Money Talks, So Should You

Q&A: What are some tips for socially responsible investing?

Tom Nowak
by Tom Nowak, The Garrett Network

The term socially responsible investing is one of several similar expressions used to define a process where investment selection is made with the intention to advance a given (or set of) social purpose(s). Sustainable investing, mission-based investing and green investing are just a few examples of comparable terms.

The following tips apply to all investing. They are particularly important to socially responsible investing. Excess fee drag might discourage participation in an area which can forward social progress and contribute to helpful corporate behavior.

READ: 7 Tips for financial fitness

  • In a low return economic environment, investment fees matter. For example, $100,000 grows to $768,609 over 35 years at a 6 percent annual growth rate. With a 2 percent per year fee, the same $100,000 grows only 4 percent annually to $394,609 over the same 35-year period – 49 percent less!
  • Investors should look at various investment advisor service models/platforms with an eye towards what they truly can afford and what value they obtain. Using a commission-based advisor is analogous to keeping your car in the garage and taking a taxi just about everywhere you go (i.e. initial load and small annual fee). Paying an asset under management fee is akin to hiring a limo service (annual fee of 1 to 2 percent, year after year). Using an hourly, fee only advisor might be viewed as hiring a certified mechanic to install a GPS in your car and coming in for service, as needed, to get updated maps. Just like transportation, you need to decide what you can afford when choosing an investment model.
  • High investment fees in socially responsible investing are neither sustainable nor socially responsible (from the investor’s perspective). Offering up about 50 percent of the opportunity cost of your life savings to your financial service provider seems inconsistent with the term “responsible”.
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Tom Nowak, CFP®, is the founder and Principal of Quantum Financial Planning LLC, a Fee-Only financial planning and Registered Investment Advisory firm located near Grayslake, Illinois. He is a member of the Garrett Planning Network and the National Association of Personal Financial Advisors (NAPFA).