7 min read

It’s 2022! Buckle Up.

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Since “well” is a tall ask during these difficult times, we hope this email finds you recharged, in good health, and with leftover holiday candy. Uncertainty still abounds as a new variant of the COVID-19 virus spreads rapidly across the world, but there’s reason to believe we’re in a better position than we were during the dark days of Delta.

Many young investors are entering the new year with a bit of swagger and confidence. All three major indexes (S&P 500, Nasdaq, Dow) gained around 20% in 2021, marking their third positive year in a row. Money rushed back into shares as vaccines were made at breakneck speed, and for the first time since 1995, the S&P 500 closed at new all-time highs 70 times. ​​Every sector saw double-digit returns, with “Energy” and “Real Estate” leading. (Of course, eco-conscious funds missed out on some of those gains if they avoided fossil fuel companies.) It was the busiest year for IPOs since 2000. The collective value of all cryptocurrencies is nearing an eye-watering $2.5 trillion, having started 2021 at less than half that. Two popular assets that dipped in value were US bonds (-1.9%) and gold (-4.1%).

The equity comeback in 2021 has been great for many retail investors, and we’re not just talking about the GameStop believers who enjoyed a +600% return. As we discussed last week, the opportunities for investors focused on ESG, sustainability, and aligning their values with their investing have never been stronger. But experts say it’s time to lower expectations. Those who bear the scars from previous market rollercoasters will tell you this ride is the exception, not the rule. The major obstacles are the unpredictable pandemic, rising inflation, and the Federal Reserve reducing its economic support and raising interest rates. Sustainable investors will also watch closely as President Biden’s “Build Back Better” economic agenda hangs in the balance. Brace yourself and buckle up for a bumpy ride, including a possible correction. It’s 2022.

What we’ve been thinking of:

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  • CES, the biggest consumer electronics event in the world, kicked off yesterday in Las Vegas. Alongside eco-friendly gizmos, like a battery-free, mercury-free thermometer, previewing their new EV technologies are General Motors, Chrysler, Mercedes Benz, Sony (yes, the gadget maker has a car unit now), and Blink Charging. You can follow along here.
  • A packaging giant that supplies the likes of Kellogg’s and Coca-Cola is replacing plastic with paper since green investing has “opened up a market worth more than $6 billion a year” for it.
  • The European Union wants to put a “green” label on sustainably produced nuclear energy and natural gas in order to drive investment to these areas. South Korea just made a similarly controversial decision.  With an energy crisis that doesn’t seem to be lifting, the climate transition is proving very tricky.
  • Alongside vaccine makers, companies producing COVID-19 antiviral pills and testing kits are in focus. Pfizer and Merck’s treatments have been approved in several countries, and at-home test kit makers, including public firms like Abbott Labs, Quidel, and Becton Dickinson, are seeing soaring orders from consumers and governments.
  • 4,500 people of color occupy board seats in the companies of the Russell 3000 stock index. This is up 25% from a year ago and up almost 50% from the end of 2019.

Financial resolutions for 2022

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As the confetti settles, our attention turns to the future — and if you’re making financial resolutions heading into the new year, you’re not alone. Google says the most-searched type of new year’s resolution in the past week has been financial, even before health and professional goals. WalletHub estimates 92 million Americans are planning to be better with money this year.

Keeping a new year’s resolution beyond those first few morning smoothies or post-workout selfies is a perennial challenge. Those who do stick with it say the secret is keeping them clear, realistic, and specific. That’s why we’re going to highlight the three most important financial resolutions for peace of mind and reaching your goals:

  1. Save more and budget: Whether you want to save for retirement, a new home, or an emergency fund, or increase investing in companies that align with your values, start by recording your expenses. Paying close attention to your spending habits is the first step to improving them. Create a budget so that your after-tax income is enough for spending with some to spare. A popular rule of thumb (that may not be for everyone) is 50/30/20, where 50% goes to your needs like groceries, rent, and gas, 30% to your wants like shopping and entertainment, and 20% to your financial goals, like saving and investing. Find out if your employer matches your 401(k) contributions and put in enough to get that free money.
  2. Pay down debt: Repaying what you owe on credit cards, student loans, mortgages etc. should be a priority. It can make you more financially secure in the long term, improve your credit score, and help you sleep better at night. The two main methods to pay off debt are the snowball and avalanche. You may also want to consider consolidation, which is combining your debts and taking out a new loan to repay them on a monthly basis, if you can get a lower interest rate.
  3. Be a smarter investor: When you find companies or funds that you think will provide the financial and social returns you are looking for, invest on a consistent basis and don’t withdraw regardless of what the market’s doing. Make sure your portfolio is balanced, diversified, and suited to your risk tolerance as well as your values. If your portfolio started off as 50% stocks and 50% bonds, changing rates of return may mean that the allocation has “drifted” (yes, that’s a technical term) to a 60-40 split. Diversification may entail including parts of the world, sectors, and even other asset types like cryptocurrencies (if you can afford the volatility). Looking for next steps? Learn about minimizing investment fees and taxes and see if an advisor might be helpful.

How to become a socially responsible investor

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You may be concerned about the impact your money has on society and the planet, or maybe you’ve read about how ESG assets will benefit your pocket in the long run. Whatever your reason, if you’ve decided 2022 is the year to seek more than an impressive bottom line and short-term gains, we have a few tips for you to start:

Decide what’s important to you: Do you want to contribute to positive change by betting on firms that are prioritizing diversity or working on exciting climate solutions? Or avoid investing in certain areas, such as gambling, tobacco, or fossil fuels? Figure out what passions or values drive you — whether it is the environment, your faith, or a commitment to inclusion — and start researching investing options. For example, here’s a list of gender and racial equity funds. If you’re interested in impact investing, you can also look for green and social bonds where the proceeds go towards funding projects with positive benefits. And we think this run down of faith-based ETFs is a great place to get a sense of the offerings available today.

Find out what you own: You can’t be a sustainable investor if you don’t know where your money is, including your retirement savings plan. There’s been an explosion of ETFs, including in the sustainable category, and the money being poured into them is hitting record levels thanks to their simplicity and affordability. But what’s in these baskets of stocks and how much do they align with your values? We’re big fans of the Invest Your Values online tools, which can be used for mutual funds, too. Knowing what exactly is in your fund can help you guard against greenwashing and ensure it is in line with your values.

Set targets for your ESG returns as well as your financial ones: Besides their financial reports, 92% of the S&P 500 companies published a sustainability report in 2020. Mission-focused firms also publish impact reports. Take some time to dive into these. You can also use data sources like the CDP and the Carbon Removal Corporate Action Tracker, or other third-party rankings. Ask what sort of social and environmental impact are you seeing from the companies in your portfolio. Are the high performers on that end also generating a rate of return that makes you happy? What ESG scores do your stocks and funds have? You can look up these ratings from MSCI, Sustainalytics, or S&P 500.

As with all investments, keep an eye on returns, performance, and fees.

Before you go -

Round, oval, princess, or marquise and … ethical? Couples are increasingly saying “I do” to lab-grown diamonds. Synthetic stones were at the center in nearly one in four engagement rings in 2021.

Correction: Last week we called the iShares ESG Aware MSCI USA ETF the biggest ESG fund in the US. We should have clarified it’s the biggest index-based or passive ESG fund. The biggest ESG fund overall is the actively managed Parnassus Core Equity Fund. Here’s the difference between the two types.