Tag: Finance

Why Mentors Are Still Important Mid-Career 

Published in: Resources |

When thinking of the typical mentor-mentee relationship, the image that comes to mind might be of a seasoned professional advising a new college grad over coffee. 

But mentorships should exist at every stage of your career. As Nilanjana Dasgupta, professor of psychology at the University of Massachusetts, says in CNN Moneypart of it is subverting our ideas of what mentorship looks like. “Mentoring doesn’t always happen in a hierarchical way,” she says. “Often, mentoring happens in bidirectional ways, and you learn different things from different people.” 

Mid-career women might feel embarrassed or nervous about seeking out a mentor, for fear of looking incompetent or being rejected. But this move does exactly the opposite. Mentorship expands your career opportunities, builds crucial connections within your professional network, creates a community of support and trust, and ultimately brings you a sense of purpose and meaning.

The benefits of mentorship are numerous, and mentorship helps break down systemic barriers within organizations: “Growing research has also shown that intentional mentorship programs have a positive impact in chipping away at the promotion or opportunity gap, gaps that keep women and people of color from advancing within organizations,” Fast Company notes.

As Seena Mortazavi, CEO of mentoring software and platform Chronus, says, We know that people really don’t get promoted without having a champion and someone that can speak about you behind closed doors. Having mentoring as a part of the employee journey helps to level the playing field so everyone has the same opportunity to progress in their careers.” 

Mentorship During a Crisis

Mentorship is especially important during this COVID-19 crisis, a time filled with uncertainty and loneliness and when mid-career women might be considering a career change. The culture of inclusion and belonging that mentorship fosters is just what mid-career women need during this stressful time.

Mentors help boost confidence during difficult times and build trust. Even if it’s just through Slack messages or Zoom calls rather than handshakes and lunch, these moments can help professionals weather through the COVID-19 crisis.

Join Us at One of Our Conversation Circles 

The Humphreys Group is passionate about connecting women at all stages of their career through our Conversation Circles.

Our circles consist of a group of 12–15 women sitting together (now virtually), and we have honest, authentic conversations about money beyond the numbers. We have discussed topics ranging from “What’s Your Worth? The Art of Advocating for Ourselves” to “Fiscal Unequals: Finding Common Ground with Friends and Family” to “What’s in Your Resilience Toolkit?” If you’re interested in joining us at our next event, reach out to us today! 

Financial Tips for Starting a Family

Published in: Resources |

Starting a family is a momentous and life-changing experience — and it’s also is expensive. According to the U.S. Department of Agriculture, it can cost a middle-class family $233,610 to raise a child until they are ready to leave for college. It’s important for families to financially plan for this big step. Here are some key financial considerations and tips you should keep in mind as a new parent.

1. Several months in advance, do your research and create a new budget.

Starting a new family means dramatically adjusting your cash flow and lifestyle. Calculate items like baby clothes, food, formula, nursery items, and diapers. A significant new cost will be daycare, whether it’s a daycare facility or a nanny. Get estimates from multiple sources so you can plan effectively. Monthly full-time childcare can cost on average $1,000.

Include new medical expenses in your budget. Talk with your health insurance provider to find out how much coverage you have for hospital bills, such as ultrasounds, labor costs, vaccinations, and regular check-ups.

Try to pay off credit card debt before your child arrives. Also, establish an emergency fund. Aim to save at least three to six months of expenses.

2. Think about lifestyle changes.

In the future, you may want to buy a new home for your growing family; when your child is school age, you might want to move so they are in a good school district. Other lifestyle changes include factoring in the costs of activities like piano lessons, soccer team memberships, etc.

3. Determine how you want your child to be covered under a healthcare policy.

Having a baby is considered a “qualifying life event” that allows for a mini open enrollment period so you can make changes to your health coverage. If both parents are working, view each of your employer’s benefits to see which plan is most advantageous for the delivery and ongoing care.

Increase your Health Savings Account (HSA) contributions. HSAs are available to those in high-deductible health plans; it can can be used to pay for a variety of medical expenses. HSAs are different from Flexible Spending Accounts (FSAs) for medical expenses in that there is no “use it or lose it” provision; there’s no time frame in which you are required to spend the money.

4. Research your employer benefits.

Does your employer offer paid parental leave or a FSA (which allows you to save money for medical expenses pre-tax)? Talk to your company HR department. With a FSA, you can have additional money withheld to cover the cost of daycare expenses. This will make some of the expenses come out pre-tax and lower your taxable income.

If your employer offers a 401(k) retirement account, contribute to it so you can prepare for retirement. Many employers also offer a 401(k) match; find out about the contribution match levels.

5. Plan for your child’s education.

Start setting aside money to cover college costs.  Talk to your financial advisor about tax-advantaged education savings vehicles such as 529 college savings plans.

6. Know of tax breaks.

Know of the tax benefits of having a child. The Child Tax Credit (CTC) provides a $2,000 tax credit per child, subject to an income phase-out starting at $200,000 for individual filers and $400,000 for joint filers. Research the Child & Dependent Care Credit if you are planning on using some form of childcare,. This reduces your tax liability by up to $2,100 if you have two or more dependents and have incurred more than $6,000 of qualified expenses.

7. Review your life insurance needs.

If you pass away, life insurance can bring your family some financial security by replacing the income needed to maintain their lifestyle. It can also help with outstanding debts, mortgages, and your child’s education. Two types of life insurance policies to consider are term and permanent. Talk with a financial professional to find the right life insurance policy for your family. Also consider disability insurance to replace lost income.

8. Have an estate plan in place.

An estate plan will protect your family’s future. Make sure you have the following in place: a will, a durable power of attorney (DPOA), a health care proxy, and a living will. Update beneficiary designations on accounts to include your child.

9. Talk to a financial advisor.

Talk with a financial advisor to protect your finances — now and for in the future.

Financial Planning with The Humphreys Group

Starting a family is one of the biggest and most exciting transitions in life. Reach out to The Humphreys Group today to start financial planning.

Retirement Planning: What Women Should Know about Social Security

Published in: Resources |

It’s no secret that women face greater economic challenges in retirement than men: women live longer, often have lower lifetime earnings, and may reach retirement with smaller pensions and other assetsThis has all been exacerbated by the pandemic recession, which has been so disproportionately damaging to women’s careers that experts are calling it a “shecession.” 

With this gender gap in retirement security, it’s important for women to be financially knowledgeable so they can best prepare themselves for retirement. Below, we share 5 things women should know about Social Security. Also, note that while Social Security is important for a secure retirement, it only replaces about 40 percent of pre-retirement earningsyou will also need to have other income from pensions, savings, and investments. 

1. Nothing prevents you from getting Social Security benefits. You may be eligible for your own benefits if you’ve worked and paid taxes into the Social Security system for at least 10 years and have earned a minimum of 40 work credits. Whether you’re married or not and whether your spouse collects Social Security or notyou may be eligible for your own Social Security benefit once you’re 62 years old.

2. There’s no marriage penaltyIf you are married and you and your spouse have worked and earned enough credits on your own, you will each get your own Social Security benefit. A working woman is not limited to onehalf of her spouse’s Social Security.

3. If you qualify for two benefits, you get the one that pays the higher rate — not bothYou are potentially eligible for benefits on both your own and your spouse’s work record, but you only receive the higher rate. If you don’t have your own work record, you are eligible for between one-third and one-half of your spouse’s Social Security benefit. Most working women receive their own Social Security benefit amount because it’s more than one-third to one-half of their spouse’s rate.

4. If you’re divorced and were married at least 10 years, you’re eligible on your ex’s Social Security recordDivorced women who were married at least 10 years are eligible for Social Security based on their ex’s record, if they are unmarried when they become eligible for Social Security.  

5. You’re eligible for a widow’s benefit when your spouse or ex diesAt age 60, a widow is eligible for 71 percent of what the spouse was getting before they died; at full retirement age, the window is eligible for 100 percent. The Social Security Administration pays your own retirement benefit first, then supplements it with the extra benefits you are due as a widow to bring your Social Security benefit amount up to the widow’s rate.  

Retirement Planning with The Humphreys Group 

The Humphreys Group is passionate about helping women harness their innate financial strengths through an honest, empathetic, and smart approach to wealth management. Want to learn more about retirement planning? Reach out to our team today.

Tips on Broaching Money Conversations with Aging Parents During the Pandemic

Published in: Resources |

The COVID-19 crisis has been stressful for everyone. We’re all feeling its effects — emotionally, mentally, physically, socially, and financially. But the pandemic has been especially hard on the “sandwich generation” — a term used to describe middle-aged adults who care for both elderly parents and children.

Nearly half (47%) of adults ages 40 to 59 are dual caregivers, attending to the financial, domestic, and emotional needs of their elderly parents and children. And women in the sandwich generation usually are the ones shouldering this dual caretaker responsibility.

Tips for Talking about Money with Your Elderly Parents

If you’re part of the sandwich generation and need to broach uncomfortable money topics with your parents during the pandemic, how can you do it tactfully and successfully? Here are a few tips:

Be sensitive and careful when offering financial guidance. Your parents likely don’t want to be a burden and/or lose their independence. Saying “Do you need help with your finances?” may sound like you don’t think they are capable of doing it on their own. Instead, convey that you want them to be best prepared in case something were to happen, says Credit Karma co-founder and Chief Executive Ken Lin in the Wall Street Journal. This makes it more about you instead of them.

Be gentle in your approach and consider that your parents may well have everything under control. That said, there are a lot of current changes to keep track of with market volatility and government bailout packages, and it can be helpful to make sure that everyone is up-to-date on the most recent legislation. Keep things organized and factual. Share information and include your parents in any decisions.

The CARES Act has included some provision for retirees that you will want to talk to your parents about:

  • Required minimum distributions (RMDs) have been suspended for 2020. (Keep in mind that if your parents already took their RMD for 2020, they cannot reverse it.)
  • There are no penalties for early withdrawals from IRAs or other retirement accounts.
  • If they’re receiving Social Security, they aren’t required to file a tax return to receive their stimulus check. Stimulus checks have started to be paid by direct deposit so remind them to check their bank accounts.
  • They can receive extra incentives this year for making charitable contributions, including the application of a special limit for gifts to public charities of 100% of their adjusted gross income (AGI).

Ease into the process of taking over their finances. Start with gradual steps, such as adding your name to your parents’ bank accounts, making copies of important documents, and getting their financial advisor’s contact information.

Make sure they have the necessary documents. Your parents need a power of attorney in the event they ever become incapacitated and can’t make a decision on their own. If notarizing the documents in-person is not an option, look into if your state allows legal documents to be witnessed or notarized virtually.

Review all financial-related documents, such bank and brokerage statements, insurance policies, wills, health-care proxies and car titles. Gather Social Security numbers, passwords, and bank PINs.

Assess cash flow. Understand their sources of income, such as pensions, Social Security, or investments. Also, do they have an emergency fund to fall back on?

Dust off the budget and review spending. It is likely that our spending habits have changed during shelter-at-home orders, but some fixed costs may still need to be covered depending on your parents’ situation. It is always good practice to review spending and cash flow including where to cut back since this is one of those emergency times for which we contingency plan. Make a list of recurring bills; take note of which bills are automatically withdrawn from their accounts or charged to a credit card.

Revisit investment accounts. Are they being proactive with strategies such as rebalancing their portfolio and tax-loss harvesting?

Protect them from scammers. There’s been an uptick of scams during the COVID-19 crisis. According to the FTC, in the first nine months of 2020, victims lost $150 million to phony offers of job training, work-from-home schemes, or investment opportunities.

Protect your parents from scams by being the “trusted contact” on all of their accounts, the Wall Street Journal suggests. Review their accounts monthly and set up automatic payment for as many bills as possible. Also, consider registering their phone number with the National Do Not Call Registry.

Reassure them and remember that it’s a good strategy to keep focused on one’s financial plan and goals while tuning out the noise.

Financial Planning with The Humphreys Group

The Humphreys Group provides financial planning to clients in-person (during the “before times”)  and remotely throughout the country. Our expertise is helping women navigate their particular challenges — such transitions as marriage, divorce, widowhood, inheritance, and taking care of aging parents. Our passion is helping clients take control of their financial lives and get smart about money. Interested in becoming a Humphreys Group client? Reach out to our team today.

Our 2021 Wish For You

Published in: Resources |

So this is what it’s like to live through a pandemic. It’s tough, to say the least. We have all experienced tremendous loss and disappointment and may have had some pretty dark days.

We’re not fans of forced “happy talk,” but we are grateful for the lessons learned in 2020. We learned so much this year — especially about ourselves and our strengths — individually and as a community.

So here’s to 2021! Let’s remember the values and qualities that got us through 2020 and use that as the perfect vantage point from which to look ahead.

As we jump into 2021, we thought it appropriate to celebrate our collective resilience and perseverance with some inspirational words.

1. Gratitude. Start the new year by reflecting on the days just left behind. What made them challenging? What did you cherish?

2. Connection. As Brené Brown says, “Connection is the energy that is created between people when they feel seen, heard and valued – when they can give and receive without judgment.”

3. Empathy. Think of someone in your life. If you could have a free and open conversation, what would you like to say to them. Put a plan in motion to make it happen.

4. Courage. Embrace the bravery and connection that comes with being your true, authentic self.

5. Community. Be grateful for the inspiring community of women you have in your life — reach out and let them know how much they mean to you.

6. Discipline. Harness your strengths. Know the risks. Work the problem. The future looks exciting.

7. Resilience. Doubting your abilities during financial, professional, or personal roadblocks? You already have the tools to succeed. You are strong enough.

8. Restoration. Lalah Delia says, “Self-care is how you take your power back.” Choose YOU by starting a self-care routine that powers you up.

9. Confidence. Be clear about your goals and values; you’ll find making decisions can be simple and straightforward. Start by defining what matters most.

10. Creativity. Creativity drives progress. Question stereotypes and look for new solutions and methods of doing things. Celebrate curiosity.

11. Generosity. Giving can contribute to your overall sense of life satisfaction and purpose. Consider what “time” or “talent” you could provide to someone in need.

12. Inspiration. Inspiration can come from the people and places in our lives. Who is inspiring you? Plan time together and start the year inspired.

These words of inspiration are a reminder that we have what it takes not just to survive, but to thrive. Cheers to 2021!

Rewriting the Rules: Building a New Blueprint in 2021

Published in: Resources |

In our eBook, Rewriting the Rules: Telling Truths About Women and Money, our research helped us distinguish myth from reality when it comes to women, money, and personal finance. Here were some of our key findings:

1. When it comes to investing, women gain a performance edge thanks to their patience, low-trading frequency, and goal-driven strategies.

2. Our money and our emotions are inextricably intertwined. The more we recognize and embrace this, the more our “elephants” (intrinsic motivations) can inspire our “riders” (rational actions), and the more we can harness our emotions for positive change.

3. Women aren’t afraid of risk — but their heightened risk awareness leads them to allocate their risk-budget prudently.

4. Women make financial decisions in a measured and patient way.

5.  Women learn best in group settings and are eager to benefit from the wisdom of their peers.

6. For women, investing is less about bragging rights than it is about accomplishing goals and reaching life’s milestones.

7. Keep it simple, sister — women aren’t seduced by unnecessary complexity.

8. Women are more engaged in financial wellness programs that are well-paced, relevant to their daily lives, and presented in clear terms.

Today’s financial institutions were built by and for men, so it’s no surprise that the “norm” does little to reflect the strengths and preferences of women, as described above. What would happen if we flipped the narrative? What if we redesigned the world of personal finance, using the strengths and preferences of women as our starting points?  Until very recently, the industry has kept women away from the table. Now that we have a seat, we don’t necessarily have to do things the way men have all these years.

Our ability to listen — truly listen — and engage in meaningful conversation is key. So far, women have been asked to reject or mask their femininity in the workplace, in the business world, and in financial conversations. Instead, let’s value our insights, derived from our lived experiences, to develop viable business models that can benefit us all.

In a capitalist society, money is power — there’s no getting around that. We deny it to our own detriment. How do we want to wield our financial power? To quote one of our heroes, Sallie Krawcheck, founder and CEO of Ellevest and veteran of Wall Street:

“Financial feminism is about women doing four very important things with money: earning it, making more of it, saving and investing more of it, and using it to make our world better. And it’s not just good for us — the more opportunities women have, the better off society is.”

What she said!

We will do ourselves a disservice if we avoid getting smart about, recognizing, embracing, or talking about money and how it shapes our lives. Instead, women can recognize and embrace their leadership roles, within their family or on a team at work. In many aspects of our lives — including the financial ones — we can operate in ways that are similar and dissimilar to men. What starts out feeling uncomfortable becomes easier and less fraught over time. While we build skills and confidence, step-by-step, we can lean on each other, collaborate, share wisdom, and ask for help — but the point is to start.

You can download our eBook, Rewriting the Rules: Telling Truths About Women and Money, here.

What’s Your Worth: Discover the Art of Advocating for Yourself

Published in: Resources |

Whether something smaller — like asking for a discount on a defective item or negotiating for a cheaper rate at a hotel — or something bigger — like asking your employer for a raise or getting the information/answers/treatment you need from your doctor — the idea of advocating for ourselves makes many of us squeamish.

We worry about hearing the word “no.” We worry we don’t deserve what we’re asking. We worry we’ll make the other person unhappy or angry.

And not only do we need to fight that discomfort within ourselves — society is also telling us to “stay in our place.” Women are expected to be unselfish, caring, emotionally expressive, and interpersonally sensitive. If we do act “out of role,” the response we get is exaggerated. Self-advocating by women is seen as even more self-promoting, even more aggrandizing, than if a man were to do the exact same behavior.

The social cost of women self-promoting is that they’re less liked, by both men and women. And this is important — because being liked is a powerful tool of persuasion, whether at work, at the neighborhood association, or with your doctor.

So what do we do? How can we successfully advocate for ourselves?

Women Have a Superpower: Advocating for Others

Women have a superpower in this area — advocating for others. We are expected to advocate for others, and we’re more liked when we do so. And research shows we are better at it than men. Women are better at recognizing the value of what both sides bring to the table — which makes it easier to identify a win-win outcome.

So let’s use this superpower to our advantage. Those resources and strengths we use when we go to bat for our friends, family, or co-workers? We can use those resources when going to bat for ourselves.

Self-Advocating: Words of Wisdom

Next time you need to self-advocate, enlist the support of your fans. Ask others to advocate for you (e.g., nominating you for awards, suggesting you as a keynote speaker). Ask your peers to help you craft an effective case. What would they say about you? Resist the urge to tone down their words.

When self-advocating, think about whether you can also make a case for something larger, for the greater good. Position yourself as connected to a group and not just out for yourself. Think personally, act communally.

Remember, what you do for yourself as a self-advocate, and for each other as other-advocates, will impact not just your life/career but the lives/careers of others too, and for generations to come. Advocating for yourself — worthwhile in itself — is still advocating for others!

Lastly, keep this in mind: If you feel discomfort when self-advocating, know that it is caused by gender stereotypes, something outside yourself. And that the feeling is shared by many, many women.

Continue the Conversation with The Humphreys Group

Especially during this pandemic, we need to advocate for ourselves. We need to talk to employers regarding how we can feel safe during the pandemic and find a flexible working situation, and we need to set boundaries with family or friends. Want to continue the conversation about self-advocacy when it comes to your finances? Reach out to our team today.

New Year’s Resolution Ideas for 2021

Published in: Resources |

As financial planners, we’re passionate about setting goals (financial or otherwise), reassessing, and course correcting throughout the year. But after such a turbulent and unpredictable 2020, you might not feel motivated to set New Year’s resolutions for 2021.

Yet goal-setting is still important. In fact, a 2015 study found that when people wrote down their goals, they were 33 percent more successful in achieving them than those who formulated outcomes in their heads.

For 2021, we might not be able to confidently add “travel more” or “spend more in-person time with family and friends” to our New Year’s resolutions lists, but there are still many other goals that are within our control.

Here are some ideas:

10 New Year’s Resolution Ideas for 2021

1. Journal more. Journaling is a great way to de-stress and practice mindfulness. Whether it’s a gratitude journal, a “dear diary” journal, or a bullet journal, journaling helps you create structure in your day while also helping you self-reflect.

2. Take up other relaxing activities, such as yoga and meditation. Continuing the theme from goal #1, yoga and meditation will help you feel more centered and calm during this stressful time.

3. Read more, and/or join a book club. With everyone socially distancing, a virtual book club is a great way to stay connected with friends and colleagues. Looking for your first read? We recently shared on the blog three inspiring books on impact investing.

4. Give back. There’s been a record-breaking amount of charitable giving during the pandemic. In a Fidelity Charitable survey, 46 percent of millennials said they will give more in response to the pandemic. Looking for local San Francisco organizations to give back to? Here are some suggestions we recommended on the blog back in March, such as Meals on Meals, St. Anthony’s Foundation, and The Safety Net Fund.

5. Find new creative outlets. You might not be able to go to museums, movies, or concerts or take up a pottery or other art class in-person, but there are other safe creative outlet ideas. For instance, consider trying new recipes at home, taking a virtual art class, or trying other crafts at home.

6. Create personal work goals. Whether it’s getting a promotion or trying a new career path entirely, define what your professional goals are for the new year.

7. Step away from your phone. With all of us working remotely, it’s easy to stay glued to our phones all day — and doom-scroll on Twitter and news sites all night. Try to limit screen time in 2021; schedule phone-less breaks and leave your phone in the other room at night.

8. Spend time with family and friends (virtually). With the whole world telling us to stay inside and social distance, it’s easy to give up trying to make social connections. But for your mental and emotional health, you need to stay in touch with loved ones. Make sure to schedule video calls with family and/or stay in touch via email, text, or snail mail.

9. Review where your money is going. We had to include some financial New Year’s resolutions in here. Make it a goal to see where your money is going — what are your foundation expenses, discretionary expenses, intermittent expenses, and subsidized expenses? We go more in depth about this here. Armed with this knowledge, you can make more informed financial decisions throughout the year.

10. Build a budget — and create room for changes. Create a cashflow spreadsheet and plan out how much you want to spend and save each month.

Goal-Setting with The Humphreys Group

Our eleventh New Year’s resolution idea? Consult with a financial advisor. A financial advisor can help you define your values and create a path to reaching your financial goals — whether that’s paying off debt, saving up for a vacation in the future, buying a house, funding your child’s education, or saving for retirement. Make it a goal to at least have an introductory call with a financial advisor.

If you’re interested in working with The Humphreys Group, you can set up a complimentary introductory call with us today. We look forward to hearing from you!

The ABCs of ESG: Our ESG Investment Approach

Published in: Resources |
By Hallie Kraus, CFP®, CRPC®

We’ve discussed how ESG investing can motivate the corporate world to make positive change and have acknowledged the complexity of the investment decisions that are being made within ESG funds. Another complex aspect of ESG investing is that different financial firms adopt different investment strategies that are suited to their clients’ needs. It’s time for us to share our take on it!

How We Approach ESG Investing Within Your Portfolio

The Humphreys Group has invested in ESG mutual funds for 20+ years, and such funds currently make up about 15% of our clients’ assets. We have worked closely with industry leaders like Impax Asset Management and Parnassus Investments as well as newer entrants, such as Dimensional Fund Advisors, who are interpreting ESG in new, interesting, and valid ways. Our approach to ESG investing has evolved as has the industry, as the “opportunity set” has expanded as a wider range of funds has been made available, as the evaluation process has become more nuanced, and as the false choice between performance and social impact has been debunked.

All of this has led us to a robust process for implementing ESG investment strategies within your portfolio. First, we’ll ask you to complete an ESG questionnaire. This identifies what issues are most important for you — for many, it’s the environment, for others, it’s gender diversity, while others may focus on avoiding for-profit prisons or weapons manufacturing.

We’ll then review the questionnaire together, talk about priorities and about the issues you care about, and most importantly, we’ll help you identify the values that underly your passion for the issues. ESG funds will almost never match your preferences exactly, but truly getting to the heart of the matter is how we can find the investment strategies that will leave you feeling fulfilled while still helping you accomplish your investment and financial goals.

Based on this conversation, we’ll implement an ESG investment strategy in accordance with your overall portfolio investment guidelines, and when appropriate, we’ll refer you to resources for alternative strategies. Over time, you can expect us to include your ESG funds in your portfolio and performance reports and notify you of any changes or new developments that may further align with your values.

ESG Funds Outperform Their Competitors

Back to that false choice we mentioned earlier: how do these funds perform? For a long time, there’s been an often-repeated myth about ESG funds. Many advisors will offer these funds to placate well-intentioned clients, but in the same breath will caution that they require a sacrifice on the performance side of the equation.

However, the numbers simply don’t bear this out: Morningstar reported that sustainable funds comfortably outperformed their conventional fund peers in 2019 — a pattern that has only accelerated during the pandemic. In 2011, a Harvard Business School study examined 180 US firms and found that those with strong sustainability policies outperformed their competitors by almost 4% per year. And in 2015, Deutsche Asset Management and Hamburg University conducted the most comprehensive meta-analysis on ESG investing. After reviewing over 2,000 empirical studies since the 1970s, they found that the large majority of studies reported a positive relationship between ESG and corporate financial performance. The researchers concluded that the business case for ESG investing is well founded. It’s becoming impossible to ignore that ESG funds are not a risk, they’re an opportunity.

And you don’t have to be Janet Yellen to understand why this makes sense! Companies that incorporate ESG into their decisions tend to be less risky than those making bad decisions, because the bad actors are more likely to incur financial losses (think of the BP oil spill, Volkswagen’s emissions scandal, and Wells Fargo’s account fraud… you get the idea). Doing the right thing has increasingly become good for business, and therefore good for investors.

ESG Investing Is Always Evolving

Of course, it’s good to remember that impact investing exists as a spectrum — a spectrum that has and will continue to evolve as investors respond to the changes within our economy and on our planet. How we make a difference with our money is also sure to change, and we may find ourselves using different approaches on that spectrum to complement our goals and values over time.

Now that ESG investing has proven itself as an increasingly powerful force for good, we invite you to utilize it the next time you feel a calling to make an impact. Because if 2020 has taught us anything, it’s that fostering our collective power will get us closer to a more equitable, more sustainable, more empathetic world.

Are you interested in ESG investing? Contact The Humphreys Group to learn how we can help you meet your goals.

The ABCs of ESG: Investing in Action

Published in: Resources |
By Hallie Kraus, CFP®, CRPC®

As we noted in our most recent blog post (linked here), there has been a tremendous rise in the interest in impact investing and the dollars devoted to it. The primary driver of ESG, and the reason it has become so popular in recent years, is the simple desire to use our money to fund companies that are making the world a better place. Many ESG investors are pleasantly surprised to find that in addition, they’re supporting engagement between investors, businesses, and the government. What does that actually look like?

As is always the case, each asset manager has a different approach and different criteria. But let’s take a deeper dive into the acronym itself, then focus in on the most common investment strategies.

What does ESG stand for?

Before investing in a company, a portfolio manager typically analyzes a massive amount of financial data: everything from its balance sheet and profit margins, to the current phase of the economic cycle, and the current interest rate environment. Managing an ESG fund comes with the additional responsibility and opportunity to incorporate a variety of environmental, social and governance (ESG) factors into their analysis. Here’s what’s actually behind that acronym.

Environmental: What does a company do (or not do) to protect the environment? As you’d probably expect, the most important information that falls under this category is a company’s sustainability practices and their greenhouse gas emissions. But this may also include their water and land use practices, treatment of animals, product packaging, renewable energy usage, and whether existing climate change trends will threaten the company’s future.

Social: How well does a company treat their employees, customers, suppliers, and society at large? Mutual fund companies usually pay attention to labor practices, what sort of hiring, human resources and safety policies the company has adopted, how they protect consumer privacy, their customer satisfaction, and where their supply chains are sourced.

Governance: How do corporate leaders run their business and relate to their stakeholders? Asset managers are usually most interested in executive compensation and how their financial incentives align with the company’s success. They’ll also look at the quality and diversity of the board of directors and management team, how they communicate with shareholders, and examine past lawsuits brought against the company.

Mutual fund companies will use these factors, along with data from third-party rating agencies, like MSCI ESG and Sustainalytics, to develop a comprehensive analysis of the company — in fact, many often end up developing their own ESG rating system.

And here is where the rubber meets the road. When you buy shares of an ESG fund, portfolio managers typically invest your dollars using one (or a combination) of the following strategies:

Negative (or Exclusionary) Screening

If a fund is negatively screened, it means that it either underweights or eliminates companies that the portfolio management team has deemed objectionable based on their ESG data. For example, many ESG funds refuse to invest in tobacco, alcohol, or gun manufacturing companies. They may also eliminate companies that violate some set of norms, like the Ten Principles of the UN Global Compact, or operate in countries with corrupt leadership or human rights abuses.

Positive (or Best-In-Class) Screening

If a fund is positively screened, it holds or overweights companies with strong ESG performance. Oftentimes mutual fund companies will develop a minimum standard based on their ESG rating system, and this strategy invests in companies that exceed that minimum. This is also sometimes called the “best in class” approach. To be clear, this doesn’t always mean they eliminate the poor performers from their fund — it just means they overweight the best performers of a specific group or sector.

Thematic (or Inclusionary) Investing

Then there’s thematic investing, which is not about rewarding or excluding certain companies, but instead about concentrating on one ESG issue. For example, a thematic fund may invest only in companies that use renewable energy, or only in companies that achieve a certain level of gender diversity in their management (like one of our favorite ESG funds, the Pax Ellevate Global Women’s Leadership Fund). Most of the time, thematic funds are focused on an issue that the portfolio management team believes will become a widespread (and profitable) trend over time.

Still, ESG Investing is Subjective

Some mutual fund companies practice just one of these investment strategies, and some may use a combination of all three.

But here’s the thing: try as we might to outline these strategies in a straightforward way, ESG investing in real life is not usually as simple as holding or not holding this or that company. In fact, it’s quite subjective, because every mutual fund company has developed different ESG criteria, offers different depths of research, exercises different levels of flexibility, and deploys a variety of investment strategies.

That means that you may hold a positive screened ESG fund, but still be surprised to find that it holds an airline or an oil company — when in fact the reason it’s there is because it has better ESG metrics, or is making significant strides, compared to other airlines or oil companies. Even negatively screened funds are not absolute: they may underweight, but still hold a very small stake in, companies you consider unfavorable.

All of that is to say, as it becomes more popular and more dynamic, ESG investing is moving away from the binary “yes/no” approach and toward a more nuanced and proactive methodology. The good news is that it can still be worthwhile. In our last piece, we bring this all a little closer to home and outline how The Humphreys Group approaches ESG investing within your portfolio. Check it out here.