July 1, 2023

Values Based Investing

What is values-based investing and is it for me?

Values-based investing is an approach to investing that not only considers financial returns but also the ethical and societal impact of investments. The main idea of values-based investing is to align an individual’s investment decisions with their values and beliefs. When someone invests in a single stock or buys an equity mutual fund that owns a portion of many stocks, it is essentially owning a fraction of many different companies. It’s important for many owners/investors to make sure that the companies they own line up with their beliefs.

As individual investors, we have little control over what large corporations do. Shares add up and corporations ultimately make choices based on their bottom line. It’s similar to voting for representatives that make up our US government. We support candidates that best represent our beliefs or at least don’t strongly oppose our beliefs. We each only have one vote, and even though it’s small, it adds up and elects our representatives. We can use our money to support companies that represent what is important to us. As more investors take this approach it can lead to change in the ways that corporations do business.

There are a couple approaches to values-based investing: positive and negative screening. Positive screening is actively seeking out companies that share your same values, give back to society, create world bettering products or services, and/or treat their customers and employees fairly. A mutual fund company called Eventide Funds sums it up as “investing in companies that promote human flourishing”.

Negative screening is avoiding investing in companies that hurt society or go against your personal moral convictions. For example, tobacco is harmful to humans; if you as an investor are morally opposed to the use of tobacco, you may not want to profit from a company that’s going against your personal beliefs.

It’s also important to remember that values-based investing is not void of stock market risk. When investing it’s crucial to also consider your financial goals, risk tolerance, and long-term investment strategy to make informed and balanced decisions.

Values-based investing is a personal decision. It can be difficult at times to align investing with each individual’s values due to changing companies and society as a whole. If you have an interest, this is an area that we at MainStreet Financial Advisors are experienced in. Our goal is to align our clients’ personal beliefs with their financial objectives, and that includes their investments. For more information contact your advisor at MainStreet Financial Advisors today.