The 4 myths about sustainable and socially responsible investments

Clearly, there’s a desire to make a difference. What seems to stand in the way is a number of misperceptions about the actual risks, the returns that can be achieved and the actual impact these investments can have. To answer the question ‘Is this for me?’ – let’s start by dispelling the four common myths surrounding sustainable and socially responsible investments.

• Myth #1: They only come in green

The concept of sustainable investing can mean different things, but it essentially boils down to this: Aligning traditional investing with environmental, social, and governance-related (ESG) principles to improve financial well-being over the long-term. The range of sustainable financial products out there is very diverse and investment choices will entirely depend on the investor’s personal values and preferences. It’s not limited to specific stocks in green energy or organic farming, either. If the investment is in a fund, those companies or activities that don’t meet the investor’s social and ethical standards are filtered out. Investments can also be earmarked for projects that have a positive environmental and social impact. Another option is thematic investing, for instance in renewable energy, biotechnology, healthcare or sustainable forestry, to name the major areas. Between 2018 and 2019 alone, the number of funds that operate under ESG criteria went from 434 to 582 (up 34%)

• Myth #2: Good conscience, bad return

The market shows that sustainable and socially responsible investments are on a par with conventional financial product offerings. Stock companies that subscribe to ESG principles are more than a safe bet. Well-managed businesses that are concerned about their impact on the environment and society are ready to adapt and often more open to innovation. Their employees are well taken care and that makes them better at their job. These companies have a better reputation and are better equipped to weather crises. Which means their business may keep growing. The facts bear this out, especially in the current turbulent market: In the US, for instance, most sustainable funds finished in the top halves of their Morningstar Categories for Q2/2020, and 18 of 26 ESG-focused index funds outperformed conventional index funds. For the year to date, 72% of sustainable equity funds rank in the top halves of their Morningstar Categories and all 26 ESG funds have outperformed their conventional index fund counterparts. Just as the way companies treat their employees and stakeholders has become a differentiator, the way they invest in their employees’ health and safety will become even more important. Sustainable and socially responsible investing will keep up the momentum for this dynamic. And no, the fees aren’t higher than for conventional investments.

• Myth #3: It’s just a fad

The concept of sustainability as an investment driver, which inherently has an ethical component, has been around since the 18th century. Back then, some investors would have nothing to do with the slave trade, preferring to make a healthy profit in other areas. A preview, so to speak, of sustainable and socially responsible investing as we understand it today.

Fast forward to 2009. At the time, sustainable investments accounted for CHF 32.4 bn (up from CHF 7.4 bn in 2005), and by the end of 2019, the volume increased to CHF 1,163 bn. From 2018 to 2019 alone, the share of sustainable funds in the overall Swiss fund market more than doubled from 18% to 38%. Another key reason why sustainable and socially responsible investing is here to stay is regulation. In 2018, based on the results of the Paris Climate Agreement 2016 and the United Nations’ Agenda 2030, the EU launched the Action Plan for Financing Sustainable Growth to:

• Direct capital flows towards sustainable investments

• Mitigate financial risks linked to climate change, natural disasters and environmental and social issues

• Enhance transparency in investment and economic activity (i.e., better governance.)

In other words, the positive momentum developed over the past decade will continue to build. In Europe, we see that investing sustainably is increasingly the new normal, as borne out by the strong rebound after the coronavirus pandemic market sell-off, more than doubling to USD 54.6 billion over the second quarter of 2020.

• Myth #4: It’s not for me

One of the study’s findings: 48% of those surveyed felt that the responsibility to act sustainably rests with companies, about the same for those who felt that sustainability starts at home (45%). As companies are aligning themselves with the new normal, the possibilities for private individuals to make a difference through their investments – while achieving their financial health and well-being goals – are increasing, too. More important than diversity of investment options perhaps, is the fact that the market is open to all, regardless of how little one wishes to set aside for letting sustainable and socially responsible investments grow into a nest egg or a dream come true. Though it’s never too soon or too late to get started, seasoned investors (44%) would recommend starting with a small amount and taking a step-by-step approach. To get a basic understanding of how a capital investment works, click here.

Friends and family can be a good source of advice if they have some experience. Also, the fact that financial advisors may charge a fee should not be a red flag. Their main objective is to make investing work for their clients – who usually are the first to say that good advice is always worth the price. Besides very competitive rates, advisors can also provide tools that allow maximum control over the investment.

But what about after the crisis?

According to ratings agency Moody’s, the Covid-19 pandemic is likely to have far-reaching effects on the financial sector over the coming years, specifically on the way investors and companies approach risk and how they will increasingly focus on ESG factors. The trend towards sustainability and social responsibility was already well underway before the crisis began, it’s just that the crisis has intensified the spotlight on environmental, social and governance factors. In our rapidly changing world, businesses and projects run according to sustainable, i.e. ESG-based principles, are proving to be more resilient and therefore in a better position to offer more stable returns over the long term.

Sustainable investing also plays to one of Switzerland’s strengths: a longstanding tradition in sustainable finance, not least due to an openness that allows for new trends to be recognized and acted upon early on, combined with stable economic and political framework conditions. The result is a financial environment that contributes to a more sustainable world through smart investing, proving time and again that securing one’s financial future and doing the right thing for the planet and society can go hand in hand.

After years of ridicule in the watering holes and forced lectures of other people’s opinions (mainly Tottenham fans), I came to see the situation in a different light. I concede, Arsenal are no longer a top European side, for now!

I needed to view the situation through a different lens. It’s hard to pull up the anchor and reassess one’s own view, but this can be far more important when it comes to decisions that will affect the rest of your life, your finances.

I often hear the anchored statements that prevent action, ‘investing is for fools’, ‘you’ll lose money’, ‘it’s not for me’. Similarly frightening statements that push action – ‘I’m missing out on the bitcoin train’. Often these statements are based on a past experience or an event that has tainted their view. The financial crash in 2008, Greece’s Debt Crisis, The Corona Virus Pandemic, the bitcoin boom, – too much weight is put on an event or past experience which taints reality.

This anchoring can have devastating consequences towards achieving what we want and we limit our lives and our future plans in the process. If you don’t invest, you don’t grow your money. Einstein was right – compound interest is the 8th wonder of the world. Similarly, if you invest poorly or without diversification, you’re at risk. I bet there are plenty of people out there who invested when a bitcoin was at 58,000 USD (Spoiler alert it’s now 35,000 USD at time of writing).

Now I’m not saying you must invest nor that bitcoin is a bad investment. We just need to be more self-critical and understand when we anchor. If speaking to others helps to view situations in a different light, do it. It could be the best way to pull up that anchor and sail towards more fruitful seas.

Imagine you have invested into a shop that is open all year round but the only item you sell is ice-cream. We can guess what your profits will look like generally – low in the cold months and high in the warm months like the graph below.

The range of profits from our shop are not steady. Although we can expect higher returns when the summer months are warm – what if there is a cool summer? (Remember May this year) Your profits are likely to be even less to help sustain you through the poor months. “Your eggs are all in one basket”

For some people they may have lots of other shops and they do not mind specialising here. For others this would worry them, particularly if it is their only shop – if it rained all summer they wouldn’t be able to sleep at night.

So, for those that would be concerned, let’s diversify your shop a little. This means we are aiming to have a steadier return and set ourselves up so if we have unseasonal weather it won’t impact our shop as much. To do this let’s use a little investment theory. We will start selling something that is negatively correlated with ice-cream profits. This means generally speaking the expected movement of these will be opposite to ice-cream. This will bring the volatility of the profits down – decreasing the risk. You have already read the title, so let’s include umbrellas in your shop’s stock.

We can now reasonably expect a graph like this*:

The result is you have more steady profits throughout the year and even if you have a cold Summer or a mild Winter you are a little more protected through diversification as demonstrated by the red line in the graph below:

It is important that you understand how to structure your portfolio and the correlated risks within it. Most don’t have access to the tools that financial planners and independent investment managers do, therefore it might be worthwhile having a review of your own portfolio to see what correlated risks you’re exposed to. It could save you from a cold dry year when neither ice creams or umbrellas are particularly useful!

As you age, one thing you are probably thinking about more and more is retirement. Whether you’re on the cusp of this life milestone or just realizing that you have more than a decade or so left to save, you should take some time to consider your retirement prospects seriously.

How much have you managed to save so far?………How do you know how much is enough?………..How much have other people your age saved?

The truth is when it comes to savings most people are falling short. Nearly 60% of adults have less than 5,000 in their savings accounts, with retirement funds looking equally bleak. This harsh reality stems from the younger generation and their inability to save. We’ve all heard the saying, “I’ll save more when I’m making more”. But whether you’re making 50,000 a year or 200,000 a year, we all have challenges saving money. Generally, what happens is when people make more, they end up spending more. A bigger house, a nicer car, more holidays, the list can be endless.

The sooner you start saving for retirement or any other major purchases in life the better. After all, time is on your side when you’re young, and thanks to the power of compound interest a small amount put aside each month early on can make a big difference later in life. While the amount you need in savings is highly personal, and specific amounts arbitrary, a simple formula can help you figure out if you’re setting aside enough money.

In your 20s: Aim to save 25% of your overall gross pay. That 25% is the combination of pension withholdings, matching funds from your employer and any cash savings that you have. The trick is to make sure your lifestyle expenses don’t exceed 75% of your gross income.

By age 30: Have the equivalent of your annual salary saved for example. If you earn 100,000 a year, aim to have 100,000 in savings when you hit 30. Again, this includes any retirement account contributions, matching funds from your company, cash savings, or money you have invested elsewhere in index funds or other assets.

By age 40: Have three times your annual salary saved.

By age 50: Have five times your annual salary saved.

By age 60: Have seven times your annual salary saved.

The ideal amount is to have at least 10 times your annual salary by the time you retire, which for most of us will be around 65- 67 years old. While this can sound super daunting today, if you’re putting that money to work starting in your 20s, it’s not as difficult as it sounds.

Of course, these are the ideal numbers, and experience will teach you that things don’t always work out as we plan, life is anything but linear. More than likely you’ll have to adjust, by saving more in some years and less in others, depending on major life events, such as having a child or buying a home.
Employing the services of a financial advisor early on can however ease the burden. They can give you an accurate view of where you are relative to your current lifestyle and the standard of living you hope to have in retirement. Utilizing current technology, they can show you different possible retirement outcomes and how to prepare for both the good and the bad.

They will help you develop a clear understanding of how much money you’ll need to retire based on your own personal requirements as well as establish solutions to help you achieve that taking into account your risk profile. Knowing if you must put your nose to the grindstone and save more money is vital when you’re getting closer to your final working days.

Unfortunately, the consensus thinks that if you don’t have much saved, you don’t have enough to work with an advisor. The truth is you can’t afford to not work with an advisor. The closer you get to retirement the greater the need for capital preservation, as the time to recover from a financial mishap is greatly reduced.

Partnering with an experienced professional will allow you to consistently build wealth whilst managing all the associated risks and challenges along the journey of life. When it comes to finally hanging up those working boots, you’ll be well prepared and ready to put your feet up and enjoy the sunshine

When I was around 17 years old, I bought my first “expensive adult” wallet. It was a gorgeous Michael Kors orange purse (don’t laugh, the brand went downhill since then, as this was a long time ago) that fit in all the paper money, coins, discount cards and bank cards that I needed. I was very happy with my purchase and carried it with pride, until one of my friends noted that perhaps according to Feng-Shui or something, orange is not the best colour for money storage. In fact, it might open an “energy hole” that would eventually suck all my finances into it.

At that time, it made so much sense! All my impromptu bad buys unworthy of their price, the bills for things I never knew existed, outings that were far more expensive than I imagined came together like a puzzle. I had picked an unlucky colour for my purse.

Now what? I buy a new one, of course. Look for the colour that attracts prosperity and wait for the riches to fall into my bank account. Except, it is not only the colour, but also the right timing. I cannot buy it in winter because Chinese astrology says that we need to wait for spring to come, and even then, I cannot ignore Mercury retrograde because then I will be penniless for months! I must wait until the moon will be in its growing phase and then leave it on my windowsill during the new moon to let it “collect the energy of abundance”. After all these actions, bizarre traditions and several perfect wallets, I can confirm that I did not suddenly win the lottery.

Our minds find comfort and creativity in various spheres. Believing most of the occult practices helps us to shift a bit of weight onto something that might not even exist. There are plenty of ways to control your life without having to rely on higher powers too much. The idea that my wallet colour is the reason behind my spending increase as opposed to moving out of the dorm and living by myself as a university student, gave me a false sense of relief that I can control my financial situation without having to drastically rethink my expenses. With a proper adviser, I really would not have had to … and I could have afforded by now a “real adult wallet”, like a Louis Vuitton

When I discuss with clients about investing “now”, the usual answer, expressed as a concept is:
Valerio let’s wait for the “Black Friday” of the stock market.

We all want to buy low, sell high. When the market goes down and you have money, you invest and grab shares of great companies at a fraction of the price. The most important questions everyone should ask are:

• Should I buy now or wait a little longer?
• Should I sell and cash my sizeable profit?
• When will the market bounce back…. Or crash again?

Those are common questions asked by most investors… but not me. I decided long ago to follow a clear investment strategy that doesn’t require me to dither forever about the optimal price of a stock, I buy shares whenever I want based on my investment principles and not the “price of the day.”

To put it simply, I strive to remove emotions out of the “investment timing decision process”. This simple, yet efficient strategy clears out lots of questions leading to paralysis by analysis. How can you seriously define the right price of a stock in front of your computer at home? Even professional managers are struggling to do that.

By keeping a focus on the long-term outcome (retirement in 10-30 years), I don’t have to worry about the current state of the market. I only have to worry about which great companies I want in my portfolio. Waiting with cash on the side would generate tons of questions that I can’t answer, in addition to costing negative interest on many Swiss banks for deposits above 250k.

I get the appeal of cash. Particularly if you grew up through the dot-com bubble or if 2008 is still a vivid memory in your mind and you saw people panicking and struggling to make ends meet when the economy took a serious turn for the worse. Having cash in the bank can feel like a safe place to invest your money, but remove the emotion, and it’s actually one of the riskiest long-term investments you can make. Cash loses value over time. A EUR 100 bill in 2000 is only worth EUR 68 today, when taking into consideration 2% inflation.

This is why simply holding your cash is far riskier than it sounds. With people living longer than ever — and spending more money on things like healthcare and education — sitting in cash as a long-term investment will mean you end up with less purchasing power down the road.

Getting better with money
With all that said, don’t go burning your savings. There is a place for cash in your life. Having a safety net of cash in the bank — three months’ worth of expenses is a good rule of thumb and will help you sleep at night and better handle the curveballs that life inevitably throws at us.

The bank is a good place to keep cash that you might need to access anytime within the next year or so. Longer-term investments — money that you won’t need for at least five years — should go into investment vehicles like the stock market, pension funds or ETF. If you’re a millennial, you have the biggest advantage of all when it comes to investing – time. Don’t squander it by spending all your money or keeping it solely in cash.

1. Protect yourself and your family.
2. Make sure you optimize your taxes.
3. Open a simple savings plan and save for your future.
4. Buy your first property.
5. Maximize your profits by investing on the Stock Market.

But what should you do next?
These days, many long-term investors look to diversify their portfolios by investing in ART.

If you’re wondering whether it is feasible to earn a profit from investing in art, consider this, according to ‘Art Market Research’, in some art sectors the price of art has risen more than 1,000% in the last 40 years. If you have an investment time horizon of 10-20 years or more, the wonderful and profitable world of art may be right for you.

How to Buy Works of Art?
Starting an art collection for investment purposes is a big step. Before you even think about what, where, or how to buy, you need to consider a few things if you want to maximize your profits.

1. Research the Artist
2. Research the Artwork
3. Investigate the Dealer

Where to Buy Art?
In many cases, the question of ‘Where to buy art?’ can be as important as ‘How to buy?’ In answer to this question you have several options:

1. Auctions
2. Galleries
3. Art Fairs
4. Online

Where to Buy Art?
In many cases, the question of ‘Where to buy art?’ can be as important as ‘How to buy?’ In answer to this question you have several options:

1. Auctions
2. Galleries
3. Art Fairs
4. Online

What are the Pros & Cons of Investing in Art?

Advantages:

1. Physical Asset. A big plus for many investors is the fact that you have a physical asset.
2. Enjoyment Value. Fine art is an asset that can be displayed and appreciated. As a matter of fact, if you don’t like art, invest in something else.
3. Appreciates Over Time. Unlike stocks, art usually appreciates steadily with time.
4. No Market Fluctuations. This is seen as one of the biggest advantages to investing in art. The collector can sleep peacefully at night, without the worries of market volatility.

Disadvantages:

1. Barrier to Entry. The main barrier to entry into the art world is lack of knowledge, which is essential for this type of investment.
2. Not a Liquid Asset. Art is not a liquid asset in comparison to other forms of investing.
3. Care of Asset Can Be Difficult. The problem starts with displaying or storing the artwork safely, caring for and maintaining it to preserve its value, and having it insured in case of a fire or natural disaster.
4. No Guarantee It Will Appreciate. The art world is a very fickle environment. New or established artists can quickly fall out of favour as quickly as they rise to the top. The best thing to do is make sure you truly like every piece in your collection.

Investing in art is not for everyone. It can be extremely lucrative and rewarding, but there is no guarantee the artwork you purchase will appreciate in value. For many people, the world of art is not just a hobby or investment – it is a passion. So, consider that carefully and begin your wonderful journey.

I often hear of tales of investor woes. People investing in the stock market, being burnt, and the experience framing their future expectations of investing. We all have that friend or colleague who invested high and sold low; who took a seat on the rollercoaster ride of market volatility, hated every second and pulled the emergency rip cord. Yes, most survive (albeit with less money). But the scars are real. Behavioral Economics 1.01.

As soon as people I meet find out I manage money for a living, the most common question I get asked is ‘where do I invest my money?’ ‘Give me a tip for getting a good return’. To me this is the essence of why people fail with their investments and a question I will never answer unless in jest – ‘The 3.10 at Ascot looks a sure thing!’

I liken the scenario to asking a doctor ‘what’s wrong with me?’ The doctor can never know without asking further questions: diagnostics of the symptoms, and an answer will materialize.

When it comes to investing, some people lose the ability to think logically and strategically. They ignore their own symptoms and forget to ask the main question – Why am I investing? What is the purpose of my investment? Without knowing these two vital points, managing the uncertainty of investing is impossible.

We have to acknowledge uncertainty. It exists. We don’t know exactly what is going to happen in the world tomorrow, next year or in a decade from now. When we think of managing money, there are many unknowns we need to consider. I would split these into two categories:

Personal Life (Subjective) and The Economy (Objective)

In our lives we will all face some certainties, death and taxes are two of the most common. Retirement, if we’re still alive of course. Some unknowns we are better at predicting than others – but others we know could exist (the bank of Mum & Dad – Keeping kids liquid since forever…). Planning for these life events and thinking about the uncertainties are key. We all know how we want life to progress but it very rarely goes to plan. If we plan for uncertainty, we are more adaptable to change and we can avoid having to sell that start up stock we bought 10 years ago that might be worth millions one day (think amazon).

By organizing your money in line with separate goals, you can build clearer objectives for any investment. You need to think about liquidity for events not just in the short term but in the midterm too – disinvesting from an asset because you need liquidity can be tough and you may sell at the wrong time.

The longer the time frame of investment, the higher the risk you can afford to take. The shorter the time frame – what are you trying to achieve? Ask yourself, what is your capacity to invest – Can you afford to? Or can you afford not to? Finding the balance to these questions will stand you in good stead to navigate the investment waters ahead.

We are all aware that the economy is a different life form. It reacts to events in ways that will keep economists in well paid jobs for millennia. Some try and profit from uncertainty in the economy, they gamble on what is going to happen in the world based on their own experience and understanding of the way the world works. The closer their own expectations to the reality, the more profitable people can be. However, this is simply gambling; it is the biggest pitfall of investing for the masses. Very few people ‘win’ on short terms bets in the economy.

The economy provides us the framework for how we earn, save and invest our money. Our understanding of it and our ability to navigate it determines how successful we are with money. We know from academic studies that asset allocation determines both the risk and return dynamics of a portfolio of investments. Diversifying and ensuring the objectives of the investment are understood are so important to achieving the goal of the investment.

So how do we manage uncertainty? We PLAN. We REVIEW. We REACT. And we do it ALL THE TIME.