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Everything You Need to Know About Value-Based Investing


April 21, 2021 ( Newswire) Investing in Enron is so 2000. Today, millennial investors opt to invest their money in companies that they truly believe in. Instead of looking at pure profit, they're focused on a company's values and mission in addition to returns. You know, companies that make you feel good about the world. And investments that don't necessitate a post-purchase shower to wash off the company's sliminess and greed.

Similar to finding a good debt consolidation loan, finding the best value-based investing opportunities involves some research to identify the best opportunities for you. Keep reading to learn more about value-based investing.

What is value-based investing?

Value-based investing is investing in companies that align with your core values and personal beliefs. Instead of focusing solely on what will make you the most $$$$, you look at factors other than balance sheets, like the social and environmental impacts that the company and its board of directors have.

3 types of value investing

There are 3 main types of value-based investing:

Socially responsible investing (SRI)

Socially responsible investing (SRI) is the avoidance of investing in companies that are associated with harmful social or environmental issues, such as tobacco or nuclear power. SRI examines the impact of how a company affects society overall. To start with socially responsible investing, you can invest in ETFs or mutual funds that are in line with the values most important to you.

Impact investing

Impact investing is investing in companies specifically for positive environmental or social change. Investors who opt for impact investing are more focused on helping to achieve beneficial outcomes than financial returns. This often means that the company itself invests in community and sustainability programs to support positive causes.

Environmental, social, and governance investing (ESG)

Environmental, social, and governance investing specifically looks at these three criteria when assessing a company. With ESG investing, companies are given a score so you can compare how potential investments perform in terms of environmental impact, social and community impact, and corporate governance. Examples of ESG investing would be taking a close look at working conditions for employees, executive compensation, and a company's environmental policies.

Advantages of value-based investing

Advantages of value-based investing include:

  • You can help make an impact in the issues that matter most to you. The more individuals that adhere to value-based investing, the more companies might feel the need to improve their behavior.
  • You can live and invest by your principles. You'll feel better knowing that your money isn't going towards any behavior or actions that could hurt the causes you care about most.
  • Companies with an emphasis on social responsibility often perform well in the market. A 2019 Morningstar study found that 73% of ESG indexes outperformed non-ESG indexes. Who says you need to choose between making cash and doing good?

Disadvantages of value-based investing

Potential disadvantages of value-based investing include:

  • Some retirement accounts don't allow ESG investing. Under the Trump administration, ESG investing in 401(k)s and pensions was restricted under the guise of ESGs not being focused on the best interests of plan beneficiaries. The administration claimed that ESG investing favored social goals over sound financial advice. However, last month the Biden administration said that they would be reviewing this restriction and may ultimately revise, suspend, or cancel it.
  • It might be hard to figure out how a business is standing by its values. Most data is self-reported, meaning you may not have the full picture of how a company actually operates.

Value-based investing is a great way to put your money where your values are. Why support unsavory business and ethical dealings when you can invest in companies that do actual good and still make that money? Move your money out of companies that give you the heebie-jeebies and into ones that give you the warm fuzzies. We promise you'll sleep better at night.

Stefanie Gordon

Stefanie Gordon is a content strategist with over a decade of professional writing experience. She is a former financial journalist who has spent the last several years working in digital marketing. She specializes in content strategy and creation for large and small businesses in finance and technology.

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