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The term “retail investors” may conjure images of overflowing Target carts (really, who can resist their dollar section?), but this term means something very specific in the financial world. Basically, it’s a non-professional, individual investor (like you, as opposed to an institution like Vanguard or Fidelity) investing for themself and not an organization. Last month, individual investors poured a record $27.9 billion into the US stock market, showing that this sector is a powerful market force.
But retail investing in ESG is still relatively new. While Morningstar reported in January that money going into US Sustainable Funds in 2020 more than doubled the total for 2019 (and was nearly 10x the total in 2018), it is still early days. Yahoo Finance recently shared a report that shows ESG stocks are still finding their footing with millennials and Gen Z retail investors. Only a quarter of the survey participants reported owning ESG stocks, while 32% said they don't even know what an ESG stock is. Not to worry, as an FWIW reader, you won’t be part of that 32%. We’ve got you covered (your friends too, if you forward this newsletter along, hint hint).
ESG as risk management
One thing investors never want to wake up to is a breaking news alert that a company they invested in is embroiled in a scandal due to shortsighted management or planning. While we don’t have a crystal ball that will predict every corporate misstep, many banks, insurance companies, and major investors turn to ESG stocks to guard against investment risk. And there is no reason you shouldn’t consider following their lead.
CEOs and companies that apply an ESG-approach throughout their company (not just the parts typically reported on earnings and balance sheets), are in effect making decisions that create resilience against risks that others may not see. These could be reputational, environmental, and/or financial risks. Along these lines, seeing ESG practices as risk management may have prepared some companies to better weather and innovate throughout the pandemic. We can apply this thinking to our own investing journey to protect against some avoidable risks to our investments now and in the future.
Asking for a friend: Social media & sustainable investing
Q: Is using social media to learn about sustainable investing a good idea?
A: It can be hard to know where to turn for advice when you’re just starting out with investing. While friends and family are still the most likely place many people look to, more and more younger investors are seeking guidance and community on social media. From Facebook groups to Reddit to viral TikToks — learning this way can be fun and accessible, and we certainly understand the allure. And while many media anecdotes about social media’s growing influence have focused on men, research shows that when starting to invest, 78% of affluent Black women and Latinas turned to self-directed educational resources like social media, TV shows, or apps. The appeal is widespread.
Keep in mind, of course, the internet is full of sources spouting advice, so it’s crucial to use a careful and critical eye or consult your financial advisor when choosing who is credible to follow for financial insights. Always do your own research and fact-checking from a variety of online and offline sources, but these platforms can be a great place to find community and learn new things in your journey to invest with impact.
To help you get started, we’ve compiled a list of some of our favorite social media accounts for investing content.
Paying down student loans vs. investing for retirement
If you’re one of the 45 million Americans with student debt, you may find yourself asking the same question a Smart Money Podcast listener did: is it better to pay down your student debt or put money into a 401(k)?
Like most things in life, the answer isn’t so straightforward. “It's not a question of which one should I do first. It's a question of how can I do all of these things at the same time?” Debt repayment is vital for many reasons — including keeping your credit score healthy — and compound interest, the financial snowball effect, makes it essential to get a jumpstart on saving for retirement as early as possible.
With the pandemic freeze on student loan payments set to expire in October, now is the time to prepare. Listen to this Smart Money Podcast for tips on navigating this balancing act.
Before you go —
What do the Prince of Wales, the Pope, and Greta Thunberg have in common? They’re fired up about cooling the planet. Want to join that list of heavy hitters? Check out the “Carbon Clean 200,” a list of publicly traded companies leading the way in the transition to a clean energy future.