Socially Responsible Investing #097

to it. And I think socially responsible investing is something that is on the mind of a lot of investors. In particular, younger investors really are trending towards socially responsible investing introves and it's really changing the industry as a whole. You know, let's get into that in just a second. First, Matt, I wanted to let you know I had to buy a new washing machine at a rental property the other day, and I have acutely felt the impact of the Chinese

tariffs that are currently in effect. Man washing machine prices and other prices to have gone up just quite a bit thanks to the tariffs that our president has levied against China and I don't like to get political on the show, but it's just worth noting that the tariffs have made are making an actual impact in consumer purchases right now. You're feeling that, I guess, washing machines are made of a lot of steel, so right, you're gonna have to get old school and wash your clothes by hand. Yeah,

like a little wash basin, hang them up. My tenant will have to I guess right. I ended up finding that actually buying a used washing machine. While that has gone up in price too from from where it was, it's still it actually made more sense for me to go buy a used washing machine because they're just such a big difference in price right now because the tariffs

have made a new washing machine so expensive. Yeah, you know, I feel that buying a used washer and dryer set is a good way to go if you aren't in a hurry, you know, like you see the posted all the time on Facebook, Marketplace online. Uh, and folks are having to unload them because they're moving for work and they can't take it with them. Depends on the situation, but yeah, you can really get a good deal on like a brand new like fancy front loading sets for

a fraction of of what it would be new. I personally have never purchased a brand new washer dryer ever, that probably doesn't surprise folks. Yeah. Well, actually, the set that I had in this rental property I got for a hundred dollars from a friend who just needed them gone, and I moved to myself and put them in the place. I was just sad to see that the washing machine had kicked the bucket so quickly, you know, within a

year and a half of me buying it. Yeah, but you know what a hundred bucks for the set, you know, I still have a working dryer and they're still totally worth it, right, But I was able to score a six month old, almost brand new washing machine that was in really good condition for for three d bucks. So not ideal to pay that much. But when I was looking at that compared to the prices for new washing

machines right now, holy mackerel. Big savings, that's for sure. Yeah. So, by the way, based on my experience with you know, buying a washing machine and seeing kind of how the tariffs are impacting different consumer goods that that are sold in our society, I just kind of wanted to put that in front of people and say that as prices of certain goods go up, it makes it even more important to shop in the used marketplace because the price gap between new and used has just grown a lot

in certain categories. So yeah, just make sure to shop. These tariffs are not ideal for us when we buy items, but you know what, they're kind of part of the way it is. Right now, let's introduce our beer that we're gonna have on this episode. Man. This is Toffee Stouts by Carolina Brewery. And this was another beer sent to us by Emma, and she's out of Chapel Hill Man, and you know when she sent us these beers, she also sent these blue cups. And she said that every

Wednesday they go there and they share a beer. She shares a beer with her best friend, and so she said that reminded her of us, and that we had to have a set of these cups. Super sweet of her to think of us. And uh, Emma, thanks so much for sending this beer are away. We're looking forward to chatting it up at the end of this episode and drinking it in in the meantime. Alright, Matt, So

onto the subject at hand. We're talking about socially responsible investing, and man, these socially responsible investing funds have gained some major traction over the past in particular five to seven years, and in fact, it turns out that one in four investing dollars are now being invested in a quote unquote socially responsible way. Yeah, that's that's kind of mind blowing because there is a lot of money that's being invested right now in our country and to think that a

quarter of that that blows my mind. But yeah, it's it's true, right, Yeah, it's kind of just the pace of socially responsible investing has just really caught on fire and it's pretty incredible. And so this has been the most requested topic for us to talk about, and I feel like there's a lot to talk about when it comes to socially responsible investing. There are terms that we kind of need to parse out, but I think there's some really good takeaways we're gonna have for folks as

we kN to get into this a little bit further. Yeah, jel, But first, you know, we should ask ourselves the question should we even be going down this path? Right? Like we've talked about the simplicity of investing, and this in fact adds a curveball into the mix. But it's a valuable option for many, especially if you have issues investing in companies that do business and industries that don't align

with you personally. Right. You know, we had one listener say that he had avoided investing because he didn't want to invest in unethical companies. Well, you know, first him specifically, and others like them. This, in fact, it really is the right path to go down. Yeah, Matt, We've talked about so many other things when it comes to investing. You know, we've talked about, uh, the simple way to

do what, we've talked about the fees involved. But if those aren't your hang ups, right, if your hang up is you want to make sure that you're investing in companies that are doing good in the world, and not knowing if you can actually make that happen has prevented you from becoming an investor, well, it is important to

note that it is possible, and then it's gotten easier. Right, And interestingly enough, the perform mints of socially responsible funds have actually been shown to do just as well as the index, if not even just a touch better. So it turns out there might even be less risk investing in companies that have better socially responsible ratings than investing

in the total stock market as a whole. Obviously, past results don't indicate future performance, but since its inception the Vanguard FTS Index, the Socially Responsible Index has outperformed Vanguard's SMP five hundred index fund, which is important to note as we get into this conversation. Yeah, you know, it's awesome to see that socially responsible and conscious companies are being rewarded for the sort of the good work that they're doing and the extra steps that it takes to

be ranked well. And so these funds are no longer a niche product. Socially responsible funds are only going to grow and popularity. You know, we have a certain amount of power and responsibility in a way to move our money in a way that supports and incentivize certain types of activity. And so I think it's great that we're

starting to see that change. We're starting to see that shift towards these funds um and and right now just in the US alone, you know, we talked about how one and four dollars are being invested in a socially responsible way. That's twelve trillion dollars like that total invested in in socially responsible funds just in the US alone,

which is a mind blowing amount of money. And so I think it's encouraging to see that, and I think that a lot of companies are gonna take note and they're gonna start changing their behavior and how they respond to different issues that we as owners in the company

right as stockholders begin to present. Yeah, completely agree, it's going to change the way companies do business, this new method of investing, right, but just know also at the same time that it's going to be difficult to avoid all the murky realms of morality that occur when you attempt to invest in socially responsible funds. It's kind of the wild wild West out there right now when it comes to socially responsible funds, and there's a lot of

marketing involved. Honestly, there are a lot of high fees involved in a lot of these funds that are touting themselves as investing in only socially responsible companies. We're gonna get into that a little bit more, but it's important to note on the front end that just because a fund is touted as being a socially responsible fund. Well, that doesn't necessarily mean that's the case. One person's definition

of socially responsible might be another person's definition of socially irresponsible. Right, So it takes a little more personal involvement and research when you're attempting to pick the right socially responsible fund for you. Yeah, Joe, that's what makes it so difficult, right. It varies from person to person, and it's part of why it makes it so difficult to define what social responsible investing is. But we're gonna attempt that right after

the break. Okay, Joe, we're back. Let's talk now specifically about some different definitions. That way, we know we're kind of all on the same page. Often times you hear E s G, you hear s r I, youre impact investing, you're all those terms used interchangeably, but in fact they're pretty different. Uh. And so first let's talk about E s G. All right. So E s G is a rankings and evaluation system like you mentioned, Matt, based on environmental,

social and governance standards. It's the closest that you're going to get to traditional investing and the focus of these types of funds in particular, is actually to see how these different standards of the company might have as they raise their levels of commitment towards the environment and towards social responsibility, will actually have positive impacts on those stock values. So it's kind of like the tail wagon the dog. They're more concerned about the value of the company growing

as those commitments towards sustainability and better corporate governance actually increase. Yeah, but because of that, there is some good that comes from companies who rank well right when it comes to their e s G. So you know, a company might pollute less, and while that's good for the environment and how that might be good for our ability to breathe on this planet, it also is good for the company because they're not getting slapped with fines, they're not getting

shut down different things that might negatively affect that company. So there are some positive outcomes that can be a result of being ranked well or being considered an e s G fund. But just know, yeah, that their primary concerned is the monetary financial value of specific stocks within that fund. And the next let's talk about s r I,

which is just generally speaking, socially responsible investing. Typically these funds will strike more of a balance between doing good in the world, but at the same time also growing your money. They don't often take into account the furthest reaches of social and environmental responsibility, but they will, you know, purely eliminate certain sin stocks. Yes, stocks and companies that oftentimes are look negatively upon, like fossil fuel or oil companies.

It's pretty easy for those to be filtered out and filtering out, I mean, that's honestly a good way to think about socially responsible investing. A lot of times these are fun that's look a lot like other funds that you would normally invest in, but they don't include certain stocks and companies that might be a little more controversial. So sometimes they can be real similar to the index funds that you're used to, but just the cleaned up

versions of those, all right. At The third major category besides E, s G and s r I investing is impact investing. So impact investing essentially means that the funds primary desire is to see social impact and environmental change. That's the top priority, and financial performance is secondary. So whereas sr I investing, socially responsible investing might be passive

by avoiding certain companies. Impact investing actively seeks out companies with a mission to accomplish social good It's essentially investing your values over investing in value. And it's really interesting to see the far reaching impacts that impact investing is already taking on. And so, for example, there's a Racial Justice Index fund that seeks to investing companies that are committed towards creating a diverse workplace environment and they don't

invest in companies that aren't committed towards that goal. And so it is interesting to see the kind of ways that you can put your dollar to work when it comes to impact investing. Just know that if you are choosing that route, you're prioritizing social change over making a profit. And I think that is just an important distinction that needs to be made, especially since we're the very forefront

of these type of investment strategies. Yeah, Joe. What might be helpful too is to view these terms on a spectrum. We have three terms. E. S. G is at one end, where the companies are still very concerned with making sure that they make a profit. And by the way, if what they are doing good things socially in in the environment,

then great. You know, that's something that we can send out a report on, get some press coverage on, makes them look good, but they're not actively seeking those things out. S RI I is kind of more in the middle. Like we talked about socially responsible investing, and that's a way to still earn money in good fun but at the same time you're able to exclude some specific companies or industries who maybe aren't doing things quiet on the up and up in a way that you would like

to see them done. And then you know, you continue down that spectrum and then you have impact investing, right, and that's again where they're not really concerned about the money,

they're focused on that social change. All these terms are pretty new, and so it's worth mentioning that oftentimes these terms may be used interchangeably and maybe even incorrectly, and so because of that, it is up to you as an investor to kind of dig into the research a little bit and figure out what is included in the portfolios are these different funds. It's a little more work, but if this is a priority for you, this is

an important step. Yeah, Matt. In previous episodes, you know we've discussed just basic index investing being the kind of set it and forget it easy approach, especially for people that are in their wealth building years in phase of investing. But yes, this path attempting to invest in a socially responsible way, it requires more research on the part of the investor. So mary for inclusion in a socially responsible fund varies from company to company. For instance, Vanguard has

three hundred different measures for its fund. They look at water use, pollution, labor standards, health and safety records. But you know what, their standards might not be rigid enough for you, and other funds might include companies that you might not want to hold, like Wells Fargo or Equifax, who have been accused of poor labor practices or sell

products that you might not agree with. It's really important to do your research on the different criteria the different funds have that govern which companies can be included in that fund or not. And we kind of just touched on this, but a lot of times many funds will

look to mere different indexes that already exist. But again we'll exclude the companies involved, say maybe in the coal or the tobacco or the weapons guns industries, or even companies that have some privacy concerns like Facebook, and then some funds will make it really easy for you though, you know, and they'll clearly state their focus, including the different companies that advanced a particular cause. Joel, you just

mentioned a racial diversity fund. There's another one out there as well that promotes gender diversity on their boards and in management positions of companies. What's really cool about that fund is their tick or symbol is she It's just

sh G, which is super cool and very appropriate. And what I love about it though, is that it's incredibly clear as to what that fund is all about, and so it can be tough a lot of times it kind of wade through what these funds do, like like, how how is this fund any different than some of these other funds, except that I see that they cost more, right, Like their expense ratios are a little bit more, and digging into what it is that sets these funds apart

falls a little bit more to you as the investor. Yeah, Matt, And so a few weeks ago we had an episode about the importance of fees when it comes to investing. Well, what about the fees when you're trying to invest in a socially responsible way. We'll get down to brass tacks and discuss that. Right for the break, Let's talk now about the next steps. Right, you are researching your socially responsible funds, and let's just say you've got two of them that look great. They are very similar in what

they invest in or what they don't invest in. What the next thing? You want to look at our fees. We've talked before about M one and how they have their expert pies. Well, you know what they offer E s G funds themselves. Vanguard also has that great Newish socially responsible fund as well, and it has fairly low fees. Obviously not quite as low as VT sacks, but that

fund also does better on that spectrum. When as you're considering where to push your money, just know that because these different funds have grown in popularity over the last several years, that fees have come down and will continue to see those fees dropped because of competition. Yeah, and as you're seeking to be a socially responsible investor, you're gonna want to continue to be well diversified at the

same time, Right, fees are crucial. Diversification is also really important, So handpicking just a few stocks that you believe do well in regards to their social impact. Well, that's a terrible route to go because you don't want all your eggs in just a few baskets. But for instance, that Vanguard fund that we just mentioned has over four hundred

companies inside of it. Fidelity has a socially responsible fund that has almost three fifty companies inside of it, and that's diversified enough, and those funds do pretty well when it comes to fees. Will put links to those as well as the in one E s G funds in the show notes, so that you can kind of start to do a little bit of research about particular funds that we think will serve you well and see if those low fee funds match up with your values and

how you want to invest. As a contrast, though, it's really important to note that there are a lot of E s G, s R I and impact investing funds out there right now because it's becoming such a popular way to invest, and those funds might have a dialed in approach when it comes to investing in companies that are having good social impacts on the world around us, But there's also a good chance that the fees are incredib doably high, especially since so many of these funds

are new. So just be careful as you're digging around and you find companies that seem to prioritize investing in a way that you align with, because, as we've discussed on the show before, fees are crucial when we're talking about your investment returns over your investing lifetime. So just make sure that that is a point of utmost consideration

as you're doing your research. Ultimately, there's a way to invest according to your conscience while still making sure that you're not paying, you know, out the nose when it

comes to fees. Joel, hearing you mentioned sort of like these new kind of socially responsible funds that might be crazy expensive makes me think of kind of positioning right and branding and how they're kind of selling them themselves essentially to the consumer, which, honestly, it kind of makes me think of just how it's difficult to know whether or not companies are actually doing the socially responsible thing um And unfortunately, I think it's easy for us to

be led into thinking that a company is doing the right thing, you know, when in fact that they're not. It makes me think of Volkswagen, for instance. Generally speaking, I feel like that they've been positioned as this fairly hip, kind of in touch company. For the most part, their cars are kind of small and environmentally friendly at least they look at Yeah, the clean diesel was touted often, right and and ads before the emission scanal bro exactly,

but exactly then the emission scan will happen. And it turned out the Volkswagon, starting at a very high level, they did not have the environment in mind. And in fact we're just looking at the you know, their bottom financial line, deceiving folks. Yeah, man, it's it's it's unfortunate,

but it's true. I think what we can see though, moving forward is that a lot more pressure will be placed on companies to be transparent and to disclose what they're doing in regards to the environment, how they behave socially, and how the company governs internally. These are all factors that we're gonna be looking to not only as you know, consumers, but as investors before we were looking to part with

our money. Yeah, I think companies that don't do a good job in these areas they're gonna see fewer and fewer invest and dollars floating their way, and they're gonna lose a competitive advantage because of that. But for the individual investor, really in this whole space of socially responsible investing, it's going to take a bit more work. Especially where we are right now, there's still a wild West component when we're talking about investing in a socially responsible manner.

It can be done, and it's getting easy, and I think we're gonna see a proliferation in the years to come. Fees are gonna come down, Transparency is going to grow, and companies are going to change the way they do business because people are prioritizing investing in a socially responsible way.

And I think that's all great. I just think right now for the individual investor, there's some bear traps out there that can get you, and the biggest one is high fee funds touting their socially responsible investing philosophy but eating up your money in the process. Yeah, join something else that's so important, as well as to not let the unknown keep you from investing in your future at all.

We mentioned the listener who had sent us this question, mentioning how this was keeping him from investing, or at least the laying his investments. It can be really easy to start with that Vanguard Social Index fund or consider some different funds that have a higher E s G ranking. You can start there and as you gain knowledge and as the space kind of develops and evolves over time, hopefully you can make informed and smart decisions. And we'll link to some of those funds like again that we

mentioned in our show notes. All right, buddy, let's get back to the beer. Today on the show, we had toffee stout like Carolina Brewery. Thanks to listener Emma for sending this one our away. I gotta tell you, I wish my dad was here. He loved Toddy. He would have been all about this beer man, And I gotta say I really enjoyed myself too. Yeah, toffee is the same thing as a Heath bar right, Like exactly my bar is name brand toffee. Basically, my dad is obsessed

with Heath Bar Man. I'm a fan as well. How do you make that? Isn't it just kind of like melted down baked sugar and butter? That's my assumption. Yeah, Well, in this beer, I didn't taste a ton of those sweeter, you know, buttery notes, but I did get a lot of like roasted flavors. Uh, certainly, this was a really multi beer. You're not gonna get any betterness from the hopsper sae, but you will get some of that kind

of dark chocolate roasted bitterness. And if you like a really dark cup of coffee with maybe just a little bit of sugar, this would be a good beer for you to check out. I actually wrote down this reminded me of drinking a cold brew coffee, like totally reminded me of my morning cold brew that I drink every morning in the summer, with like that touch of sweetness, right, that toffee sweetness. But but really it's funny because this doesn't have any coffee. It's not a coffee scout. It's

a toffee stout. But if I wonder if it's the name, do you think it's the name that made us both instead of think toffee, it kind of made us think coffee notes. I don't know, man, it just totally it had that vibe for me. But the brain is a weird place, it is, it is, that's true. But but yeah, this had kind of that sweet coffee feel but also kind of this cold brew coffee underpinning to it. It was really really good and seriously, thanks Emma for sending

this beer. All wait, we really appreciate it. Yeah, thank you. Okay, Joe, let's take it to our final thoughts. What we want to leave listeners with, and that is, you know, this is a newer space when it comes to investing. There's a lot of terms floating out there. E, s G, s R I. Uh. You know that you have to do your own research, not only because this is a newer space, but because it varies from person to person

what you consider socially responsible investing. Maybe for you that's completely avoiding fossil fuels, or maybe that's you know, not investing with companies that have poor social practices, like they don't treat their workers. Well yeah, and don't forget to prioritize low fees at the same time, so crucial. We'll put a link to our favorite low fee E S G and s R I funds in the show notes and by the way, you can find those show notes

at how to money dot com. Well yeah, well, on that note, if you found this episode helpful and you're enjoying this podcast, we would love for you to leave review over at Apple Podcasts or honestly wherever you listen to your podcasts. It is all helpful, Thank you so much. However, if you think that we have some room for improvement, Joel and I we are always looking to do better, so you can go to our website how to money

dot com, Forward slash do better. Leave us some constructive criticism there, and we read every single one of those. So Joel, that's going to be it for this episode. Man. Until next time, Best Friends Out, Best Friends Out,