I’ve been meaning to write this post for a while, but this afternoon a podcast I was listening to finally inspired me to put digital pen to internet paper. The question is simple: what is a wealthy individual who despairs over the excesses of capitalism to do with their wealth? The traditional answer provided by capitalism, conveniently, has been to invest their wealth in order to maximize their return on capital, and then use that return to promote the philanthropic causes of their choice.
This is, needless to say, unsatisfactory to many people who seek to integrate their values into every aspect of their life, whether it’s their profession, their housing choices, or the schools they send their children to. Why should they choose to profit from sweatshops in their investment portfolio when they refuse to wear anything but union-made clothes?
There are other answers, and they range from easy to tricky to hard to implement. Here are a few.
Secondary Markets: cheap and easy
The easiest, but least impactful, way you can invest your values is by recreating a traditional asset allocation, while using funds that correspond to your values instead of traditional market-capitalization-weighted index funds. For example, a simple 60/40 portfolio could be replaced with:
- 60% Vanguard FTSE Social Index Fund (VFTSX, 0.22% expense ratio), and
- 40% TIAA-CREF Social Choice Bond (TSBIX, 0.4% expense ratio).
You’d have a blended expense ratio of 0.292%, which is higher than the expense ratio on a similar market-cap-weighted portfolio, but honestly, not that much higher. Paying $3,000 per year in expenses on a million-dollar portfolio that you find better reflects your values feels to me very close to a rounding error.
If you want to get some more geographic diversification, TIAA-CREF also offers a Social Choice International Equity (TSONX, 0.4% expense ratio) fund you could use to replace international equities in your portfolio as well.
Of course, the flip side of this being the cheap and easy way to invest your values is that it’s also the least effective. Investing your values in secondary markets is first and foremost declining to profit from the behavior of firms whose actions don’t reflect your values. In other words it’s divestment, not investment.
On the other hand, investing on the secondary market isn’t completely ineffective: the more people who invest in such funds, the more deep and liquid the market for their shares will be, and the more firms will be encouraged to adopt policies that lead to their inclusion in them. The claim that your particular investment will be ineffective is identical to the claim that your vote is ineffective. On its own, sure, but if 80,000 individual votes had been cast differently in 2016 we’d be living in a different world entirely.
Collective action is the sum of lots of individual actions so as for me, I politely decline to claim that individual actions don’t matter. The fact that they do underlies our political and economic system.
Primary Markets: tricky, but fun
Another option for investing your values is to identify and buy appropriate securities on the primary market. In general this is a bit tricky, but if you read in the newspaper that your city is issuing bonds you can generally find out a way to buy them during the “retail order period.” You’ll need to have an account with one of the underwriting banks, and your order may or may not be completely filled — like I say, it’s tricky.
On the other hand, this is just about as close you can come to the “war bonds” issued to finance World War II — the funds go directly to the project being financed, giving you participation in the projects of your choice, whether it’s schools, sewers, waterworks, or stadiums and ballparks.
If your goal is to finance projects within your community, another option is to find a local “Community Development Financial Institution.” This is a designation made by the Treasury Department for banks, credit unions, and other institutions that “expand the availability of credit, investment capital, and financial services in distressed urban and rural communities.” You can easily Google the name of your community and CDFI and find a slew of institutions. The simplest way to invest is to simply buy certificates of deposit from such an institution, providing stable, long-term financing they can use to make loans to individuals and businesses in your community. Keep in mind the $250,000-per-institution cap on federal insurance for such deposits — if you’re investing more than that you may want to invest with multiple institutions in order to ensure your certificates are completely insured.
Private Markets: effective and difficult
Another option for even wealthier individuals is to invest directly in — or even better, start — businesses that put your money to work directly in service of your values. If you think union-made apparel is too hard to find in your community, you can start a business selling it. If you think it’s too hard to find fresh fruits and vegetables in your neighborhood, you can start selling them. If you think there’s not enough affordable housing in your city, you can buy or construct a building and start renting it at below-market rates (this is, interestingly, what George Lucas tried to do in Marin County before his neighbors lost their shit at the idea of poors living among them).
Private markets are the place you can see your money deployed most directly to effect the changes you want to see in the world. After all, when you donate to the Gates Foundation there’s no way to know exactly which vial of vaccine you paid for, versus which 10,000 vaccinations Warren Buffett paid for this week. If you find that dispiriting, investing directly in businesses or organizations that act according to your values is one solution.
This is, needless to say, hard. But if you’ve reached the point, in retirement or before, where you have accumulated a significant amount of money you may not ever need, why should it be that investing that money is easy? Maybe a new challenge is exactly what you need.
very helpful post. I have struggled with this for many years. My preference would be Private markets concept, but hve neither the skill nor interest to get that involved at this point in life. The think that gets lost in this kind of discussion is the whole history of the concept of stock, of putting money into a company os that it can grow, with the development of capitalism in this country, and the magnitude of the industry, the power company really doesn’t care if I own its stock. and the price of the stock has no real relationship to the value of the company (despite all the pundits “research.”
All good points, but behind the hyperbole of sweatshops vs. union-made hides a diverse continuum. I think this underscores your point of the farther away you are from the actual application of your investment dollars, the less specificity and control you have. I support neither sweatshops nor unions (in most cases in their modern, first-world versions, at least).