Category: February 2017 – Millenials, Money & Investing

Introduction – February 2017

By Rianka Dorsainvil, CFP, Your Greatest Contribution, Guest Editor

>> Back to February 2017

There is much debate about the millennial generation. Some of our predecessors call us lazy and coddled, while others accuse us of being entitled. While we certainly dispute those characterizations, what is not up for debate is our desire to leave the world a better place. We are civic-minded, entrepreneurial spirited and open to learn from those who do not look or think like us. In this issue of GreenMoney Journal, you will hear from four Millennials who are in various stages of their careers: two who have ventured out on their own to make an impact in their own special way, and two who choose the corporate path. Each writer brings a unique lens on what it means to make a sustainable impact.

Gabriel Anderson, founder of Crafted Wealth Management, a Venice, CA based virtual Wealth Management firm takes us down the path of asking the tough questions around planning for your financial future; Najada Kumbuli, Officer, Strategic Initiatives at Calvert Foundation, explores how energy poverty is interlinked with gender equality and women’s rights issues; Dr. Daniel Crosby, President of Nocturne Capital and New York Times bestselling author, gives us his twist on behavioral finance and ESG; and Sean Tennerson, Program Officer at The Case Foundation, shares how education and data can inspire change.

Featured Articles

US SIF Statement on Updated ERISA Guidance on Shareholder Rights

On December 29, 2016, the Department of Labor (DOL) rescinded Interpretive Bulletin 2008-2 relating to the Exercise of Shareholder Rights and replaced it with Interpretive Bulletin 2016-01 (www.dol.gov/newsroom/releases/ebsa/ebsa20161228) which reinstates the language of Interpretive Bulletin 94-2 with some modifications. US SIF supports this change as IB 2008-2 was not only inconsistent with prior guidance, but may have discouraged ERISA plan fiduciaries from exercising their shareholder rights. Today’s guidance appropriately notes the positive role fiduciaries play through the exercise of shareholder rights. Additionally, this guidance also reinforces the language of IB 2015-1 [1] on economically targeted investments which clarified that environmental, social and governance (ESG) impacts can be intrinsic to the market value of an investment.

Lisa Woll, CEO of US SIF: The Forum for Sustainable and Responsible Investment noted that “Fiduciaries have been engaging portfolio companies on environmental and social matters in a productive fashion for years. Institutional investors are increasingly engaging companies on ESG issues to address risks and opportunities. The US SIF Foundation’s 2016 Report on US Sustainable, Responsible and Impact Investing Trends (www.ussif.org/trends) found that 225 institutional investors or money managers with combined assets of $2.56 trillion filed or co-filed shareholder resolutions on environmental, social and governance issues at publicly traded companies from 2014 through 2016. We believe shareholder engagement is consistent with the fiduciary duties of prudence and the goal of increasing long-term risk-adjusted returns. We commend the Department of Labor for its leadership on this issue.”

Key points made in the new guidance and in the DOL news release include:

• The DOL reinforced the legitimacy and importance of investors’ engagement with their portfolio holdings noting that IB 2008-2 is out of step with important domestic and international trends in investment management. The guidance removes perceived impediments to the prudent management of plans’ rights as shareholders and encourages fiduciaries to manage those rights in the best interest of plan participants and beneficiaries.

• The updated guidance clarifies how a plan may consider ESG issues in proxy voting and other shareholder engagement activities.

• In its comments, the DOL recognizes the pervasiveness of US publicly-traded stocks in ERISA plan investment portfolios, both direct holdings and through pooled investment funds, including index funds and that this is another factor that contributes to the importance of proxy voting and shareholder engagement practices.

• The DOL noted that if there is a problem identified with a portfolio company’s management, selling the stock and finding a replacement investment may not be a prudent solution for a plan fiduciary. Often, engagement with the company is the prudent course of action.

• Issues appropriate for shareholder engagement include governance structures and practices, the nature of long-term business plans including plans on climate change preparedness and sustainability, the corporation’s workforce practices, and policies and practices to address environmental or social factors that have an impact on shareholder value, among other issues.

• Companies themselves are seeking more engagement as a way of understanding and responding to their shareholders’ views. There have also been market events that were catalysts for the growth of shareholder engagement. The financial crisis of 2008, for example, exposed some of the pitfalls of shareholder inattention to corporate governance and highlighted the merits of shareholders taking a more engaged role with the companies.

 

Article Note:

[1] https://www.federalregister.gov/documents/2015/10/26/2015-27146/interpretive-bulletin-relating-to-the-fiduciary-standard-under-erisa-in-considering-economically

Additional Articles, Impact Investing

ESG in 2017: A Fundamental Rethink?
6 Trends to Watch

By Linda-Eling Lee, Global Head of ESG Research, MSCI

This year may ring the bell on a fundamental rethink for investors. Underlying all the major trends we identified for 2017 is a strategic decision point – do we change the way we think about investing, or is this business as usual in a new order?

In either case, one thing seems certain – focusing on policy shifts alone would be shortsighted. Policy is an outcome, forged by forces that unfold over more than one election cycle and reflect deeper technological, socio-demographic and energy trends that are reshuffling the social order and the investment landscape. This year, we need to think big – how will major trends affect the capital markets for the next decade?

Here are the biggest ESG forces affecting institutional investors over the long haul.

870x310_Blogpage_6ESGTrends

 

KEY 2017 TRENDS

1. Owning the Long Game

In 2017, some of the world’s largest investors may differentiate themselves by gearing toward the long view as globalization and technological advancements have strained social cohesion and fanned populist sentiment.

2. The Shift from Regulatory to Physical Risk

Focus on policy uncertainty around climate change in the wake of the U.S. election is misplaced. In 2017, we believe investors will turn their attention to mitigating exposure to the physical risks from global warming, especially as water is becoming scarcer in regions from the Middle East to the U.S.

3. Choosing Stewardship in Asian Capital Markets

Rapid adoption of codes that promote engagement between companies in Asia and investors is challenging the conventional wisdom that Asia lags global peers in corporate governance. In 2017, the real work starts, with investors facing a choice between proclaiming the importance of corporate governance without actually supporting improvements in companies’ practices to influencing companies’ behavior and pushing for change that stewardship brings.

4. ESG Investing as a Precision Tool

Research that points to ESG factors as a performance indicator continues to grow. In 2017, institutional investors may seek to integrate ESG signals across asset classes, markets and factor exposures.

5. Going for Goal with a New Performance Language

The U.N.’s Sustainable Development Goals are becoming a de facto framework for bringing together investors, companies, governments and citizens with an aim of protecting the planet, ending poverty and promoting peace and prosperity. In 2017, we see the increased adoption of corporate disclosures targeting these goals as a boost for institutions that aim to broaden their sustainable investment programs.

6. Green Shoots in China and India’s Sustainable Finance

The surge of innovation in sustainable development projects and initiatives in China, India and other emerging markets has been greeted with equal parts optimism and skepticism by institutional investors. In 2017, domestic and global standards will likely converge as companies in these markets deepen their understanding of standards required to attract foreign capital.

Download the complete MSCI ESG Trends 2017 Report here- https://www.msci.com/www/research-paper/2017-esg-trends-to-watch/0556816956

 

Article by Linda-Eling Lee, Global Head of ESG Research, MSCI. The author thanks Matt Moscardi for his contributions to this blog post.

Source: MSCI

Additional Articles, Impact Investing, Sustainable Business

Climate Change and Women’s Rights: The Opportunity for Action

By Najada Kumbuli, Officer, Strategic Initiatives at Calvert Foundation

Are you a millennial? I have bad news and good news for you. The bad news is that climate change and gender equality — two key issues you care about — will cost our generation over $30 trillion*; that is the equivalent of the American, Chinese and Japanese economies combined. The good news is that, while scary, we can use our voices and investable assets to create real change, quickly!

Until recently, climate change and gender equality were considered as two very important, yet independent issues. The reality though is different: climate change, and in particular energy poverty is interlinked with gender equality and women’s rights issues, especially in developing countries. We have made progress in quantifying the price tag for inaction on climate change and for inaction on gender equality. We have also made progress in connecting these two seemingly independent issues in order to develop a framework to address their challenges simultaneously.

In 2009, the UN Population Fund undertook in-depth research on the relationship between women and climate change in its annual report, concluding that women “are among the most vulnerable to climate change, partly because in many countries they make up the larger share of the agricultural work force and partly because they tend to have access to fewer income-earning opportunities.”

Yet in my mind, the biggest and boldest opportunity lies in adding a third dimension to addressing the nexus between climate change and gender equality — engaging young investors, in particular women investors, to become agents of change by utilizing their voices and assets to lead to systemic and sustainable change to these issues.

1. Why Should We Invest in Climate Change?

Investing in climate change is a financial as well as a social and environmental imperative. The opportunity cost of inaction is detrimental to our generation (as described above) while the social and environmental argument does not leave room for interpretation.

Scientists often point to ongoing new evidence that climate change will drive some of the most populated cities in the United States underwater. New York, Boston and Miami are all at great risk. While the impact of climate change varies even within cities, it puts residents of poor neighborhoods everywhere at greatest risk of suffering from climate related shocks, including internationally. Such residents will remain on the forefront of human-induced climate change over the next century. The poorest countries are projected to continue experiencing gradual rises in sea level, hotter days and nights, more unpredictable rains and cyclones, and larger and longer heat waves, according to the Intergovernmental Panel on Climate Change.

To put it in context, according to OECD climate change is expected to further reduce access to drinking water, negatively affecting the health of poor people, and will pose a real threat to food security in many countries in Africa, Asia, and Latin America. In some areas where livelihood choices are limited, decreasing crop yields will threaten famines, or where loss of landmass in coastal areas is anticipated, migration might be the only solution.

2. Why Should We Invest in the Nexus of Climate Change and Women Empowerment?

Women form a disproportionately large share of the poor in countries all over the world. Women form approximately 50 percent of the world’s population yet 75 percent of the people in energy poverty are women. Why? Women in rural areas in developing countries are highly dependent on local natural resources for their livelihood, because of their responsibility to secure water, food and energy for cooking and heating.

On average, 63 percent of rural households depend on women to obtain drinking water for the home. Research shows that women spend up to 20 hours a week gathering biomass (wood, dung, crop waste) and drinking water, instead of going to school, learning and improving their lives.  As climate change directly impacts the water availability, the amount of time dedicated to collecting water might increase, leaving women and girls with even less time to go to school and reinforcing the cycle of poverty.

Women also form the majority of the 3 billion people that still use traditional biomass as their main source of energy. Experts at the University of California, Berkeley calculate that having an open biomass fire in your kitchen is equivalent to burning 400 cigarettes an hour. More importantly, WHO reports that exposure to indoor air pollution is responsible for over 4 million deaths a year, easily making it the most critical environmental killer humans face – more death than Malaria, HIV/AIDS, and lung cancer combined.

The effects of climate change make it harder to secure these resources — a burden which further exacerbates women’s and children’s lives. By comparison to men in poor countries, women face historical disadvantages, which include limited access to decision-making and economic assets that compound the challenges of climate change.

It is therefore critical that a gender lens be applied to all actions on climate change and that gender experts are consulted in climate change decision making at all levels, so that everyone’s needs (women’s and men’s) and priorities are identified and addressed from the very beginning.

Article.4_#1 infographic

 

3. How Can We Invest in Climate Change and Women Empowerment Simultaneously?

This is one of the key questions and reasons that make me excited to go to work everyday! We at Calvert Foundation embarked on the journey of moving the dialogue from the why to the how investing in the nexus of climate change and women empowerment in early 2015 through our Women Investing in Women Initiative (WIN-WIN). Through this investment initiative we are working to channel pools of capital towards positive impact in gender equality and clean energy.

Building off the success of the responsible investment movement, impact investing is perfectly positioned to create deeper engagement between an individual’s values and her investment portfolio. In the same way that purchasing decisions — the car you drive, the clothes you wear — suggest a certain set of values, an investment product can represent your values and the impact you want to have on the world. If you are passionate about climate change and/or gender issues, then why not invest in solutions to addressing these issues simultaneously.

Article.4_#2 infographic

Fortunately, research points that Millennials want to align their assets with their values. Nearly 80 percent of millenials and 88 percent of women want to invest for impact, particularly climate change and gender related issues. There is a number of investment opportunities that enable investors to align their assets with their values — we launched WIN-WIN as an opportunity to target their dollars towards women and clean energy. By doing so, investors can express their values through their investable assets and shift the conversation around gender lens investing in the climate change space.

We particularly need to increase women’s participation as investors to new levels. We also need to engage women as policy makers at the national and international level.  Recently, there has been a small but steady increase in the representation of women that participate — as delegates and in leading roles — at climate negotiations. From 2008 to 2014, women delegates representing nations at the UN Framework Convention on Climate Change rose from 33 to 38 percent, while women’s participation as Heads of Delegations increased from 18 to 26 percent.

While you can’t guarantee that a woman in a leadership position will make a decision based on gender-equality or low-carbon pathways, it is still important to have women in decision-making positions when we’re talking about something as important as inclusive and sustainable development in the next 15 or 20 years.

The same goes for including women in leadership roles at the company level. Research points to stronger profits for companies that are led by female executives and the same goes for companies that care about climate change.

While women in developing countries face the brunt of climate change, they are better positioned and should be encouraged to be involved in the design and distribution of climate solutions. It has been proven that social enterprises that adopt more gender inclusive models do better than their counterparts that don’t.

Through Calvert Foundation’s work lending to social enterprises to produce and distribute clean energy solutions in off grid communities round the world, we have learned that women hold important decision-making power when it comes to purchasing household products. They may not be the one actually engaging in the purchasing transaction but they do heavily influence the decision point. As a result, educating and engaging women on the importance of using these solutions is critical in making progress in the up-take of products like solar systems, clean cook stoves or water filters.

 

Article by Najada Kumbuli  She works on the design, management, partnerships and communications around new investment initiatives and incubator portfolios within Calvert Foundation’s Strategic Initiatives mandate (www.CalvertFoundation.org). She is responsible for the origination of new investments and management of credit quality within the incubator portfolios. This portfolio is comprised of microfinance institutions and intermediary vehicles, ventures in sustainable agriculture, and small to medium enterprises providing access to clean water and renewable energy to the base of the pyramid.

Prior to joining Calvert Foundation, Najada worked as a Project Assistant for the Central and Eastern European team at the National Democratic Institute for International Affairs. She also worked with Community Reinvestment Fund and had done international development work in Kenya, Cambodia and Albania. She received a B.A. in Economics from Macalester College in Minnesota.

Article Note:

* The cost of inaction: Recognizing the value at risk from climate change: https://www.eiuperspectives.economist.com/sites/default/files/The%20cost%20of%20inaction_0.pdf

Gender Inequality costs as much as the American and Chinese economies combined: http://new.time.com/4045115/gender-inequality-economy/

52nd session of the Commission on the Status of Women (2008) “Gender perspectives on climate change,” Issues paper for interactive expert panel on Emerging issues, trends and new approaches to issues affecting the situation of women or equality between women and men. http://www.un.org/womenwatch/daw/csw/csw52/issuespapers/Gender%20and%20climate%20change%20paper%20final.pdf

Energy & Climate, Featured Articles

Whole Foods Market’s Top 10 Trends for 2017

New condiments, functional beverages and natural foods

Recently, Whole Foods Market’s (NASDAQ: WFM) global buyers and experts announced the trends to watch in 2017. Wellness tonics, products from byproducts and purple foods are just a few top predictions according to the trend-spotters, who share more than 100 years of combined experience in sourcing products and tracking consumer preferences.

Whole Foods Market’s top 10 trends for 2017 include:

Wellness tonics. The new year will usher in a new wave of tonics, tinctures and wellness drinks that go far beyond the fresh-pressed juice craze. The year’s hottest picks will draw on beneficial botanicals and have roots in alternative medicine and global traditions. Buzzed-about ingredients include kava, Tulsi/holy basil, turmeric, apple cider vinegar, medicinal mushrooms (like reishi and chaga), and adaptogenic herbs (maca and ashwagandha). Kor Organic Raw Shots, Suja Drinking Vinegars and Temple Turmeric Elixirs are just a few products leading the trend.

Products from byproducts. Whether it’s leftover whey from strained Greek yogurt or spent grains from beer, food producers are finding innovative—and delicious—ways to give byproducts new life. Eco-Olea is using water from its olive oil production as the base for a household cleaner line, condiment brand Sir Kensington’s is repurposing leftover liquid from cooking chickpeas in a vegan mayo, and Atlanta Fresh and White Moustache are using leftover whey from yogurt production to create probiotic drinks.

Coconut everything. Move over coconut oil and coconut water—coconut flour tortillas, coconut sugar aminos and more unexpected coconut-based products are on the rise. Virtually every component of this versatile fruit-nut-seed (coconuts qualify for all three!) is being used in new applications. The sap is turned into coconut sugar as an alternative to refined sweeteners, the oil is used in a growing list of natural beauty products, and the white flesh of the coconut is now in flours, tortillas, chips, ice creams, butters and more. New picks like coconut flour paleo wraps, 365 Everyday Value Fair Trade coconut chips and Pacifica Blushious Coconut & Rose Infused Cheek Color demonstrate coconut’s growing range.

Japanese food, beyond sushi. Japanese-inspired eating is on the rise, and it doesn’t look anything like a sushi roll. Long-celebrated condiments with roots in Japanese cuisine, like ponzu, miso, mirin, sesame oil and plum vinegar, are making their way from restaurant menus to mainstream American pantries. Seaweed is a rising star as shoppers seek more varieties of the savory greens, including fresh and dried kelp, wakame, dulse and nori, while farmhouse staples like Japanese-style pickles will continue to gain popularity. The trend will also impact breakfast and dessert, as shoppers experiment with savory breakfast bowl combinations and a growing number of mochi flavors like green tea and matcha, black sesame, pickled plum, yuzu citrus and Azuki bean. This is playing out in products like 365 Everyday Value Sweet Sabi mustard, Republic of Tea’s new Super Green Tea Matcha blends and recipes like Coconut Mochi Cakes.

Creative condiments. From traditional global recipes to brand new ingredients, interesting condiments are taking center stage. Once rare and unfamiliar sauces and dips are showing up on menus and store shelves. Look for black sesame tahini, habanero jam, ghee, Pomegranate Molasses, black garlic purée, date syrup, plum jam with chia seeds, beet salsa, Mexican hot chocolate spreads, sambal oelek or piri piri sauce, Mina Harissa and Frontera Adobo Sauces (Ancho, Chipotle and Guajillo varieties).

Rethinking pasta. Today’s pastas are influenced less by Italian grandmothers and more by popular plant-based and clean-eating movements. Alternative grain noodles made from quinoa, lentils and chickpeas (which also happen to be gluten-free) are quickly becoming favorites, while grain-free options like spiralized veggies and kelp noodles are also on the rise. That said, more traditional fresh-milled and seasonal pastas are having a moment too, which means pasta is cruising into new territories with something for everyone.

Purple power. Richly colored purple foods are popping up everywhere: purple cauliflower, black rice, purple asparagus, elderberries, acai, purple sweet potatoes, purple corn and cereal. The power of purple goes beyond the vibrant color and often indicates nutrient density and antioxidants. Back to the Roots Purple Corn Cereal, Jackson’s Honest Purple Heirloom Potato Chips, Que Pasa Purple Corn Tortilla Chips, Love Beets and Stokes Purple Sweet Potatoes are all examples of this fast-growing trend.

On-the-go beauty. “Athleisure” is not just a fashion trend; the style is now being reflected in natural beauty products, too. With multitasking ingredients and simple applications, natural beauty brands are blurring the line between skincare and makeup products, and simplifying routines by eliminating the need for special brushes or tools. Trending products include Mineral Fusion 3-in-1 Color Stick, Well People Universalist Multi-Stick and Spectrum Essentials Organic Coconut Oil Packet.

Flexitarian. In 2017, consumers will embrace a new, personalized version of healthy eating that’s less rigid than typical vegan, paleo, gluten-free and other “special diets” that have gone mainstream. For instance, eating vegan before 6 p.m., or eating paleo five days a week, or gluten-free whenever possible, allows consumers more flexibility. Instead of a strict identity aligned with one diet, shoppers embrace the “flexitarian” approach to making conscious choices about what, when, and how much to eat. Growing demand for products like 365 Everyday Value Riced Cauliflower (used for clean-eating favorites like gluten-free pizza crusts), Epic Bison Apple Cider Bone Broth and Forager Cashew Yogurt point to growth in this clean-eating category.

Mindful meal prep. People aren’t just asking themselves what they’d like to eat, but also how meals can stretch their dollar, reduce food waste, save time and be healthier. Trends to watch include the “make some/buy some,” approach, like using pre-cooked ingredients from the hot bar to jumpstart dinner, or preparing a main dish from scratch and using frozen or store-bought ingredients as sides. Fresh oven-ready meal kits and vegetable medleys are also on the upswing as shoppers continue to crave healthier options that require less time. Whole Foods Market’s Freshly Made video series highlights the kinds of recipes and ingredients shoppers are seeking.

This year’s predictions came from Whole Foods Market’s experts and industry leaders, who source items and lead trends across the retailer’s cheese, grocery, meat, seafood, prepared foods, produce and personal care departments, and spot trends for the retailer’s more than 465 stores.

Source: New Hope

Additional Articles, Food & Farming, Impact Investing

A New Fund Seeks Both Financial and Social Returns

By Andrew Ross Sorkin, The New York Times

“There is a lazy mindedness that we afford the do-gooders.”

That was Bono, the musician turned activist turned investor, lamenting the pitfalls of what has become an increasingly fashionable form of financing: social impact investing.

Just about every big Wall Street firm and big-time philanthropist has recently tried to get in on what’s often called double bottom line investing. The idea is that an investment isn’t just intended to score a high return; perhaps more important, it is supposed to make a significant difference in an area that had been considered un-investable. Goldman Sachs, for example, created social impact bonds to reduce the recidivism rate for adolescent offenders at the Rikers Island correctional facility in New York City.

Most of these efforts have had mixed results; either investors lost money, or the social impact was negligible or nonexistent.

It has become, as Bono told me, “a lot of bad deals done by good people.”

Now, a group of high-profile executives and investors are putting together perhaps the most ambitious social impact fund. Called Rise, the $2 billion fund is being developed by William E. McGlashan Jr., a partner at the private equity firm TPG, who more resembles a Buddhist monk than a cigar-chomping banker in pinstripes. He left his home in San Francisco in 2013 and moved his family to India for a year so he could be closer to the firm’s investments in Asia.

Mr. McGlashan has long overseen TPG Growth, a fund he started that was an early investor in the sharing economy, with stakes in Uber and Airbnb, as well other technology successes like Spotify. His first fund had an annualized rate of return — the metric that private equity firms use to measure themselves — of 20 percent; the second fund’s return was 45 percent.

But his investments in businesses like Apollo Tower, a cellphone tower company in Myanmar, are the model for the new effort. Since Mr. McGlashan began backing Apollo in 2014, before Myanmar emerged from military control, the company’s value has more than doubled. More important, Myanmar went from nearly 0 percent cellphone penetration to 70 percent, accounting for more than 5 percent growth in G.D.P. It helped to increase transparency in a country known for tight control of its information, helping the nation take steps toward democracy.

The new fund, which will be part of TPG, will be the first large test case for this type of investing. It has an all-star cast of board members, all of whom are investors. Among them are Bono; Jeff Skoll, the first employee of eBay, who now runs Participant Media and is a major philanthropist (“You only need so much for you and your family,” he told me); Laurene Powell Jobs, the philanthropist investor; Richard Branson; Reid Hoffman, a founder of LinkedIn; Mellody Hobson, president of Ariel Investments; Lynne Benioff, a philanthropist; Mo Ibrahim, perhaps the most influential investor in Africa; and Pierre Omidyar, the founder of eBay and a backer of First Look Media.

Others have tried to build social impact funds at a much smaller scale. Rise does away with benchmarks manufactured after the fact and has created a series of strict metrics by which to measure social impact. And an outside auditor has been brought in to keep it honest.

And the investors involved don’t consider this charity — pension funds and sovereign wealth funds are expected to be among the biggest investors. At least two large pension funds and one sovereign wealth fund have committed nine figure sums, according to people briefed on the investments, which have yet to be made public.

“The reality is that no matter which side of the aisle you’re on, and no matter where your framework is, if I can build a great business that’s profitable and successful and, oh, by the way, here’s the impact and the multiple of impact that’s created through that business’s successes, I think that’s good for everybody,” Mr. McGlashan told me.

The new fund is expected to invest about half of its money domestically in areas like health care, education and clean energy technologies. The other half will be invested in emerging markets in sectors like microlending and other financial services, housing and education.

“We’re not in the business of charity here,” Mr. McGlashan said. “We’re going to make money and build profitable successful businesses and create a top performing fund. But in the process, what we’ve committed to is that we will not do a deal where there’s less than a two and a half times multiple of impact,” suggesting a meaningful social impact that can be measured.

The problem with most of these kinds of funds is what Mr. McGlashan calls “greenwashing,” a euphemism for lying, which some in philanthropy feel is rampant among socially conscious investors. Everyone wants to claim some form of success using a shifting mix of metrics aimed at demonstrating how the fund worked.

“None of this makes sense unless you can actually define what ‘impact’ means,” he said. “It can’t be religion; it has to be quantitative. It has to be something that a third-party view would validate.”

Bono put it this way: “I asked them to hang a sign in their office saying, ‘Warm Fuzzy Feelings Not Welcome Here,’ because we need them to be tough-minded. We need some intellectual rigor, and you’ve got to get these metrics right.”

Mr. McGlashan, often in concert with Mr. Skoll, spent the past year working with Bridgespan Group, a consulting firm that has long worked for philanthropists — including the Bill & Melinda Gates Foundation — to come up with a rigorous set of metrics with which to measure performance.

If it works, Mr. McGlashan hopes to one day change the fee structure of funds like this so the investors are paid based on social impact, not necessarily just on financial performance. For the first Rise fund, Mr. McGlashan’s group, which will include most of TPG Growth’s professional staff, will be paid on financial performance, which is likely to make his job harder, not easier. He needs to find good investments, but his board and investors will also be focusing on whether the fund also delivers on its social impact promise.

Mr. Skoll said he expected to know whether the fund would be successful in relatively short order. “We’ll have a good idea within two years,” he said.

Bridgespan’s metrics for Rise could become a model for other investment firms if they prove successful, especially in a global political climate that is rethinking its capitalistic system.

“Capitalism is going up on trial, and I think that it’s clear that putting profit before people is a nonsustainable business model,” Bono said. “I think giving those two equal time is the way forward, and I think that in the present climate, we need to rethink, reimagine what it is. It’s not that capitalism is immoral; it’s amoral. And it’s a better servant than master.”

He added: “We have to be a bit modest about where we are with Rise and be actually a bit tough on ourselves. I’d be more comfortable speaking about this in a year’s time or two year’s time as we go along.”

Let’s plan on that.

Additional Articles, Impact Investing, Sustainable Business

Is Your Mutual Fund Company Taking Climate Change Seriously?

By Rob Berridge, Director of Shareholder Engagement, Ceres

>> Back to February 2017 Issue

Examining how the nation’s largest mutual fund companies voted on climate-related shareholder resolutions in 2015 and 2016. The results are revealing.

The vast majority of climate scientists (97 percent) believe climate change is real, but what about your mutual fund company? We examined how the nation’s largest mutual fund companies voted on climate-related shareholder resolutions in 2015 and 2016. The results are revealing.

While the great majority of mutual fund companies voted in favor of many climate-related resolutions (as shown on the chart below), a number of the largest firms failed to support any of the resolutions, including big-name players such as American Funds, BlackRock, Dimensional, Fidelity, Pioneer, Putnam, and Vanguard. These firms collectively manage trillions of dollars in assets, and their support of climate resolutions could contribute to majority votes for some resolutions – resulting in enormous pressure on companies to disclose their plans for addressing wide-ranging climate-related risks.

Let’s review why institutional investors file these resolutions and why companies should be disclosing and addressing climate-related risks. First, climate change creates profound risks for many companies and the global economy, and these risks need to be disclosed by companies, as a task force (chaired by Michael Bloomberg) of the Financial Stability Board of the G20 summarizes here – https://www.fsb-tcfd.org/publications/recommendations-report

Second, virtually every country in the world has agreed to reduce climate-warming pollution significantly via the Paris Climate Agreement that formally entered into force in November. The transition to clean energy that is already well underway threatens conventional business models of fossil fuel producers like ExxonMobil and creates a substantial risk of stranded assets and devaluation. Simply put, the business case for companies to disclose and act on climate risks – whether from extreme weather and other physical risks, or carbon-reducing regulatory risks – is powerful.

So why would a mutual fund company vote against nearly every shareholder resolution asking companies to disclose their risks and strategies for dealing with these powerful trends?

Here we Explore Three Possible Explanations – none of them are good:

1) The fund firm’s leaders don’t believe climate change is real or are ideologically opposed to admitting it’s real. If your mutual fund company falls in this category, you have a problem because the firm’s leaders are either not paying attention, or they are letting incorrect information guide their investment decisions and ownership practices. Either way, you should probably run for the exit.

2) They accept the science of climate change, but see few material risks or implications for businesses in their portfolios. This explanation may seem similar to the first, but there is a difference here that may be tripping up these firms. Vanguard’s proxy voting policies state that Vanguard funds should abstain from voting on “philosophical” social issues because they are the purview of company management, unless they have a significant impact on the valuation of the business; and based on Vanguard’s voting record, it seems they believe climate change has no significant financial impact on companies.

Unfortunately, this logic is both deeply flawed and shortsighted. Yes, climate change is clearly a moral and political issue, but it is also a critical business issue. Coal producers, oil companies and other fossil fuel businesses face wide-ranging climate risks – regulatory risks, transitional/competitive risks and reputational risks, among them. Businesses across nearly all sectors are increasingly exposed to risks of supply chain and workforce disruptions, infrastructure damage, rising resource costs, shifting demand, brand damage, and stronger regulations intended to protect people and the planet for both today and the future. Vanguard has a legal duty to vote in the best interests of its clients, and in our opinion, they are violating that duty by failing to recognize these risks as demonstrated by their failure to vote for a single climate-related resolution tracked by our study. If Vanguard believes climate change is not a business issue simply because it’s also a moral issue, you have to wonder about their judgment.

3) The fund firm managers believe private dialogue with companies is a more effective strategy than proxy voting. While it is true that face-to-face discussions initiated by major investors can have a strong influence on companies, it does not remove the fiduciary duty to vote proxies conscientiously on important bottom-line issues. If you believe the company should do what the resolution asks, and you vote against it (or similar requests) year after year while engaging in dialogue about it, then you send a mixed message. Proxy votes by major shareholders can be very effective in moving companies to action.

In addition, many institutional investors engage with companies on resolutions while also voting for them. Voting arguably adds teeth to the negotiations. And mutual fund companies generally keep their dialogues with companies strictly confidential, so there is no way for investors to understand their approach or any possible results.

CERES_chart_additional.4

Now the Big Kicker

Vanguard and many other mutual fund firms and investment managers – including American Funds, BlackRock, Dimensional, Fidelity and Lord Abbett – that fail to support climate resolutions have publicly stated that environmental and social issues can be material financially. They are all members of the UN’s Principles for Responsible Investment and have publicly pledged to adhere to six principles (https://www.unpri.org/about/the-six-principles). Principle 3 specifically reads: “We will seek appropriate disclosure on environmental, social and governance (ESG) issues by the entities in which we invest.” Many of the resolutions Vanguard and others vote against request this disclosure. And BlackRock and BNY Mellon have publicly issued noteworthy papers and letters to companies on the significant investment implications of climate change.

This proxy voting inconsistency has led investors to file resolutions on the issue with mutual fund companies and investment managers. As Timothy Smith, Senior Vice President of Walden Asset Management, explained: “The proxy voting records on climate change of investment firms and mutual funds are under increasing scrutiny by investors and clients. As a result, investors have filed a resolution with 5 investment firms urging them to review their proxy voting policies and record, as some vote against virtually every social and environmental shareholder resolution.”

Smith continues: “It is troubling to see BlackRock, JP Morgan, BNY Mellon and others routinely vote against important shareholder resolutions seeking reasonable disclosure and goals to manage climate change. How is this consistent with their fiduciary duty to protect their clients interests?”

Customers who are concerned by these poor voting practices should contact their mutual fund companies and suggest that they vote for reasonable climate-related resolutions. Resolutions filed during the 2011 – 2017 proxy seasons are available at www.ceres.org/resolutions , and more are expected to be filed in the coming months for the 2017 season. Much is at stake, in part because an increasing number of these resolutions are receiving strong support (in the 30-40 percent range), and giant mutual fund companies can help push these votes above 50 percent, sending a powerful message to companies that stronger climate risk disclosure and action are an imperative.

 

Article by Rob Berridge, Director of Shareholder Engagement at Ceres (www.ceres.org), where he works with investors and companies on climate change, sustainability and governance issues, as well as various projects for the Investor Network on Climate Risk.

Source: CERES

**** The direct link to the chart can be found here: https://www.ceres.org/press/mutual-funds-chart-larger-size-jpg/image_view_fullscreen

Additional Articles, Energy & Climate, Impact Investing

TONIIC T100: Launch Report and New Directory

Offering New Insights and Resources from the Frontier of Impact Investing

Toniic Institute, the global action community for impact investors, recently released T100: Launch “Insights from the Frontier of Impact Investing,” in a presentation at the GIIN Investor Forum 2016 in Amsterdam. It is the first report in a longitudinal study of impact investing portfolios of Toniic members, starting with 51 portfolios. The data analyzed reveals that 100% values alignment can be achieved today in the investment portfolios of high net worth individuals, foundations, and family offices, including those portfolios seeking market-rate returns. The inaugural T100 report relies on private portfolio data shared by Toniic 100% Impact Network members, ranging in size from less than US$2 million to more than $100 million, with combined capital of more than $1.65 billion. The T100: Launch report is available for download at- www.toniic.com/T100

As part of the T100 project, Toniic also announced the launch of the Toniic Diirectory, a publicly accessible, peer-sourced catalog of more than 1,000 impact investments made by its members, upon which the T100 findings are based.  The directory is searchable by impact categories, impact themes, asset classes, management structure, liquidity profile, and impact geography, and is available for review at- www.toniic.com/T100 The T100: Launch report offers insights from the frontier of impact investing – from those investors who have committed to go “all in” to impact-alignment across all asset classes in a diversified portfolio. It reaches the following conclusions:

• 100% alignment of one’s investment capital and values is possible today.

• Alignment is for everyone. Geography is no barrier, nor are particular causes or themes.

• Investors have found investments they consider impactful across all asset classes.

• Measurable impact can be generated by a wide range of portfolio asset sizes, liquidity objectives, and investor types while also achieving market-based financial returns.

• On average the portfolios are 64% deployed with impact and 33% have already reached 90% or greater impact.

“As a trusted third party, we can aggregate information through the T100 Project, and help investors learn from what’s happening on the frontier of impact investing,” said Toniic CEO Adam Bendell. “With these initial findings, the T100 Launch report begins to unravel certain myths about the potential for impact investing. We see now that impact returns can come alongside financial returns, and that one can achieve positive impact in virtually every asset class, not just in early stage private equity.” The T100: Launch report is the first in an upcoming series of reports to be issued by Toniic as part of the T100 project, based on data drawn from the increasing scope of the Toniic Diirectory. This will provide a newfound perspective into the efficacy of value-aligned impact investments in yielding positive financial returns alongside targeted positive impact.

To contribute to the Toniic Diirectory, investors will be able to utilize the accompanying Toniic Impact Portfolio Tool, which enables them to see relationships between asset classes and impact in their own portfolio of investments, and contribute to the demonstrative power of sharing actual investments in the Diirectory. Over time, the Diirectory will grow with new investment data, serving as a living resource for impact investors. Significant industry players, including the Tides Foundation and ImpactAssets, have already agreed to add their investment information into upcoming versions of the Directory. “This report and its underlying data is the starting point of a multi-year longitudinal study to follow 100 portfolios over multiple years,” said Dr. Charly Kleissner, co-founder of Toniic and the 100% Impact Network. “We believe the results of these efforts will make an important contribution to developing the new financial system, a system that will have positive impact at its core.”

 

About Toniic and T100  Toniic is the global action community for impact investors. Toniic’s 160 members represent more than 360 impact investors from 22 countries who share a vision of a global financial system creating positive social and environmental impact. Toniic’s mission is to empower impact investors. More than half of Toniic members are also members of the Toniic 100% Impact Network, each of whom have committed to move an entire investment portfolio from less than $2 million to more than $300 million into 100% impact investments. This represents a total commitment of close to $4 billion. The T100 Project is a longitudinal study of the portfolios of some of those investors. It reveals new insights about the various paths towards and feasibility of 100% impact investing. The T100 project includes periodic reports, issue briefs, videos and podcasts, and the Toniic Diirectory, a peer-sourced directory of over 1,000 impact investments across all asset classes. For more information, visit www.toniic.com/T100 or write us at T100@toniic.com

Additional Articles, Impact Investing

Young, Radical, and Candid: How Millennials will Remake Socially Responsible Investing

>> Back to February 2017 Issue

Pat+Zevin_Additionalby Pat Miguel Tomaino, Associate Director of Socially Responsible Investing, Zevin Asset Management

 

Marketers are obsessed with attracting Millennials, and their pitches can look downright desperate. Domino’s invites young customers to order a large cheese with a pizza emoji. According to Bloomberg, net sales at Banana Republic dropped 10 percent even after it partnered with the popular Instagram account “Hot Dudes Reading.”

The investment industry seems equally flummoxed. Confronted with low financial literacy among the generation now aged 18 to 35, wealth managers are turning to smartphone apps that “game-ify” the process of getting an investment account. And still, 80 percent of Millennials are avoiding the stock market.

“Cynical Do-gooders”

Why should they play along? Unlike Generation X, American millennials have known war nearly their entire lives. They felt the brunt of the financial crisis when their parents lost jobs and homes. Now millennials are told that the economy has recovered — despite massive student debt, increasing inequality, and extortionate housing costs in the cities where the jobs are.

Considering what they’ve gone through, one would forgive young Americans for being cynical. But that’s not the whole story.

After the storm, millennials want to live their convictions and improve the world they’ve inherited. As a (borderline) millennial myself, I’ll take the liberty to say that Harvard Business Review editor Walter Frick was probably right when he dubbed members of my generation “cynical do-gooders,” suspicious of institutions but still insistent that those institutions (like public companies) can and should do better.

Advocating for a Radical Generation

Socially responsible investing (SRI) is one area of financial management that makes sense for millennials. According to Morgan Stanley, 84 percent of Millennials considering investment are interested in socially responsible options. However, ethical wealth managers need to evolve to serve this generation.

A “do no harm” approach of screening bad companies out of an equity strategy probably won’t be enough. The millennial clients I meet in my work as an analyst and shareholder advocate at Zevin Asset Management want a healthy investment return. They also want to work with institutions that see the world as it is (in political, economic, and climatological turmoil) and partner with them to fight an unacceptable status quo.

Ethical investors can begin to meet that need by re-committing to shareholder advocacy — pushing the companies in our clients’ portfolios to address critical environmental and social issues.

Shareholder advocacy is a proven technique, but it too must change to reflect the millennials’ story — not as a marketing exercise, but as the only way to serve a generation radicalized by war, economic anxiety, and political betrayal.

Learning from Millennial Movements

In the coming years, I expect that socially responsible investing will be remade by millennials in two major ways. First, it will become more critical of our economic system and even more willing to confront the companies and tycoons that run it.

According to a 2016 Harvard study, 51 percent of young Americans do not “support capitalism.” Of course, investment advice won’t dismantle an unfair and destructive economic system. But the right adviser can help young investors challenge the public companies at the heart of the old order.

As one of our young clients told me recently: “I initially thought of socially responsible investing as a way to simply avoid funding (and profiting from) corporations that do work I find awful or immoral — things like war, pollution, [and] mass incarceration… But I’ve come to be inspired by the process of using shareholder proposals and other active ways that we can leverage investment to put pressure on corporations to make specific changes.”

Our firm uses constructive dialogue and shareholder proposals to push companies to respect people and planet. This comes out of a longstanding ethical commitment and our belief that, by addressing climate risks and listening to local communities, companies can possibly avoid big losses.

That’s a great start, but Millennials will want to push harder. According to a 2014 CNBC survey, fully 40 percent of Millennials report that the corporate sector is a “source of fear.” A generation that is so wary of capitalism wants to hold companies accountable for their role in social ills like low wages, environmental injustice, human rights violations, and political corruption.

Investment managers can answer by working on challenging issues at the intersection of investment risk and structural injustice. We can raise concerns that relate to both the investment case for a specific stock and the wider social impact of that company or sector.

That is why, among other priorities, Zevin Asset Management has engaged with firms about: hiring policies that contribute to mass incarceration by excluding people with criminal records, the corporate role in the policy fight over raising the minimum wage, and companies’ controversial support for the American Legislative Exchange Council (ALEC) and other lobbying groups that stifle climate action and voting rights at the state level.

 

Speaking Clearly About Wealth and Responsibility

The second way that millennials will influence socially responsible investing is by sharpening our words and our values.

Unlike their parents and grandparents, who clung to a polite taboo against “money talk,” millennials want to speak about money and everything that goes with it: debt, job loss, envy, reparations, inequality, wealth, who’s got it, who wants it, poverty, privilege, and the fundamental unfairness of the initial distribution.

In politics, we see this openness in the Fight for 15 and new discussion of a universal basic income, along with frank talk about student loan debt and the way in which institutional racism and redlining have excluded generations of Black Americans from economic opportunity.

There is a similar spirit among the more fortunate millennials considering socially responsible investing. Another young client told me that, in his generation, people with privilege “have started to see that inequality is their problem; they perpetuate it and benefit from it and they have a responsibility to deal with it.”

The SRI sector can show millennials that investing in the public markets need not merely reinforce their privilege. Shareholder advocacy, for example, is a way to highlight the privileges of stock ownership (among them, access to managers and corporate boards) and use that power toward genuine social change.

Wealth managers have to change to hold millennials’ attention, but the good news is they can forget about the apps, tweets, and gimmicks. While everyone else markets to millennials, millennials will re-make socially responsible investing for the next generation.

 

Article by Pat Miguel Tomaino, Associate Director of Socially Responsible Investing, Zevin Asset Management.

Pat leads Zevin’s corporate engagement program, analyzing portfolio companies and pushing them to address critical environmental, social, and governance risks. To that end, Pat dialogues with executives, builds coalitions with NGOs and peer firms, and files shareholder proposals on behalf of our clients. He also identifies emerging sustainability issues and oversees proxy voting. For several years, Pat was a Senior Analyst on the responsible investment team of F&C Asset Management, where he led the U.K. firm’s work in Latin America and Canada. He has held research roles for several progressive groups, including Senator Elizabeth Warren’s 2012 campaign and the Service Employees International Union (SEIU). Pat recently completed a fellowship as a public radio producer for WBUR’s Open Source with Christopher Lydon. A graduate of Harvard College, Pat is interested in racial justice, economic inequality, and labor rights in the U.S. and overseas.

Additional Articles, Impact Investing

Investing isn’t Enough: 6 Things You Need to do to Grow Your Wealth

By Gabriel Anderson, a Certified Financial Planner and founder of Crafted Wealth Management

Hello, GreenMoney Journal readers!

Let’s take a break from talking about investments. Yeah, yeah. This is a journal about Sustainable Investing, but what is it you’re really after? What’s the reason you’re investing in the first place? Have you thought about where you’d like to end up? How will you know that you accomplished what you’ve set out to accomplish if you haven’t defined your goal? Investments are an important tool but they become more powerful when you view them as a part of your larger financial life strategy.

What I’m talking about is the process of Financial Life Planning and that’s what I do. I help people use money as a tool to accomplish their goals and live their ideal life. It’s what I call becoming a Financial Badass and it all starts with just six basic steps.

These six steps give you a framework to define your values and goals, and then uses those as a basis for your financial decisions. These steps provide a process that you can follow without fail, and help you provide the WHY behind your financial decisions. The WHY is your motivation and knowing that is empowering. Becoming a financial badass is a process of enlightenment and it’s a process where a little knowledge can go a LONG way.

Step #1 – Define Your Vision, Values, and Goals

What do you want to accomplish with your time on this earth? Going through this process may be the start of something bigger. It will take you down the path of breaking down your life and defining what you need to do to get you where you want to go.

All you need to do is take the time to be present for yourself and answer these questions:

• What would you like to accomplish in life over the next three years? 10-15 years? Beyond that? Think about this from a personal, professional, and financial perspective.
• What does money mean to you? What do you want it to help you accomplish?
• If you have an unlimited source of money and the rest of your life to spend it, what would you do with your time?
• If you have unlimited money and 5-10 years left of life, what would you do with your time?
• If you only have 24 hours left to live, what would you do with the time you have left?

These questions are here to help you realize what’s important to you and reestablish your values.

Have you come to any realizations once you answered them? Is there some part of your current daily/weekly/monthly life doing what you would do if you only had 24 hours left to live? If not, should you take a step back to reevaluate?

Step #2 – Are You a Saver or a Spender?

It’s no secret but savers are going to have a gigantic leg up throughout life. They have the funds set aside to execute on opportunities as they present themselves. Or, have reserves available if they happen to lose their source of income. If that happens, the savers won’t need to rely on debt to support their lifestyle until they find another job.

Don’t worry! If you’re a spender, all hope is not lost! As long as you realize you are a “spender”, you can take the steps ahead of time to ‘trick’ yourself. To do this, you need to automate a percentage of your paycheck into savings and investments and “theoretically” forget about it. Then you have the other percentage of your paycheck to live your life in whatever way you choose. Just remember to pay yourself first! The percentage you set aside is there for Future You!

Saving vs. Spending is about behavior. Many believe that if they were earning more money their financial fears and problems would disappear. The problem is that most money problems aren’t financial in nature, they are behavioral. That’s why living paycheck to paycheck is a systemic issue and so difficult a habit to break.

Getting financially ahead is less about what your income is and more about how much of your income you aren’t spending. If you spend less than you make for long enough, you’ll achieve financial independence. This is the essence of being a saver versus a spender, so let’s learn how to become a saver.

Step #3 – The Details

So where do you stand right now? Most of us aren’t starting from Zero. Some of us may be starting this process with debt and some of us may be starting out with assets. Either way, we need to find out where you are now to see what you need to do to get you where you want to be. This statement of your personal financial position is called your Net Worth. What we are going to build to calculate this is called a Balance Sheet:

1. Grab statements for all of your accounts (including debt) and values for hard assets (house, car, possessions)
2. Draw a T-chart on a sheet of paper:

• Label the left side Assets and list out the value of all your accounts and assets
• Label the right side Liabilities and list out all of your debts

3. Math time!

• Add up both columns at the bottom of your sheet of paper
• Assets – Liabilities = Net Worth

Now that you know where you are, what can we do to grow your net worth?

Step #4 – Your Budget

What’s a budget? A budget is a tool you can use to tell your money where you want it to go instead of leaving yourself wondering where it went at the end of every month.

The first part of the budgeting process is about awareness. It’s about figuring out what you’re currently doing with your income. The next step is taking that awareness and making changes with that new knowledge. Setting spending goals for each category will start to free up income. Should you spend less so that you can save and invest more? Can you actually afford to increase your lifestyle? Let’s find out:

1. Grab a pen and paper or open a spreadsheet.
2. Answer the following questions:

• What is your net monthly income?
• What fixed expenses do you have every month? (For example – rent/mortgage, utilities, cell phone, groceries, car payment, insurance, etc.)
• What discretionary expenses do you have every month?

3. Subtract your expenses from your income. (Income-expenses=???)
4. Is this number Positive? Negative? How do you feel now that you see where your money is going?

To get a more accurate picture of your expenses it may help to look at the actual data:

• Gather 3 months of statements with your transactional data such as from your checking and/or credit card.
• Go through your statements and categorize your purchases and expenses on a separate sheet of paper or spreadsheet.

  • Add up the totals in each category for each month
  • Divide those totals by 3
  • This is your average monthly spending for each category and is a good starting place for a future monthly budget
  • Review each category
  • Does your spending line up with your goals and values?
  • Are there any categories you can reduce or eliminate?
  • Take some time and set spending limits for each category

See if you can stick to these for the next few months.

  • Note if you are overspending in any one category, is an adjustment necessary?

Now that you are aware of where your money is going, are there any changes you feel you should make? Are you happy about what you found going through this exercise? What percentage of your income are you saving? What percentage are you spending?

As an aside, I’ve had many people tell me that they are good with money because they pay off their credit cards in full every month. I think that’s a great thing to do, but you need to make sure that the things you are spending your money on are aligned with what you really need in the first place.

Step #5 – Emergency Fund/Cash Reserves. The what, why, and how

So what do you do if you lose your job, have an unexpected medical situation, or you have a friend or family member that needs a boost? Financial life planning is also about preparing yourself for the unexpected.There are two ways to look at this.

1. You want reserves set aside in case something happens in your life. You will be able to take cash out to pay for an emergency instead of taking on debt. Set aside $1,000 in a savings account (and forget it’s there!)

2. The next iteration of an emergency fund is to prepare yourself for what could happen if you lost your income. How long could you float yourself before finding another job? Or if you’re looking to start a business, how much time do you want to give yourself before you can pay yourself an income? This is as simple as taking a look at your monthly expenses from Step #4 (budgeting) and multiplying it by how many months you’d like as a cushion. For example, if your monthly budget was $2,500 and you want 12 months of expenses set aside, you’d need $30,000 set aside. Keep this in a safe, liquid vehicle, so it’s there if you ever need it.

Alright, that makes sense… What do we do if we have a lot of debt? Funny you should ask…

Step #6 – Paying Off Debts

Debt sucks. Straight up.

It’s an expense that you incurred in the past that you told your future self you’d deal with as you earn more income. Trouble is, you probably didn’t realize how suffocating that concept was until you got into it.

Fear not! You can get rid of it. Now that you know where your money is going from doing your budget in step #4, you have an idea of how much extra income you can put toward saving, investing, and paying off debts. Has this article inspired you to get your s4!t together and become super intense about paying off all your debts? Great! Get after it! Similar to the spending vs. saving debate, this can often be more emotional than financial and that’s ok.

For those that want a strategy surrounding your debt payoff, there are two strategies that work well.

The Debt Snowball:

Organize your debts by their balances, smallest to largest.

Find the minimum payments for all your debts. Determine the maximum amount of money you want to set aside for debt payments. Distribute that money toward the minimum balances, take the leftover excess and add it to the smallest balance, and so on. As the smaller debts are paid off, roll those additional payments to the next smallest balance. The debt snowball is effective because it’s emotionally satisfying to see the number of your debts disappear.

The second method is the Debt Avalanche.

For this method, organize your debts by highest interest rate to lowest interest rate. From there, follow the same process as the debt snowball. As balances get paid off, roll those payments into the debt with the next highest interest rate. This is the quicker way to get rid of your debts but may not be as emotionally satisfying. If you have high interest rate debts that have high balances they will take longer to pay off.

Either method you choose is a fantastic way to get rid of your debts. It’s far better than the alternative, letting them continue to accumulate and ignoring the effects.

Calculators here: http://www.calcxml.com/calculators/restructuring-debt?skn=38#calcoutput or here: www.whatsthecost.com/snowball.aspx

Putting it All Together

Work through these steps one-by-one, remember this is a process and in life things are constantly changing. These processes work whether you’re in debt or you already have a few million dollars of savings and investments under your belt. The contents of this article and the understanding of them will give you a HUGE leg up when it comes to your personal finances. Mastering them and using them to move forward in life is what being a Financial Badass is all about! Get to it!

 

Article by Gabriel Anderson, a Certified Financial Planner (CFP) and founder of Crafted Wealth Management (www.CraftedWealthManagement.com), a Venice, CA based virtual Wealth Management firm. Gabe takes his clients through a values based approach to help them use their money as a tool to accomplish their goals and live their ideal life. You can follow him on Twitter @GabrielCFP

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