Can an Ethical Portfolio become Profitable ?

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The concept of investing in an unethical company can put off many people who do not wish to support immoral practices.

However, there are many ethical concerns which can be eliminated through careful research to ensure that the company is only using the funds for their intended purpose.

Another standard currently rising in popularity is the trend of investing in a company which upholds ethical investment principles at every corner of their company structure and actually strive to promote ‘good’.

Although there are very few companies which can claim to be completely ethical, there are a select few who have caught the attention of the ethical investment world and have been recognized for going above and beyond.

One of the ways you can get to know who these companies are is by asking your financial advisor about ‘ESG Investing’.

What is ESG Investing?

While Ethical Investing has been around for some time, ESG is a more broad-based approach to investing.

ESG stands for Environmental, Social and Governance.

Simply put ESG investing takes a more holistic approach to investing by incorporating Environmental, Social and Governance factors into the investment process. It means investing in funds that seek out companies who look after their employees, their communities and the environment.

 

 

What are the benefits of ESG investing?

 

Pioneering work by researchers like Harvard University’s Professor Michael Porter has shown that there is a very strong link between a company’s financial performance and their social and environmental behaviour. In fact, many studies have shown that companies with stronger ESG credentials actually outperform those without. This is especially true when looked at from a long-term perspective.

In the same way, researchers including Swiss Re’s Dr Elisabeth Guggenberger have shown that companies with high ESG credentials sustain far less damage when they face an economic or natural disaster, meaning their financial performance recovers much faster after such events.

An Investment Manager uses the ESG criteria in addition to traditional financial criteria when deciding whether they will invest – or not as the case may be!

 

 

What Factors does ESG Investing Consider?

 

The goal of ESG investing is to ensure sustainable long-term investing that prioritise financial returns alongside a company’s impact on the environment, stakeholders and our planet.

Broadly speaking it breaks down Environmental, Social and Governance factors as below:

 

 

Environment

-How does a company interact with the Environment?

– Sustainability of supply chains

– Greenhouse Gas emissions

– Renewable energy used & waste generated

 

 

Social

-How does a company interact with its workforce?

– Employee relations

– Diversity Inclusion

– Local community investment

 

 

Governance

– How is a company structured?

– Accountability Transparency

– Board of Directors quality

– Anti Money Laundering policies

-What other kinds of business is the company involved in?

-Is it ethical and responsible?

-Does it avoid certain types of investments such as weapons, alcohol or tobacco

 

 

Research has shown that ESG investing was spurred on by the Millennial Generation, but now more and more investors are becoming more conscious and wish to consider ESG factors when investing.

 

 

Can a millennial investor as part of an ethical portfolio, become profitable?

 

The answer is yes.

ESG funds have shown to be resilient during economic downturns, which has led to an increase in the number of investors investing in ESG strategies.

ESG investment has led to an average of 1% higher return per year over the past 10 years.

They also strive to be efficient by nature.

These companies are more diligent in how they employ their workforce, if one factor for example is off, say environmental impact, it will be reflected in the company as a whole, as they have been made aware of their so called ‘weak spot’

A good example is L’Oréal who have taken great strides to reduce the environmental impact of their factories.

Research from MorningStar has shown that incorporating an ESG approach into your investment philosophy has great potential to improve returns. During 2020, 59 of the 69 ESG screened indexes from MorningStar outperformed their broad market equivalents, while 88% outperformed for the five years to the end of 2020.

The effect of ‘Climate Change’ has been cited as the main concern of many investors. Investors look for investments where they benefit from strong financial performance, but which also enable them to buy investments that align with their own personal values and priorities.

New legislation was introduced by the EU earlier this year in this area under the EU Action Plan for Financing Sustainable Growth. It applies to financial services providers in Ireland through the implementation of local legislation and regulation with the aim of supporting sustainable growth and economies.

 

The Future of ESG

 

ESG is here to stay and that can only be a good thing. Investors will be able to influence the behaviour of the largest and most powerful multinational companies in the world, for the greater good.

When ESG is considered as part of your portfolio it can help you reduce portfolio risk, generate competitive investment returns and help you feel good about the funds you invest in.

ESG are particularly useful as part of a long-term strategy and it is expected the ESG will be incorporated to most multi-asset types of funds. The ESG factor has been applied to a wide range of strategies and is no longer considered niche. Consensus is that ESG will play an increased role in portfolios going forward, for example for investors seeking a sustainable approach to the environment or a focus on diversity.

Do you want to use your money to drive positive change? Do you want to invest in a more sustainable future?

Do you feel uneasy about products that do not take into account their impact on the environment and society?

 

If your answer is ‘yes’ to these questions, then investing in an ESG-integrated fund could be worth considering.

If this is something you would like to explore and know more about, send us a direct message or email grainne@sunrisefinancialplanning.ie

 

What could €5k invested today be worth in the long term? (Real client case study)

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We recently came across a client that invested a lump sum of €6,348.69 (£5,000) in the summer of 1985 (that’s 36 years ago!). 

 

The client invested in a unit-linked fund which was primarily invested in equities (i.e. stocks and shares). They left their investment and didn’t need to take any withdrawals over the years.

 

Today it is worth €81,890!

 

That’s AFTER  tax and charges. A growth of over €75,541 (nearly 13 times the initial investment, equating to 33.15% per annum).

 

This clearly shows that you will generally be rewarded for taking risk in the markets – admittedly we don’t all have a time horizon of 36 years :)! 

 

Even though this client didn’t plan on investing for this length of time initially –they stuck with it over the years.

 

It’s about time in the market – not timing the market !

 

What are the ‘don’ts’ of investing? 

 

There are many, but here are a few:

  • Don’t invest in something you don’t understand!  It’s crucial to research and fully understand any investments.
  • Don’t sell simply because the market has fallen – you may be selling at the wrong time.
  • Don’t assume that today’s rates of return will be tomorrow’s.
  • Don’t try to time the market, by jumping in and out of investments when you think it is going up or down.
  • And finally – don’t listen too much to gurus who are saying that they have found a way to outperform the markets!

Unless your investment decisions line up with your personal goals and needs, no guru can help you!.

 

Why is a lump sum investment something you should consider?

 

Because over a long-time scale, even small amounts can add up to a significant amount.

Consistent saving will inevitably lead to a large capital sum and the power of compounding is a major key in building wealth (as shown in our example above).

When it comes to investment, stick to your long-term plan and ignore short-term volatility or short term gains. Easier said than done. The financial world is full of the  short-term noise, but if you can distance yourself from it and remain focused on long term planning, success will be yours to have!

If a lump sum isn’t feasible for you right now, monthly investments may be more affordable.  Paying in on a regular basis, no matter how small, will help you to achieve your goals. And if you continue investing regularly and actively, your capital will grow faster than you think.

 

 

What are the steps involved in investing?

 

Step one is to understand your risk tolerance. This will ultimately be the key determinant in choosing the best investments for you.

After this, set a budget with an achievable long-term goal in mind. With every goal comes a ‘why’- get really clear on why you have chosen a specific savings goal- many people overlook this!

Then it’s time to choose the right investment mix based on your age, financial goals, risk tolerance and capacity for risk.

That is the starting point for building your very own investment portfolio.

 

What are the main advantages of investing?

 

Investing is an excellent way to save for the future which can help accumulate assets and allow you to enjoy a higher standard of living.   It will allow you more freedom and give you security allowing you to enjoy life and perhaps even early retirement !

Most importantly, reach out for advice and support when the time is right, and avoid doing anything on a whim.

If you have any questions on lump sum investments or your best options with your hard-earned cash, send us a message or email grainne@sunrisefinancialplanning.ie and we will be happy to listen.

The Cost of Free Education in Ireland

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This week will have see the first day back at school for many of our children.

 

Happy days you say, however those of us who have children in the education system in Ireland know that the cost of ‘free education’ has risen substantially over the last few years.

 

It is estimated that the cost of sending a child to Primary school is on average €1,186 per annum, with secondary school costing on average €1,491 per annum.

 

That’s for one child, and if you have two or more school going children it is a huge financial burden on parents. Many schools look for a voluntary contribution on top of this, and you may have a fee if your child is completing Transition Year.

 

Its easy to see how many families get themselves into debt to the tune of €336 on average, whilst 21% of parents have debts of up to €500. Books in secondary school remain the most expensive item, with extra-curricular activities being the most expensive item for primary school children.

 

If you have a child in third level education, you can factor in €14,553 on average if your child lives away from home or €6,178 if you child lives at home but that is before the cost of transport to/from college.

 

Our free education system is akin to another mortgage particularly if you have 3 children attending secondary school and third level.

 

Our advice is to start a unit-linked savings plan early on in your child’s life which will allow you to invest in the markets. For example, if you saved the Government child benefit of *€140 per month for five years (*as of July 2021) from when your child was born, by the time they started school you could have built up savings of €8,587 in time to fund this crucial stage in their education.

 

Having a savings fund in place can help alleviate the financial pressure felt by you as a parent and leave you to concentrate on the things that matter. Children starting school and college is a big change in itself, and the impact of Covid has brought about other pressures that we are all too aware of.

 

The best time to start saving for your child’s future is now, but how do you get started?

It might seem like a daunting task, but with these top tips it’s easy:

 

Set a goal

 

First of all, you need to set yourself a realistic savings goal. For example, if *€140 per month is too much, and you started putting away just €50 per month when your child was born, by the time they started college you could have €18,000*. This is enough for a deposit on a small apartment in Dublin city centre or an off-campus college residence !

 

 

Frequency matters

 

Setting up a Direct Debit from your current account to an Investment account with your salary is ideal. It takes the effort out of saving and it also removes the temptation to spend that money elsewhere!

 

You can still add to this fund with lump sum deposits when you have some extra cash, but remember to stick to your plan and leave it alone until you reach your target.

 

Have an exit strategy

 

Before starting any investment project, think about how you will feel when things go wrong (which they inevitably will at some point), or if you need the cash for something else before your savings goal is reached. This way, if you ever do need to get your hands on some cash you’ll be able to do so. Investing with an end in mind is always a good idea, but remember that sometimes life can throw curve-balls (and if it does, make sure you’re prepared).

 

If you have any questions on a savings goal you have in mind, contact us today for more advice on how to set up a savings plan.