What are ethical investments?

Ethical investments provide exposure to companies with strong environmental, social and corporate governance (ESG) structures and practices. The Responsible Investment Association of Australia estimates there is almost $1 trillion invested in ethical companies and strategies across the country, equating to 44 per cent of the entire $2.24 trillion managed by professional investors in Australia.

Depending on your risk appetite, there are a range of ways you can invest ethically. You can put capital into an actively or passively managed fund with a focus on ethical investments. Your super fund may also offer investment options that focus on ethical leadership and business practices.

How to pick stocks in ethical companies

The research and analysis process for buying stock in ethical companies is broadly no different from regular stock picking. Analysing the typical indicators of financial strength is essential, including earnings per share, the price-to-earnings ratio and dividend yield. You will, however, need to weigh up whether a company’s approach to ESG aligns with your beliefs around important issues. These issues are typically environmental, societal, and political.

How to get into ethical investing

To get into ethical investing, you may place some of your capital into a responsible investment fund which uses ESG and ethics criteria, along with financial performance, to determine which companies are invested into. It’s important to note that the screening criteria for responsible investing are different from those used in strict ethical funds. As a comparison, strict ethical funds screen out specific industries such as energy, mining, gambling, pornography and narcotics as a default. ESG investment funds differ by focusing on stakeholder engagement and shareholder activism to influence change in companies instead of simply divesting or eliminating the option of investing in particular organisations in the first instance.

Whether you put your money in a fund or decide to pick individual stocks to get started in ethical investing, you need to determine what you’ll look for in potential investments. You may look for companies that are carbon neutral, or those that have initiatives such as planting a certain number of trees each year. There are also more detailed criteria such as the company’s approach to manufacturing which you may assess in your research. You may also choose to invest in funds that are financial vehicles and loan money to, or invest in, ethical businesses.

Do your research to diversify your investments

Similar to diversifying your portfolio with a range of asset classes, you also need to do your research and thoroughly analyse any potential investments that will provide exposure to ethical companies. To ensure you balance risk effectively, speak to your financial adviser to assess the specific ethical investments that are suitable for your unique situation.

 To discuss your investment strategy speak with one of our LT financial advisors. 

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Financial stress can be a major trigger for a lot of people, it is a big burden to carry around, but not one you need to carry alone. Speaking to a professional Financial Adviser can set your mind at ease once you have a plan in place and a financial goal to build towards.

Financial stress
In a report conducted by ME Bank in 2018, they found that many Australian households struggled to afford the basics:

• 17% of households could not pay utilities on time
• 19% surveyed had turned to family or friends for help
• 15% surveyed had resorted to selling items to buy necessities
• 45% of households were digging into more than 30% of their disposable income to pay off the mortgage.

The value of financial advice can take many forms. It could be the knowledge a professional is looking at your situation objectively, the peace of mind you get when you have a plan in place, or it could be the financial benefits you gain.

A study by CoreData for Fidelity in 2019 revealed that 88.5% of Australians receiving advice believe it gave them
greater peace of mind, financially, and 86.2% of Australians receiving advice believe it gave them greater control over their financial situation.

Research by the Financial Services Council showed that people who received financial advice were almost $100,000 better off at retirement. That’s a big financial gain achieved by working with someone who provided advice and guidance around a retirement goal.

Many Financial Advisers will often tell you that it is not their clients with the highest income that are the wealthiest. The clients who get advice early in their life, work at it, and take a sensible approach are usually the wealthy – and happy – ones.

Don’t let a past mistake deter you from a future goal

You don’t need to be wealthy or privileged to receive financial advice. It is accessible to every day Australians who are motivated to get ahead. Leave your mistake in the past and talk to an adviser about your future today. Call LT today to meet with one of our financial advisors.

Sources: The ‘Better off with savings advice’, 16 February 2011, research shows that a 30 year old would save an additional $91,000, a 45 year old would save an additional $80,000 and a 60 year old would save $29,000 more than those without a financial adviser.
https://www.fidelity.com.au/insights/investment-articles/the-value-of-advice/
https://www.fasea.gov.au/continuingprofessional-development
https://www.abc.net.au/news/2018-08-06/tipping-point-as-mo

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Good reasons to build savings

It pays to sweat the small stuff

Make a commitment

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We thought it interesting to read the following article by Alan Kohler.  Four years on from the great crash of 2008, world governments and central banks have managed to prevent a 1930s-style debt deflation. They're still shovelling, but so far so good.

However the question still hangs there: has deflation just been postponed, or will we end up with the opposite – inflation?

The actions of governments, now exhausted due to lack of money, and central banks, still printing, have led to sovereign debt levels that are way beyond serviceable and central bank balance sheets that are, to put it politely, experimental.

The European Central Bank is focused on shielding governments from the debt markets to buy time while a more durable fiscal and banking union can be cobbled together.

To appease the Germans, the ECB must not only neutralise the monetary effect of bond purchases but also impose strict conditions on governments whose bonds it buys. The effect of that is simultaneously to weaken its own balance sheet, since it's selling good bonds while buying bad ones, and to make it virtually impossible for the supplicant nations to break out of their deflationary spirals.

It is obvious that austerity does not work and none of the actions by the ECB deal with the fundamental problems of the eurozone: namely the crushing debt and the fact that Portugal, Italy, Ireland, Greece and Spain – the PIIGS – need deep micro-economic reform and deregulation to become competitive against the northern eurozone members.
But with unemployment of up to 25% there is no political capital to do anything meaningful.
 

Most importantly, private capital is staying away in droves; or rather it is being mobilised to run away from the PIIGS. And now 'conditionality' on the ECB's bond purchases leaves open the prospect of devaluation. The ECB is NOT doing "whatever it takes", as promised, because a country that fails to meet the conditions will not be supported, which means it will have to leave the euro.
 

So those five countries can reform their labour markets and deregulate all they like, but unless they can attract capital to invest it will be in vain. And capital will not invest if there is a material prospect that devaluation will wipe out half of it. In the United States the Federal Reserve appears to be delivering on "whatever it takes" by announcing an open-ended bond and mortgage securities buying program at $US40 billion a month, for as long as necessary.  At that rate it will take 15 months for QE3 to equal QE2's $600 billion, and that didn't work even though it came all at once, so you've got to wonder about the benefit of spreading it out over a year and a quarter.

But at least there's no sign of deflation and the economy is not spinning into recession again as Europe appears to be.
 

As in Europe, the problem is a lack of productive investment, as opposed to speculation. American corporations are sitting on a cash pile of about $US2 trillion, even though the interest on that money is tiny, and banks are likewise sitting on the money they are getting from the Fed in return for selling bonds and mortgages, or else they are using it to speculate.
To work, capitalism requires long-term, illiquid bets to be made: someone has to build a factory or dig a mine or tie up money in a software start-up.

But these days the world has gone short. Cash is king and derivatives are its queen. Even on the stock exchange most of the turnover is now high frequency computer traders who start and finish each day owning nothing.
And why would anyone lock up their money in a factory or a mine? Money is being debased so that when it comes out of the prison of productive investment it will be worth much less, either because there has been a devaluation or because of inflation, or both.
 

QE3 is more likely to lead to an M&A boom than productive capital expenditure.

In Australia, investors are pulling back from long-term commitments as fast as they can, with resources projects being abandoned where possible or scaled back where it's not. The fear in this country is not devaluation, but the opposite – as the US and Europe debauch their currencies ours goes up, ruining our export industries.
Somehow capital needs to be persuaded to go long again, to commit to taking risk in the expectation of gain in 10 years rather than 10 minutes.

In the meantime, all the money printing will probably inflate the prices of assets, as well as commodities, so the short-termers may have another ride for a while, and forget about the debt for a while.

Source: Alan Kohler   Via: smartcompany.com.au

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Dealing with changes

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