Gaining an edge can be challenging in a saturated world of competing for investment. Even seasoned investors are struggling to find something special when evaluating potential investments. Fortunately, the growing importance of social responsibility, impact investing, and other ESG (environmental, social, and governance) factors have made building a sustainable portfolio more popular than ever before, resulting in plenty of investment opportunities.
In fact, many financial advisors now recommend their clients build a sustainable portfolio as the best way to align personal values with investment goals. This shift in investment patterns was catalyzed by the 2008 financial crisis, where investors started to pay more attention to their investment habits and how their money was being invested. In response, many budding investors began investing in socially responsible or impact ventures rather than traditional stocks.
This article will help you understand what makes a portfolio sustainable and how you can build your own sustainably responsible portfolio – informed by your principles and aligned with your risk tolerance.
What Is A Sustainable Portfolio?
Sustainable investing refers to the practice of making investment decisions based on social responsibility factors such as a company’s business practices, environmental impact, etc. Thus, a sustainable portfolio is an investment portfolio built around your values.
To build a sustainable portfolio, you need to ask yourself certain questions about what is important to you. What do your values look like? What types of companies do you feel comfortable investing in? How can you ensure you don’t violate any of your principles?
Why Build A Sustainable Portfolio?
As explained earlier, the rise of impact investing, the growing importance of ESG factors, and an increasing desire to impact the world positively have made ethical investing more accessible than ever before. But why build an ethical portfolio?
For many people, an ethical portfolio is the best way to ensure you’re being true to your personal values while also reaching your financial goals. That’s because investing in ways that match your core values is one of the best ways to see your money grow.
It’s also a great way to build your portfolio diversification and keep your portfolio stable during downturns. And it can be a smart way to balance out risk in your portfolio, depending on your chosen asset class.
How To Build A Sustainable Portfolio?
As you should with any investment, there are a few things you should keep in mind when building a sustainable portfolio. They include:
Decide On Your Sustainable Values
One of the first things you’ll need to do when building a sustainable portfolio is to decide on your core values. This process can be a bit subjective, so there isn’t one right way to go about it. You might find it helpful to list your values and then rank them to determine which are most important to you.
Select The Right Asset Class
When building a sustainable portfolio, you’ll likely want to select the right asset class that aligns with your sustainable values. There are many to choose from, including stocks, bonds, and alternative investments like real estate or hedge funds. A good rule of thumb is to use funds that focus on specific sectors or industries, such as clean energy funds or funds that focus on socially responsible companies.
Know How Much You’re Willing To Invest
But before you decide which asset class is right for you, you’ll need to know how much you’re willing to invest. Just as with any other investment, knowing how much you’re willing to invest in an ethical portfolio is important. This amount will help you determine which asset classes are right for you. There is a wide range of investment amounts, so you can choose a level that works for you.
Know The Risks Involved
The next thing to keep in mind is the risks involved in each asset class. After all, before investing in any company, you should fully understand the risks involved. This will help you determine whether the company is a good fit for your sustainable portfolio. As much as you want to avoid risk completely – that’s impossible. But you want to make sure you’re comfortable with the level of risk in your portfolio.
To determine which risk level is right for you, look at your current portfolio. What are the risks for the investments you already have? For example, if you have a large portion of your portfolio in stocks, you might want to consider reducing your risk by adding bonds and real estate to bring your risk level down.
Select The Right Companies
This is where the rubber meets the road. Now that you’ve chosen your ethical values and the asset class that’s right for you, it’s time to select the right companies that fit your sustainable portfolio.You’ll want to find companies with strong track records of corporate responsibility and social impact. You can use online resources and tools to evaluate companies by their social, environmental, and governance ratings. It’s also a good idea to look at the leaders of the company.
Wrapping It Up
Once you’ve chosen your ethical values, selected the right asset class, and found companies that align with your values, it’s time to put all of the pieces together to create your own sustainable portfolio. Building a sustainable portfolio can be a fulfilling way to invest, especially at a time when it’s never been easier or more accessible to build your own ethical portfolio.
Sustainable investing can help you make smart financial decisions by investing in a way that aligns with your values. Remember, the process of building an ethical portfolio isn’t a one-and-done thing. Rather, it’s an ongoing process requiring you to stay engaged and informed on your assets and the companies behind them. Make sure to keep an eye on your investments to make sure they are still a good fit for you. Over time, industries and companies may change, and this may lead you to want to change your portfolio as well.