Author: Zach

The Ethical Investing Series Quick Links:

Part One: What Is Responsible Investing?

Part Two: The Values Added Approach

This is where the rubber meets the road! 

In our final installment of the Ethical Investing series, we’re going to go over how you can hit the ground running to implement Ethical Investing in your financial plan.

If you’re just joining us, make sure you check out our Part 1 and Part 2 of this series on Ethical Investing for some helpful context. These pieces go over the foundational knowledge you need to start your ethical investing journey, as well as the thought process behind our personal approach here at Values Added. 

Ready to get started? Let’s dive in!

Your First Step: Defining Your Goals

There are so many ways to approach investing ethically, and regardless of the path forward you choose, you need to ensure your plan works for you. This means defining two sets of goals:

1. How you want your money to make an impact.
2. What personal goals you are trying to achieve through investing.

Making an Impact

It can be useful to start at a high level when considering the impact you want to make with your resources and your life. Think about causes that you’re passionate about, problems that are critically important, or organizations you love to support. You might even opt to jot down your core values, and how they show up in your day-to-day. 

Personal Goals

What does your portfolio need to do in order to help you live a life you love? Instead of focusing on returns, or growth, start by thinking about your lifestyle. Questions that could come up are:

1. When do I want to retire?
2. Do I want to become “work optional” in the near future?
3. Do I like what I’m doing now in my life and in my career, and what does that mean for my future earning potential?
4. Will I want to continue living here? 
5. Is travel in my future? 

Identifying the big picture lifestyle goals you have – and a loose timeline for when you want to achieve them – can help you to determine investing and savings goals. That’s not to say your ethically-oriented portfolio needs to help you get from working a 9-5 to work optional overnight! Instead, think of these personal goals as guideposts for how much you need to consistently set aside to invest, and what your portfolio could or should look like from a risk perspective.

Remember: First Thing’s First

At Values Added, our #1 takeaway for individuals looking to DIY taking an ethical approach to their investments is to focus on progress, not perfection. Once you’ve developed a game plan for how you want to make an impact and what goals you have, it’s easy to get overwhelmed with the options. Start slowly by taking the first step toward your goal of ethical investing and a more impactful life. You can always add on to your plan further down the line, and make adjustments as your goals and lifestyle needs shift and change.

Making an Impact In Action

Let’s look at a case study where we reverse engineer a “right next step” game plan for someone based on their unique values. 

Core values: Equal access to education and deep concern about climate change. 

Lifestyle changes: You could spend your time volunteering for organizations that promote tutoring or hands-on learning assistance in your local area. You might also work with political groups to lobby for more racially equitable zoning and school funding laws that increase access to education across your region. Maybe you team up with other activists to promote political campaigns to lower carbon emissions in your city. You could also consider solar panels or other ways to reduce your personal carbon footprint to compliment structural solutions. 

Financial/investing next steps: When it comes to investing, you might make donations from your Donor Advised Fund to 501c3 organizations that are doing good work in increasing education access to all communities in your area. You could also create an investment portfolio that prioritizes screening out companies who aren’t environmentally friendly, and prioritizes investing in companies that have eco-friendly initiatives you believe in. 

Further down the line, you can look at exploring personalized indexing, shareholder activism, or other ways to increase your impact. Sometimes holding shares of big gas companies can help leverage change there, like when an activist investor led a (successful) to install three Exxon Board members to force the company to take climate change more seriously.

This example hopefully highlights that there are many different ways you can build an impactful and sustainable life – investing is just one of the tools in your toolbelt! 

Can An Advice Team Help?

Many people have the calm disposition and the time to keep up with tax law changes and implementation necessary to self-manage general investments. If you do, there is no reason you can’t implement ethical investing on your own – and we encourage you to pursue that if it excites you! If you are planning to tackle this solo, we still want to hear from you, let us know how it’s going, and what questions you’re running into. If you’d like help, we can help you find it. Our team helps our clients create meaningful strategies that prioritize a lifestyle they love while making an impact – and we guide them through the setup and ongoing management of these various moving parts. And if we think another firm would be a better fit, we’ll let you know. 

The Ethical Investing Series Quick Links:

Part One: What Is Responsible Investing?

Part Three: How Can You Implement This For Yourself?

In our previous post, we covered the big picture concepts of ethical investing and what levers are available for investors to “pull” to create a values-aligned portfolio that works uniquely for them. In part two of our series, we’ll focus on how we view ethical investing – and how we approach it with our clients. 

As a bit of a disclaimer, before we dive in, this blog post shouldn’t be used as personalized advice. To give you tailored advice, we’d need to know about your financial situation, goals, and values! That being said, this ethical investing system captures our investing philosophy well, and I hope you find it a useful example as you build your own approach. 

Ready? Let’s go!

Your Two Investing “Buckets”

The way we talk about it at Values Added, every investor has two “buckets” in their investing portfolio – a stability portion of their portfolio and a growth portion. 

Stability

The stability portion is traditionally intended to maintain steady, if slow, growth toward their goals. “Safer” or “low-volatility” investments populate this investing bucket (note the quotation marks here – safe, low-volatility, and stable are all subjective terms in this industry that will mean different things based on your goals, risk tolerance, risk capacity and more). For our clients, the“stability” portion of their portfolio usually consists of things like US government bonds, diversified bond funds, municipal bond funds, money markets, CDs, and community investments. 

Growth

The growth portion of a portfolio is where most investors spend their time and energy. It may feel more exciting than lower-volatility funds that aim for slow and steady growth. This “bucket” usually includes investment in public companies like Costco, Microsoft, or a smaller company most people haven’t heard of. Some investors own these company’s stocks directly and some own them indirectly by owning shares in a mutual fund or exchange-traded fund (ETF). This category also includes international and emerging market investment. 

Making An Impact

At Values Added, we have noticed that it can actually be easier to make an impact through how you allocate the “stability” portion of your portfolio. This is true for several reasons. 

1. This part of your portfolio is where you (directly or indirectly) lend money. That money allows things that haven’t yet happened to happen. If you choose wisely, you can help good things happen that might not have happened otherwise. 
2. By contrast, investment in public companies is usually exchanging shares that have existed a long time and doesn’t have the same likelihood of funding new activities. 
3. Community lending, especially when it has a focus on under-served communities can make progress on reducing racial (and gender) wealth inequality. 

The following are investment vehicles investors might consider when building out their portfolio. 

CDFIs

Community Development Financial Institutions (or CDFIs) are organizations that have the primary goal of creating economic growth in distressed and disadvantaged communities. 

They will often offer financial products and services (ranging from traditional banking to small business loans) to local individuals and families. CDFIs offer these financial opportunities in an affordable and accessible way. Their work allows for underserved communities to grow successfully by providing alternatives to predatory lending. 

CDFIs have become more prevalent in recent years, and there are now 1,000+ CDFIs across the country. Investors can support CDFIs through community development loan funds, or depository CDFIs (like banks or credit unions). Worried that CDFIs are more risky than traditional bonds or other low-risk funds? We asked an industry  colleague, Mark Pinsky of CDFI Friendly America, and he had this to say:

“CDFIs manage risk differently than conventional lenders, who are algorithmic. CDFIs are relationships lenders who mainly hold assets in portfolio and service their loans closely and personally. Many CDFIs look at credit scores (when applicable) but very few actually include them in underwriting. 

For the most part, CDFIs are cash-flow lenders. In addition, non-regulated CDFIs (I.e., loan funds) use their flexibility to work out non-performing and under-performing loans, as you noted. It’s a huge thing (making a case for less regulation, ironically) that is reflected in the net charge off numbers.

That said, for loan funds at least, delinquent loans are consistently higher than any financial institution regulator would allow but steady and predictable across a portfolio, even in extremely bad credit environments. Last, of course, loan funds are over-capitalized and under-leveraged, which gives enormous confidence to investors.”

Impact Notes

An Impact Note is an investment type where individuals can invest  in a basket of long-term investments in a local community or businesses. It is a bit like a mutual fund but instead of investing in public companies, investment notes invest in communities. Impact notes prioritize social impact, and the funding works to grow socially-conscious companies and encourage them to continue making social and environmental impacts through their work. 

Impact notes offer funding which helps entrepreneurs (especially BIPOC and women entrepreneurs) to build equitable organizations that offer competitive pay, health care, and more – all while helping investors grow their nest egg.

Government Bonds: A Comparison

In our experience, CDFIs and Impact Notes are generally similar to treasury/government bonds in rates and durations. For instance, as of this writing a 5-year Calvert Investment Note is available with a 4% interest rate whereas in recent Treasury auctions a 5-year US Bond with the same maturity is available with a 3.625% interest rate. 

Though the interest rates are similar, the US Bonds are backed by the US government and therefore very secure. CDFIs and other institutions have a higher default risk, meaning the chance that they won’t be paid back. The market for investment notes is not as robust as US Bonds since there are fewer people interested and that means that if an investor wants to sell their bonds, they might lose a bit more of its value. This isn’t a problem for people who hold to maturity, meaning that they hold the bond for the whole duration and have their principal returned. For instance, someone who buys a 5-year investment note with a face value of $1,000 pays that much at the beginning, gets interest along the way, and receives their $1,000 back at the end. They can sell the bond to another investor along the way in which case they might receive more or less than the $1000 but if they hold until the end, the promise is that their principal will be repaid. 

For investors who plan to hold some of their bonds for many years, they can often choose a CDFI or Community Investment Note instead of some of those bonds and do more good.

This is why, for many, making the switch to more ethical investments in the “stability” bucket of your portfolio can help them to make the impact they seek without throwing them off the path to reach their goals.

The “Growth” Bucket

Many long-term investors focus on SRI/ESG in their growth bucket. Though there are some appealing options, as with conventional funds, it’s wise to be careful with funds that claim to be green. Sometimes you may find that these funds are associated with higher management fees and/or trading costs–plus, they might not be as green as you think. There are some options who do impactful work, some who have low fees, and even a few that offer both.

There are several ways you can create an ethical strategy in the “growth” bucket of your portfolio – that likely won’t cost you an arm and a leg to set up.

Low-Cost Indexes 

Low-cost index funds are often used by the everyday investor to access a pool of investments for their portfolio, all while keeping costs down. The good news is that there are index funds available in the SRI/ESG space. Some of these funds have much lower expense ratios than the average fund though they all have expenses that are higher than the most affordable non-screened index funds such as main offerings from firms like Vanguard, Fidelity, and Schwab. 

The SRI/ESG index funds have methodologies to screen out companies that don’t meet their criteria (generally ethical, ESG, etc, rather than performance-related). You probably won’t agree with all of their decisions, but if your views about which companies should be screened out are close to the market average, these might be a good fit. A few examples of SRI or ESG indexes with low costs (relative to others available to investors) are the Calvert International Responsible Index Fund or the MSCI World Index Fund, though each situation is different and you should research to find an index or fund that fits your needs!

Shareholder Voting

If you own stocks directly you can exercise your right to seek change through shareholder voting (sometimes also called “proxy voting”). Shareholder voting is just what it sounds like. If you own shares in a large companies as of a certain date, when it has an election you have the chance to vote on the questions on the ballot. The company’s shareholders typically get to vote on corporate governance questions like who will be on the company’s Board of Directors and also issues like whether the company should evaluate its climate risk and develop a plan to mitigate it. For instance, in 2022 18 climate-change-related resolutions won majority votes. 

As a shareholder, you’re entitled to share what’s important to you. Many people choose to hold big-name brand companies in their portfolios specifically to try and enact change from “the inside.” This may be a more time-consuming process, but for many, it’s absolutely worth it.

If you get very engaged in this area you might even participate in filing a shareholder resolution or supporting other organizations that do. When I worked for AFSCME (a large union), I used to sometimes present shareholder resolutions for the pension fund that our staff participated in. 

If you own shares in a mutual fund or ETF, the management of the fund will vote on those shareholder resolutions. Some funds follow progressive voting guidelines but some don’t. 

Personalized Indexing

Investors who use personalized indexing purchase a sample of all the stocks that make up a particular index. However, instead of making a one-time purchase of a mutual fund share and calling it a day, personalized investing usually involves an investor (or their advisor) regularly rebalancing their portfolio so that as the investments fluctuate and money comes in and goes out, the portfolio is still aligned with the target index. 

This approach is tremendously flexible! It can be customized to each person’s social justice framework. If you don’t want fossil fuel companies generally but want an exception to allow a particular one that is doing more clean energy, you can do that with many providers. If you want to exclude some companies (say arms, fossil fuel, and opioid companies) but want to keep others (say non-opioid pharma) you can often do that too. We find that everyone has a different instinct about what to include and exclude. Because you can choose your own screening and add customizations, this solution is usually more precise and flexible than traditional ESG/SRI options and the provider we use (ethic.com)also less expensive than most of ESG/SRI funds. 

Because proper implementation of personalized indexing is more complex than an ETF – or mutual-fund-based approach, it may be a better fit for people who use an investment advisor who is well-versed in the values, tax, and practical investment management questions that arise.

Tax Efficiency And Ethical Investing

If you do good tax planning, you can give more to causes you care about! We’d be remiss if we didn’t mention the importance of tax efficiency when building out your ethical investing strategy. There are so many ways you can continue to make an impact, all while moving the needle in your own financial life. Here are a few tax concepts that you might find useful:

Another vote for personalized indexing!

Personalized indexing allows people more opportunities to use tax management techniques. There are techniques to use when stocks go down and others to use when they are up. People who use direct indexing hold many individual positions so, though the averages should be the same, there will be way more positions that are winners and losers (since there are more positions overall).   

Tax Loss Harvesting

When a stock goes down it creates a potential tax deduction. But if it goes up again before you take action, the opportunity disappears. Tax Loss Harvesting is when you purposefully obtainthat deduction when it is available by selling the security. Often advisors then invest the money in similar but not identical securities so the investor stays on target and benefits from the future upside. Depending on the specifics, people can save 0.2-1% a year in taxes using this approach and far more if they eventually donate the replacement securities some day or hold it for their whole lives (under current tax law). Personalized indexing tends to create many more opportunities to use this technique.   

Donating Appreciated Stocks

Looking to do good in the world and to minimize your tax bill at the same time? One option may be to strategically evaluate your portfolio and donate stocks that have had significant appreciation to a charitable organization of your preference. This can help to reduce your tax liability, and you’re helping to make a difference for organizations you’re passionate about. In addition to potentially reducing your income tax bill this way, you can also eliminate capital gains taxes (since neither you nor the organization would have to pay them). The more appreciated the investment is, the better this approach works at reducing taxes owed. The most appreciated securities often grow to a disproportionate amount of a person’s portfolio and so donated them can also help reduce concentration and increase diversification. Personalized indexing also tends to present more and better opportunities to use this technique.

The Big Question: What Are Your Goals?

There are so many different ways you can make an impact as an investor – but also just as a human. Sometimes, when you’re looking to create an ethical investing strategy, it can be helpful to ask: 

What are my goals here, really?

For some, doing no harm is their primary goal. For others, they want to follow the “social justice robot” path (we say this jokingly and with love – almost everyone on the Values Added team considers themselves to fall at least somewhat in this category!). In other words, they want to maximize their impact in every way possible, and to find the “perfect” way to create positive change in the world around them. They want to do the most good even if it doesn’t feel the best. 

To do this, they may work to save as much as they can (even if it means investing in “bad” companies), participating in shareholder voting, and then donating or giving away as much money as possible given their lifestyle needs to make an impact. This may work for some!

However, as is the case with most things financial, the majority of investors will need to find a hybrid approach that helps them to invest ethically and in accordance with their values and to meet their personal financial needs and goals. 

It’s also worthwhile to note that your current strategy doesn’t have to be your forever strategy. For example, if you know that in this season of life (parenthood, career, etc.) you don’t have time to participate in shareholder voting actively (or choosing funds that do), finding a way to leverage personalized indexing or low-cost SRI funds exclusively may be your best bet. You can always balance your investing strategy with spending your other resources (think: time and energy!) doing things like volunteering, campaigning, etc. 

In Part 3 of our series, we’ll be covering exactly how to make this work for you – and how to define what “first step” will get you moving on the path to ethical investing. Stay tuned!

Ethical Investing Series Quick Links:

Part 2: The Values Added Approach

Part 3: How Can You Implement This For Yourself?

When you hear the term “ethical” or “socially responsible” investing, what do you think of? Some people think of investing in solar energy, and others think of excluding companies they don’t support from their portfolios. Some people think about supporting small start-ups trying to make a difference in the world, and some people think about shareholder activists holding companies accountable. Responsible investing can mean different things to different people. We want to build a shared language of the options and help you determine which approach might be the right fit for you.

In this series, we’ll review:

1. What responsible investing is and why people pursue it.
2. What options are available for people who want values-aligned investments, including how investors implement responsible investing and what strategies exist to help you achieve this goal.
3. How to define your personal “why” or your motivation for investing responsibly to clarify  what strategy is the right one for you.
4. What you can do beyond investing to make an impact.

Today, we’re covering the basics: What is responsible investing, and what options exist to accomplish it?

What Is Responsible Investing?

Investing money in a values-aligned way is not new but “socially responsible” funds, investing methodologies, and financial planning experts specializing in responsible investing have gained tremendous momentum recently. The idea of leveraging wealth to support causes we as investors care about (and not support industries we find problematic or abhorrent) often resonated with investors, and it has for centuries.

In the United states, as far back as the 1700s, we see religious groups boycotting the slave trade, gambling, industries that produced toxic materials, tobacco, and alcohol (just to name a few). The responsible investing movement evolved throughout the 1960s and 1970s, when social activist groups and labor unions began to use Socially Responsible Investing (SRI) to support the civil rights and labor movements and empower companies that were making an impact. In the 1980s, divestment helped build the movement to bring down South Africa’s Apartheid government. 

More recently, the term Environmental, Social and Governance factor-based investing (ESG) has become prominent.This may reflect a change in the issues investors are most concerned about as equity, environmentalism, and workers rights emerge and some concerns about alcohol and some other “sin” areas become less prominent. 

Today,investors increasingly care about alignment between their investments and their values and the broader financial services industry has started to respond. One third of total US assets under “professional management” are invested using “sustainable investing strategies” according to The Forum for Sustainable and Responsible Investment.

Investors today are much more likely to want to know that their wealth is making an impact on the causes they care about, and are less likely than ever to want to profit off of businesses that they feel aren’t acting in alignment with their values. In other words, they want to: 

1. Do good with their wealth and support causes they care about.
2. Avoid doing harm by withholding funds from companies that score poorly according to ethical criteria. 
3. Actively pressure companies to stop doing harm by using their investments to participate in shareholder voting and activism.
4. Work toward their personal financial goals. 

Of course, in some situations, these goals may conflict or have some tension – further adding to the confusion investors experience. For instance, some people want to avoid owning bad companies but also want to see those companies improve. Those approaches are in tension because by avoiding owning the company they have given up their voting rights, one of the more effective ways to help change the company. Throughout this series, we’ll outline different strategies investors can use to determine what their goals are and what investing responsibly looks like for them. 

Defining Key Terms

Responsible investing goes by many different names – SRI (socially responsible investing) or ESG (environmental, social, governance) are two of the most common that you’ll hear. Of course, to make things more complicated for investors, there are no generally accepted definitions for any of those “types” of responsible investing. So, to ensure you feel empowered in your investing journey, let’s define some of the most commonly used terms as best we can. 

The truth is that SRI and ESG are incredibly similar. Yes, they may have different origins, but they all are rooted in the same core concept – investors want to use their money in an impactful way by buying stock from “good” companies), and avoiding companies that are “bad.” 

The key is to focus on the core elements of each of these concepts, and how they can be used as “levers” you can pull in your strategy. 

Since the terms are so common and people often ask, here’s a quick overview of each, as defined by the Values Added team:

SRI (Socially Responsible Investing): Socially Responsible Investing, or SRI, is generally a catch-all term for investing in a value-aligned way. SRI Investing emerged as a common term earlier, and was meaningfully influenced by Christian denomination’s views on investing, especially Methodists, Catholics, and Quakers–leading to extensive discussion of “sin” companies. SRI focuses on investing in companies that are socially conscious, and environmentally responsible.

ESG (Environmental, Social, Governance): ESG is a style of investing that attempts to limit risk by applying environmental, social, and governance criteria to vet companies and investing in ones with stronger records in those areas. ESG emerged later as a term, perhaps signaling the de-emphasis on religious themes and an increasing focus on equity, the environment, and treatment of workers.

The Three Levers You Can Pull

Within the SRI/ESG/Impact umbrella, you can pull several investment “levers” to create an ethical investing strategy that works for you. 

Screen Well

In general, most SRI/ESG funds (imperfectly) screen out companies who aren’t meeting a specific set of criteria in the following categories – environmental, social, governance (ESG). Here are a few of the specific “red flags” that prompt screening from investors and larger fund managers:

Environmental:

• Pollution
• Climate change
• Preservation
• Animal welfare
• Energy consumption/conservation
• Waste production/how it’s handled

Social: 

• Human rights
• Child labor
• Health and safety of employees and buyers
• Employee and stakeholder relations
• Data protection and security
• Customer satisfaction
• Community relations

Governance:

• Management quality
• Board composition and diversity
• Audit structure
• Corruption
• Executive compensation
• Lobbying
• Political contributions

Companies are ranked based on these metrics using public reporting (it’s important to note that reporting in these categories isn’t mandatory for companies). Then, ESG funds use the criteria to filter out businesses that score poorly or violate the ESG criteria and standards. At Values Added, our clients will often use personalized indexing (more on this below) with funds that screen for ESG criteria.

Who is it for? This particular “lever” is for those who don’t want to profit from things they are opposed to, or that go against their values. It is also useful for people who think that companies with better approaches on these issues may outperform expectations.

How do you do it? There are two schools of thought on the best way to “screen well” as an investor. If you’re looking for a simpler option, there are many ETFs available that focus specifically on SRI/ESG screening. If you want a more tailored option, you can look toward personalized indexing. 

What is personalized indexing? While this term may not come up often in your SRI or ESG research, we want to define it here because it’s something we’ll discuss as part of this series. You may have heard of index funds. This type of mutual fund was developed in the 1970s and is now the most common approach to investment. Rather than picking which stocks you think will do well, or even having a mutual fund manager try, you buy shares in a fund that owns nearly all the companies in a specific index (basically a long list of companies). For instance, a “Total US Stock Market” mutual fund invests a portion of the money invested in nearly all publicly traded US companies. Everyone who invests in the mutual fund owns a small percentage of the mutual funds’ holdings.

Since we all have slightly different preferences and mutual funds are the same for everyone, they will usually screen out things you wouldn’t and leave in things you’d prefer to be screened out. Because of advances in technology, many people don’t need to have a mutual fund company in the middle anymore. This is great because it allows you to actually personalize this same strategy based on your preferences and needs. With this approach, you hold many individual positions. You can decide that you want the whole market or to exclude opioid manufacturers, fossil fuel companies, guns and military companies, or other things.

You can be as precise or general as you like. In my experience, nearly everyone has a different perspective about which sectors and sub-sectors they’d like to include/exclude and this approach is one that can be customized in that way. 

When we began researching , personalized indexing (also called direct indexing) it was costly and often out of reach for most investors due to high fees, transactions costs, and minimum-account sizes that excluded most households.. However, in the past few years, some important developments like technological advances, zero-commission trading, and new competitors have made this approach much more affordable and accessible for investors. It’s not the focus today, but I’d be remiss if I didn’t note that this approach may have significant tax advantages, especially for people who donate to tax-deductible organizations. 

Shareholder Advocacy

Also called “active ownership,” shareholder advocacy allows investors to make an impact while investing in companies (even the “bad” ones). In other words, they use ownership in “bad” companies (or companies that don’t pass the ESG criteria) to participate in shareholder voting to create active change from within organizations. These techniques can also be used with “good” companies to help them become better. 

Who is it for? Investors who are ready and willing to dig in and vote as a shareholder and to participate in shareholder advocacy strategies. Many people don’t care to research each vote but do want to know that their mutual fund/ETF has good policies and will vote their shares in a way that moves companies toward being better.

How do you do it? Instead of focusing on filtering out companies that don’t meet the traditional SRI or ESG criteria, those who subscribe to the shareholder advocacy school of thought often invest in all companies (based on their unique financial and lifestyle goals). Then, when a company that violates its values or ESG criteria is in its portfolio, they work to effect change from within an organization through shareholder voting, voicing concerns, and joining with other like-minded shareholders. Some investors do use funds that screen out the worst companies but are active with shareholder campaigns at all companies they hold.

Community Lending and other Off-Wall-Street Strategies

Your third and final “lever” to pull focuses on alternative investing and lending methods. 

Who is it for? This non-wall-street activity can be a complement to the above strategies or even a main strategy. These investments help things happen in the world that might not have otherwise.

How do you do it? For example, instead of using traditional corporate or US government bonds or “low-risk” investments, investors may look to CDFIs (see below). Or, instead of buying stocks from large companies, investors might choose to individually invest in small businesses (perhaps local) or organizations that are doing good and making an impact in the world.

CFDIs (Community Development Financial Institutions): CDFIs came into being in the 1960s-1970s and offer varying forms of “self-help credit.” CDFI.gov says:

“[CDFIs are] offering tailored resources and innovative programs that invest federal dollars alongside private sector capital, the CDFI Fund serves mission-driven financial institutions that take a market-based approach to supporting economically disadvantaged communities.”

Their goals are often to develop communities through alternative lending structures and support low-income individuals and families to obtain financial support for businesses, housing, and other community-building expenses. SRI and ESG funds primarily invest in publicly-traded stocks (Coke, Microsoft, Costco, etc.), but CDFIs are banks, and most investors engage with them by loaning them money which they, in turn, loan in the communities where they are active. CDFI investing may be considered a form of Impact Investing. The rates of return are often as good or better than the normal savings and CD rates from big box banks, if not quite the very highest rates one could find by shopping around. Investors can also provide capital in exchange for modest or no return to increase the ability of the CDFI to lend at low rates.

“CDFIs manage risk differently than conventional lenders, who are algorithmic. CDFIs are relationship lenders who mainly hold assets in portfolio and service their loans closely and personally. Many CDFIs look at credit scores (when applicable) but very few actually include them in underwriting. 

For the most part, CDFIs are cash-flow lenders. In addition, non-regulated CDFIs (I.e., loan funds) use their flexibility to work out non-performing and under-performing loans, rather than letting them default. It’s a huge thing (making a case for less regulation, ironically) that is reflected in the net charge off numbers. That said, for loan funds at least, delinquent loans are consistently higher than any financial institution regulator would allow but steady and predictable across a portfolio, even in extremely bad credit environments. 

Last, of course, loan funds are over-capitalized and under-leveraged, which gives enormous confidence to investors. In addition, well-run loan funds (the only ones I’ll deal with) maintain high loan loss reserves (LLR), higher than past performance would require. There is an ongoing debate between the big CDFI investors (think, Bank of America) and CDFI auditors, who sometimes believe that loan funds are hiding cash in LLR.”  – Mark Pinsky, Founding Partner, CDFI Friendly America

One example of a CDFI that the Values Added team has watched grow over the years is Hope Federal Credit Union. They have truly transformed access to credit for POC communities across the Gulf Coast, all while engaging in advocacy to “mitigate the extent to which factors such as race, gender, birthplace, and wealth limit one’s ability to prosper.” 

How is success measured? 

We define success with responsible investing in one of two ways:

1. Financial gains or progress toward personal financial goals.
2. Ability to make an impact or to avoid harming/transforming harm through shareholder voting. 

Of course, “success” will look different for each investor based on their unique goals, values, and motivations. There are many different ways to invest responsibly and to do so without committing to one “greenwashed” fund that doesn’t necessarily make an impact or accomplish your values-driven goals. 

For some investors, this may look like building a personalized indexing strategy that aligns with their personal values and financial goals. For others, this may look like investing a step further by investing in a land trust, banks that lend to affordable housing developments and worker-owned companies, angel investing in start-ups, or pursuing political causes or candidate contributions to make an impact. In Part Two of our series, we’ll dig into the “how” of responsible investing and bust a few common misconceptions and myths surrounding the topic. 

We’ll see you then!

You should always consult a financial, tax, or legal professional familiar about your unique circumstances before making any financial decisions. This material is intended for educational purposes only. Nothing in this material constitutes a solicitation for the sale or purchase of any securities. Any mentioned rates of return are historical or hypothetical in nature and are not a guarantee of future returns. Past performance does not guarantee future performance. Future returns may be lower or higher. Investments involve risk. Investment values will fluctuate with market conditions, and security positions, when sold, may be worth less or more than their original cost.

A 3-Part Series about Conversations Couples Should Have About Money

Part One: Conversations Couples Should Have About Money

Part Two: The Final Two Money Conversations You Need to Level Up Your Relationship

Part Three: Couples & Money — A Conclusion

In our initial blog post, we started to explore the many reasons having money conversations with your spouse or partner is critical to your financial well-being individually and as a couple. Because money can be so stressful, the first conversation we recommended having was the “foundations” conversation. This focused on you and your partner listening to one another, identifying financial triggers, and exploring your “money past” together so you can move forward with confidence.

This post will focus on the final two conversations you and your partner need to have for alignment in your financial life. Ready? Let’s dig in!

Conversation #2: Experiment & Discovery

Once you have had a good foundation built through your first money conversation, and understand the backdrop, take a week or so off. Having the foundational conversation begins a process of introspection, reflection, and sharing. You might find that new memories or themes arise. That’s great–share them! 

Don’t short-circuit the process by rushing into the money mechanics. When you are ready, schedule time for Conversation #2. In this conversation, you’ll start to consider some more practical financial questions. Here are a few potential topics:

1. Should we merge money, keep it separate, or somewhere in between?
2. If we do some merging, what sorts of purchasing or other financial decisions would we want to know about or discuss before the other one takes action? Is that because we need approval, transparency, thought partnership, or another reason?
3. If we do some merging, who will be responsible for making sure bills are paid on time?
4. Which paychecks should go where? Should we keep accounts on autopay?
5. How to approach debt? Should we approach it together? 

This can feel like a high-pressure discussion since money is an essential part of living. You might be in a relationship for a long time, even a lifetime. A lifetime decision on something important (or even not that important) is high stakes. For most people, it’s stressful to make high stakes decisions so, instead, start by reducing the stakes. 

The goal of this conversation shouldn’t be to come up with an immutable approach that will stay in force for the next several decades. Just decide on something to try first. See, we are just trying something out–no big deal! This will be an experiment. It isn’t forever, just a few months. Approach those few months with the spirit of discovery. Many things will work well but probably not everything. The experiment is about learning and growth, not perfection.

You don’t need to address every potential topic. Actually, it’s better if you don’t. Focus on the big things to start. Rather than getting stuck in the complicated web of hypotheticals, you can wait and see what arises and treat those prompts as natural experiments. A wise friend of mine says “don’t worry about a problem you don’t have” and that’s true here.

Conversation #3: Reflection, Discussion and Iteration

What worked? What’s next?

Once you have a sense of what your first money experiment will involve, schedule a time in 3-6 months to reflect on it. Enter a date and time on your calendar to discuss how it’s going. It’s important to set a time proactively because if you just wait, at some point someone will be upset, and you will end up talking about this in the context of a fight instead of when you are your best self.

Scheduling a time helps ensure that you can have a reflective, generative, exploratory conversation. The goal of the conversation is to debrief the experiment, identify successes, and see what changes might help. If you identify some potential improvements to try, you’ll just repeat the process with another experiment and another reflection discussion date. 

As you debrief your experiment, focus on the parts of your system that are working well. Build on your success! In my experience, most things will probably be a good fit to keep–maybe 80% or so. Share your gratitude for them and about each other. If you appreciate yourselves and your progress, you’ll generate a lot of momentum to help you continue the process of connection and iteration.

Of course, a few things will annoy you, feel clunky, or cause tension. Perhaps take a moment of gratitude that we are humans not robots! It makes life so much more interesting but it does lead to some annoyance.

Many experiments surface some rough spots. For example, we’ve had client meetings where one person (for the purpose of this example, we’ll call them Pat) mentioned that they check the credit card statements to make sure everything is as it should be since they sometimes get anxious about the potential of a billing mistake. They worried that their partner (for the purpose of this example, we’ll call them Sam) would be upset and feel judged when asked about purchases. 

Here’s what the case study looks like during meetings like this:

It turns out that Sam was annoyed, but it wasn’t because of judgment. It was because Pat would ask Sam a question and then, just as Sam settled back into what they were doing, Pat would ask another question, and so on every few minutes. 

Sam appreciated that Pat was checking the statements but just wished that Pat would ask all the questions at once. It was an easy annoyance to fix once they figured out the problem– communication was the key.

What’s Next?

That’s it! These are the three critical money conversations that every couple should have. In our third and final installment of this series, we’ll be going over the nitty-gritty of a few of these conversations, and giving a bit more background on how to structure those discussions to help set you up for success.

You should always consult a financial, tax, or legal professional familiar about your unique circumstances before making any financial decisions. This material is intended for educational purposes only. Nothing in this material constitutes a solicitation for the sale or purchase of any securities. Any mentioned rates of return are historical or hypothetical in nature and are not a guarantee of future returns. Past performance does not guarantee future performance. Future returns may be lower or higher. Investments involve risk. Investment values will fluctuate with market conditions, and security positions, when sold, may be worth less or more than their original cost.

A 3-Part Series about Conversations Couples Should Have About Money

Part One: Conversations Couples Should Have About Money

Part Two: The Final Two Money Conversations You Need to Level Up Your Relationship

Part Three: Couples & Money — A Conclusion

For many, money is a source of stress, conflict, and fights within their relationship. In fact, studies show that money issues are the second-biggest cause of divorce among American couples, second only to infidelity. Yikes! That’s a daunting statistic. 

Luckily, your finances don’t have to be a source of strife–talking about money and solving problems together can actually enhance the strength of your relationship. Conversations about money with your spouse or partner can strengthen your connection and deepen your relationship.  

Don’t believe me?

That same survey found that 94% of respondents who say they have a “great” marriage discuss their money dreams with their spouse, compared to only 4% of respondents who say their marriage is “okay” or “in crisis.”

How Can You “Jump Start” The Financial Conversation In Your Relationship?

I’ve spent the last 15 years talking with clients about the intersection of their relationships and their money. In that time, I’ve developed an approach that enables couples to learn about each other, build a financial system, and improve it over time. And the best part? It only takes three unique conversations. 

In this blog series, I’m going to share with you the best way to hold those conversations, what to cover, and how to structure them, as well as how to deal with the emotions they bring to the surface. We’ll also talk about why it’s important to have these discussions and go over some broader issues around when to merge finances and when to remain independent. Are you ready to start talking? Let’s go.  

Why Have Conversations About Money? 

Your financial goals shouldn’t just be about how much you accumulate. Ultimately, if you design them correctly, achieving your financial goals will help you live the life you want while making the impact you seek. For example, one or both of you could want to take a sabbatical, change careers, start a business, join or start a non-profit organization, see your families more, spend more time with your own family, etc.

Having a partner with the same goals makes you much likelier to achieve them. And, if those of us in relationships are doing it right, working on finances with a partner can lead to stronger relationships. Ideally, your relationship helps you succeed at achieving your life/financial goals, and your financial progress helps your relationship. It’s a delightful virtuous cycle. 

Who Is In The Conversation?

Some people don’t like to think or talk about money. Others enjoy discussing their finances and don’t find it stressful. 

Many people can discuss financial topics only when they feel supported and calm. Others like to hash issues out through dialogue that can feel a little like an argument. 

Some people love to daydream about the future. Others get nervous thinking past next Friday. 

The point is that people are different, and your partner may not approach financial topics the same way you do. Actually, they probably don’t. 

Even the closest couples have different interest levels and conversational styles when it comes to talking about money. That’s great! It’d be super boring and probably stagnating to be in a relationship with someone just like you. It could be that one person is organized, follows through reliably, and has an interest in financial matters. Perhaps the other one prefers to help the household in other ways, or to take the lead on other important family projects. 

One of the nice things about being in a relationship is that, since different people are good at and prefer different things, we can often work it out so that we do more of the helpful things we enjoy and fewer of the ones we especially don’t like. The key is to know who is in the room and figure out the best way for both of you to have a good, productive, and bonding conversation.

So think about your partner – the way they communicate and how they feel about money – as you plan for these three conversations. In this blog post, I’m digging into Conversation #1. Subsequent blogs will cover Conversations #2 and #3. It works best if you approach them in order, and it will become clear why.

Onward!

Conversation #1: The Foundation

Before you talk about how to divide up bills or other practical details, go deeper to build a strong foundation through an emotionally rich conversation. In other words, save the nuts and bolts for later! 

The key thing in this initial conversation is to really listen to each other. That means you can’t just wait for your turn to talk. Be interested! You are about to learn some important stuff about your partner’s triggers. What you find out could unlock a whole new level you can achieve as a partner. The things you hear are likely to be very significant. Your partner might not even know how important the themes they raise are, and may even, themself, discover some important truths in the process. 

Set aside time (about 90 minutes – could be more, could be less!) where you won’t be disturbed. Put your phones away–really, put them away. It is crucial to make sure no one is hungry or tired. Remember to take care that both people are sharing and being heard well. Begin by outlining your hopes for the conversation. I have included some prompts I often use when facilitating this conversation. You can use these, create your own (let me know what you come up with!), or try freeform (but beware it is a lot harder that way):

• What is your first memory of money?
• What did you learn about money in your family growing up?
• When your parent(s) (or other adults in your household) worried about money, what did they worry about?
  • If you think they didn’t worry about money, explore why the conflict was hidden instead of revealed. It’s possible they never worried, but that is very, very unusual. 
• If people in your family fought about money (most people do), what were some of the fights about? 
• When you are anxious about money things, what’s the anxiety all about? What do you worry about?
• What financial aspirations do you have? Are there specific things you want to have or specific things that you want to do? 

We often inherit the worries of our parent(s), or other people who cared for or had an impact on us as kids. Those worries probably didn’t help our elders much, and now, since our situations are very different, they almost surely won’t help us. 

During this conversation, many people begin to recognize for the first time how their own anxieties are inherited and have little or nothing to do with their own situation. If this all seems a little “woo woo” or emotional – it is! 

If you don’t understand the emotional basis for your money fears, you’ll have a lot of unnecessary fights. Plus, these conversations tend to be super interesting. If you find emotional conversations are new, just remember that the key is to be interested, make space, and care. If you ever notice that you (or your partner) are beginning to feel frustrated, defensive, or uncomfortable, make sure that you resolve that first since couples usually make progress when they are both feeling safe and comfortable.  

Concluding the Conversation

Ultimately, this foundational conversation should help you to feel safe with one another – even if there isn’t a clear path forward to establishing aligned financial goals. That will come with time. Your initial goal is to understand where your partner is coming from, and to feel heard as an equal member of the money conversation in your partnership. 

In our second post, we’re covering Conversations 2 & 3 that you should have with your partner, and how to navigate the “nuts and bolts” of setting up a financial life that supports your partnership.

You should always consult a financial, tax, or legal professional familiar about your unique circumstances before making any financial decisions. This material is intended for educational purposes only. Nothing in this material constitutes a solicitation for the sale or purchase of any securities. Any mentioned rates of return are historical or hypothetical in nature and are not a guarantee of future returns. Past performance does not guarantee future performance. Future returns may be lower or higher. Investments involve risk. Investment values will fluctuate with market conditions, and security positions, when sold, may be worth less or more than their original cost.

It’s tax season and everywhere we look there are pieces about clever tax strategies. Those are about personal tax strategies. But what about societal tax strategies? 

Our current tax system is broken. For instance, the investigative news outlet ProPublica revealed that:

The 25 richest people in the United States paid a “true” tax rate of just 3.4 percent, on average. Three of the five richest people in the country—multibillionaires Jeff Bezos, Warren Buffett, and Elon Musk—paid even less.

As ProPublica explains, many of those billionaires use a set of loopholes with a buy, borrow, die strategy that allows them to spend millions of dollars (or more) per year, but show almost no income and therefore pay a vanishingly low income tax rate. Then, on the other side of the spectrum, those who have lower incomes or come from disadvantaged backgrounds, may pay more than their fair share because they don’t have the tools, resources, or professional assistance to minimize their taxes. This inequitable system is detrimental to many who are trying to get ahead, and I find it deeply unjust. 

Imagine a country where everyone paid their fair share, where the safety net was well funded so unemployment wouldn’t ruin a financial life, where teachers were paid commensurate with their importance, where buses and subways came often, where public universities were thriving, where parks were beautiful, and where healthcare was high-quality, patient-oriented, and accessible to all. 

If our tax system was fairer, we could live in that world!

So how do we get there?

Don’t like tax loopholes? Do something about it!

Systemic problems require systemic change. Quietly skipping loopholes may make one feel good, but doesn’t change the reality much. If we want to make real change, I think we have to work collectively. Thankfully, there are many organizations working hard on this issue and we can support their work in many ways, but especially financially.

Perhaps you just got a tax refund or you realized you are wealthier than average but pay a lower tax rate. Regardless, send a check! But where can you send it? 

13 organizations that can use your tax refund to fight for a just tax system

To help our clients and friends learn about organizations worth supporting, I spoke with some national practitioners with decades of experience working on these issues and building power. Based on their insights and my own, I assembled this list of organizations that you might add to your list for consideration. Perhaps you’ll identify a few additional ones that make sense. 

Americans for Tax Fairness

The Americans for Tax Fairness group is comprised of over 425 organizations at a state and federal level who are committed to making sustainable, balanced, and equitable decisions about the federal budget and tax system. They focus on educating the American public and mobilizing volunteers and donors to influence policymakers to “support comprehensive, progressive tax reform.” To learn more about Americans for Tax Fairness, click here.

Center on Budget and Policy Priorities

The Center on Budget and Policy Priorities is a leader in tax policy work at the federal and state levels and is a major positive influence in this area. They are nonpartisan, and focus on advancing federal and state budget policies that prioritize equitable financial and tax structures regardless of:

• Income
• Race
• Ethnicity
• Sexual orientation
• Gender identity
• ZIP code
• Immigration status
• Disability status

To learn more about the Center on Budget and Policy Priorities, click here.

Citizens for Tax Justice

Citizens for Tax Justice often works in tandem with ITEP at the federal and state level to fight for tax justice as a means to creating social, economic, racial, climate, and gender justice. Their three stated goals are to:

1. Create a more progressive federal tax system.
2. Enhance tax policies that alleviate poverty and address the racial wealth gap.
3. Upend regressive state tax systems. 

Along with working to provide education to the American public, they also work in Washington D.C. towards transformative change in the tax system. Learn more about Citizens for Tax Justice here.

DC Fiscal Policy Institute

The DC Fiscal Policy Institute focuses on shaping racially-just tax systems through data gathering, analytics, and education in Washington DC. Their advocacy efforts promote both the dismantling of racist tax and economic policy at a community and national level, but also building new, equitable systems that support a world where “every citizen, no matter their race or ethnicity, has what they need to live to their fullest.” They focus on six core areas of work:

• Revenue & Budget
• Early Childhood & Pre-K to 12 Education
• Inclusive Economy
• Health Equity
• Affordable Housing & Ending Homelessness
• Income & Poverty

To learn more about the DC Fiscal Policy Institute, click here.

Economic Policy Institute

The Economic Policy Institute “has the most sophisticated analytic capacity in the progressive landscape in terms of understanding macroeconomic impact of tax policy.” They focus on researching and educating American voters and politicians about tax inequity, as well as potential solutions, to achieve a more prosperous economy filled with opportunities for all. To learn more about the Economic Policy Institute, click here.

ITEP (Institute on Taxation and Economic Policy)

ITEP is a non-profit tax policy organization that analyzes tax proposals and provides recommendations that prioritize equitable and sustainable tax systems. Their goal is to create a more equitable, inclusive, and sustainable American economy through rigorous, data-driven analysis and education. When I was working on tax equity campaigns, I found their research and engagement very helpful. 

ITEP works at the state and federal level. To learn more about ITEP, click here.

Jubilee USA Network

Jubilee USA Network is “is the religious coalition on debt relief and international tax evasion.” They believe in prayer and activism to “advance solutions to end poverty and address inequality.” Their primary areas of focus are:

• Debt
• Tax inequity
• Transparency
• Trade policies

To learn more about Jubilee USA Network, click here.

Millionaires for Humanity

Millionaires for Humanity is an international group of multimillionaires who believe in using their wealth and resources to create systemic change to tackle climate change, poverty, and UN Sustainable Development Goals. To learn more about Millionaires for Humanity, click here.

Patriotic Millionaires

The Patriotic Millionaires is an organization that focuses on financial and political equality through:

1. A fair tax system.
2. Livable minimum wage.
3. Equal political representation.

Their stated goal is to work toward a more stable and prosperous America where all citizens have the opportunity to be “authentically engaged in the governance process.” The group is comprised of high net worth individuals who want to work together to build an America that works for (not against) every citizen, and eliminates oppressive systems that make the gap between the ultra wealthy and everyone else that much wider. To learn more about Patriotic Millionaires, click here.

Responsible Wealth

Responsible Wealth is a network of business leaders and investors in the top 5% of wealth or income in the United States who believe in closing tax loopholes for the rich and for corporations. This project is run by United For a Fair Economy. To learn more about Responsible Wealth, click here.

Resource Generation

This group focuses on 18-35 year olds who are in the wealthiest 10% of the US population, and mobilizes them to leverage their resources for philanthropic purposes and to instigate systemic change for an equitable society. They have a “redistribution pledge” that encourages this generation to prioritize the redistribution of wealth to impact social justice campaigns across the country. To learn more about Resource Generation, click here.

The FACT Coalition

The Financial Accountability and Corporate Transparency (FACT) Coalition is an alliance of organizations that work together to create a fair tax system that addresses the challenges and changes of an ever-shifting global economy. Their stated goals are to:

• End the use of anonymous shell companies as vehicles for illicit activity;
• Strengthen, standardize, and enforce anti-money laundering laws;
• Require greater transparency from multinational corporations to promote informed tax policy;
• Ensure that the U.S. constructively engages in global financial transparency initiatives; and
• Eliminate loopholes that allow corporations and individuals to offshore income and avoid paying their fair share of taxes.

To learn more about the FACT Coalition, click here.

The Roosevelt Institute

The Roosevelt Institute is an increasingly influential organization in the areas of corporate power, labor, wages, and race/gender. Their work meaningfully involved taxes but as part of that broader picture. They host several publications, offer a network community and fellowship, and run a think tank that focuses on climate and economic transformation, work power and economic security, race and democracy, corporate power, and macroeconomic analysis. To learn more about The Roosevelt Institute, click here.

How are you working for tax equity?

Have you donated to an organization working toward tax equity recently? How are you supporting tax changes? We want to know! Send me an email at – I’d love to hear what you have to say.

20-somethings of today are facing the most difficult financial circumstances of any recent generation. In this article, I’d like to dig into what roadblocks today’s young adults are dealing with and how they can navigate them to create a fruitful and fulfilling financial future.