Our newest advisor, Jake Ifshin, has spent some time recently thinking about why he’s embarking on this new adventure, and what investing means to him. Here’s a guest post with his current consideration.
My Investing Story
When I started investing, I followed the shiny object. That new tech stock, the maker of a product I liked, the company my friend told me about. Then I learned this was the “wrong strategy.” Conventional wisdom is that we are all supposed to buy index funds only. Diversification! What could possibly go wrong?
This strategy, while historically profitable for most investors, disconnected me from learning about the companies I owned. While indexes protected me from the volatility of picking my own stocks, at the same time I was unaware of where my money was going and who was benefitting from the flood of “dumb money” that the index funds pour into the markets.
In 2021, I exited all my stock positions. I felt that my investments were funding an extractive economic system that consistently put shareholder profit over the well-being of workers and the planet. Over the past three years, my thinking has evolved, and I re-entered the market recently. I had three realizations that supported this decision.
- Realization 1: Growing wealth through investment income is essential for me to live well and securely in our present economic system
The need for passive income and capital appreciation has become more obvious to me, especially with recent high inflation. Earning compound interest is a time-honored, powerful strategy to grow wealth. By sitting out traditional markets and still using their products, I was missing out on growth and gains while still relying on what our economy produces. In other words, I was being too principled, and making a sacrifice that didn’t benefit anyone and which hurt me. I was holding too much cash since I had not found a good alternative to stock investing.
- Realization 2: I can invest in the stock market in a way that supports positive change and limits damage to people and the planet
As I explored socially-responsible investing (SRI), I realized that there are a network of firms, non-profits, and banks committed to investing better. SRI tools have advanced to the point where we can build portfolios that quite accurately reflect investors’ values. The tools provide me with peace of mind — my resources are not funding private prisons, weapons manufacturers, Monsanto, Purdue Pharma, etc.
- Realization 3: I don’t have to sacrifice returns to invest responsibly
Socially responsible investments, including the investments Horizons have made in the past, have kept pace with the growth of the market as a whole. One of the largest SRI indexes is the MSCI KLD 400. It has closely mirrored the movements of its more vanilla counterpart indexes for 30+ years.
While past performance is not a predictor of future results, historically companies with high SRI ratings have produced better long-term results. There are a large number of academic studies supporting these conclusions — some examples are available via our colleagues at the Sustainable Investment Forum (https://www.ussif.org/performance).
Thanks for reading. If you are interested in aligning your portfolio with your values and exploring SRI, email me at Jake@horizonssfs.com
