from a now-retired investment advisor who spent 40 years as a top performer at large investment firms, and is remaining anonymous.
As you contemplate where to put your tax refund, or another chunk of money you can stash for the future, think about how your investment strategy aligns with your values and ask your personal financial advisor for your specific criteria and needs.
You can listen to the full interview with Kathleen McQuiggan on Electric Ladies Podcast here or wherever you like to listen to podcasts (just search Electric Ladies Podcast).