Ask anyone you know: the Millenial generation (ages 21 to 36) views money differently. UBS Wealth Management says we’re definitely more conservative than our parents and may in fact be the most cautious investors since the 1930s Great Depression era. We’ve experienced the impact of overly leveraged financial markets, easy credit (including student loans), fewer good jobs, and a widening divide between those who have—and those who have not.
We want to protect our money and manage risk first. Of course, it’s fine to let our mom or girlfriend know we’re doing well at managing our money, too…
Things have changed
Many of us followed the time-proven formula of “go to university to get a good job,” but it’s clear that things have changed since our parents’ day. The global recession that began a few years ago showed how fast financial markets and fortunes around the world could change. In 2008, the world’s high-flying stock markets sharply, suddenly reversed. In the U.S., blue chip corporations, financial institution, and bastions of wealth and power, e.g. Goldman Sachs, accepted $700 billion in Troubled Asset Relief Program (TARP) funds. (Bank of America–as a bank and mortgage lender— was a TARP double-dipper!)
How to save the world and get rich at the same time
Today’s young investor views investing completely differently than his father or grandfather. When researchers asked five thousand Millenials about the purpose of business, most said business should improve society first. The second response was “make a profit…”
That’s right. We admire super heroes and want to save the world!
We interviewed R. Paul Herman of HIP Investor, Inc. (Human Impact + Profit) in San Francisco to learn how today’s investor chooses to make money. Paul’s book — The HIP Investor: Make Bigger Profits by Building a Better World* — focuses on sustainable and socially-responsible investing. (Read or listen to this book!)
What is socially responsible investing, Paul?
We rate 6000 investments (companies, governments and nonprofits) who are building a better world and are improving society and the environment. We look for companies and organizations who are running their businesses in a sustainable way. So the investments, whether stocks, bonds, mutual funds, with a higher “HIP” rating are more sustainable for people and the environment—water, energy, and society—than others.
What is sustainability?
We have five areas to talk about:
- Health: What investments support the physical and mental health of all?
- Wealth: Which investments boost income for poorer people or assist those who don’t own a home in becoming homeowners?
- Earth: What investments, including green bonds, solve existing environmental problems and defend the planet?
- Equality: Which organizations are inclusive at the board, executive, and manager level regardless of age, gender, citizenship, or sexual orientation?
By the way, Credit Suisse and Catalyst.org both have shown that companies with one or more women on the board of directors have higher financial returns than companies with zero women on the board of directors!
- Trust: Transparency inspires investors. Competitive strategies, e.g. government lobbying, that tend to show the business’s lack of interest in innovation. Companies that spend a lot of time and money lobbying the government end up innovating less. They’re trying to protect themselves from competition, or they’re hoping to slow the pace of competition.
So, these five factors — health, wealth, earth, equality, and trust — help sustainable investors select and weight mutual funds, stocks, and bonds that match their goals for impact, risk, and return.
How do you figure out which ones have sustainable practices?
If you read the annual reports of the companies, you can see who’s doing what and see how much money they’re making from which types of products, how they operate, and how they make decisions.
How do you help investors save the world?
Our job at HIP Investor is to evaluate all those factors, rate all these investments, overweight the ones who are benefiting society and the environment, and underweight the ones who aren’t. We can tell you which ones to buy or sell, or help you save the world through your 401(k) retirement plan. HIP ratings can help you and your co-workers use your 401(k) to build a better world. The funds that are better for the world (higher HIP ratings) also can have higher returns and/or lower risk.
How do I build a sustainable portfolio?
You can invest in environmentally-focused mutual funds. Two examples are Portfolio 21 or Pax Environmental Markets, or you can buy individual stocks of sustainable companies, or even green bonds.
What other advice can you give us?
- Live frugally: a dollar saved can be invested in your future
- Save or invest as much money as early in your life as possible
- Use tax-deferred accounts, such as 401(k) plans to invest plus… less current taxes could lead to more money later and defer the associated tax bill for years or decades
- If you’re going to invest, invest in a way that is beneficial for the world you want to live in, and that your mom would be proud of, or that you and your mate can raise kids in