How to show love with your money
with Rebecca Kowlaski, Sustainable Finance Specialist at Unburdened and Founder of Good Stock, the only Festival for sustainable financial advisors.
Welcome to part two in Rebecca’s blog about getting the bang you want for your buck. In this episode Rebecca takes us through choosing a bank, putting passion in our pension and investing inline with our values. If you missed the first installment, you can find it here
“Roses are Red, Violets are Blue.
Your money can make a difference, and you can too.”
I am writing this on Valentine’s Day, hence the L world in the title. I don’t think it’s inappropriate though. When we choose to invest in line with our values and because we care about climate or nature or people’s rights and quality of life, we actually are expressing love for something, financially.
Let’s look at a few simple ways of doing this, starting with our bank accounts, because we pretty much all have one or two of those.
Banking with extra benefits
Is your money on the right track? Image AI-generated using Canva's Dream Lab
There is a reason why many banks provide us with “free accounts”, ATMs, debit cards and standing orders. They pool all of our cash together and turn it into hundreds of billions of pounds, a lot of which they then use to lend money to businesses.
Once you have deposited money in your bank account or your wages have been paid there, you don’t get any choice about where that money goes. It could be parcelled up and offered to a weapons manufacturer, a polluting oil company or a business with links to Russia. The only way to avoid your money being invested in things you don’t like is by choosing a bank whose ethics align with your own.
If you are concerned about climate change for example, you might wish to choose a bank that doesn’t invest in fossil fuels. To get some up to date details about this, then check out the Switch It Green site (link below). A number of the cleanest, kindest options are listed here.
I’d like to add a personal reference for Triodos, with whom I have had my current account for about 5 years.
There is a £3 a month fee but the service is great, via either the phone, app or on-line and the satisfaction from knowing my money does good is powerful. More powerful I think than if I dropped that £3 into a charity collection tin. Please note that not all ethical banks charge an account fee.
I love the fact that Triodos post details of every organisation that they finance on their website, and I can see where funds are going in my local area. Sometimes these are projects I am personally familiar with.
Nationwide Building Society are also a great shout. I opened an account with them around 3 years ago as they were the only place that would give the Ukrainian refugee, I was hosting her own account. Service has been impressive and building societies do not lend to big corporates in the same way that Barclays, HSBC, Santander etcetera would do.
With modern systems, transferring a bank account is quick and painless. If you do decide to make a change, then why not add your voice to your money and tell both other people and your existing bank provider why you have decided to move on, whether directly or via social media. If you wanted to quote some facts about why you voted with your account closure, there is some great information available at this link. Switch It Green | Green Banking Platform
Remember that you make ethical choices about which bank or building society you have your credit cards and your mortgage with too.
Be passionate with your pension.
Since it become compulsory for employers to provide and pay into a Workplace pension for the majority of employees, many of us have a pension plan, or indeed multiple plans if we have had a number of jobs.
There are huge sums of money invested collectively in pension schemes. Billions of pounds that can have a big impact on the world, either positive or negative, depending on how and where it is invested. The feature that brings power to your pension money is the fact that it tends to be invested for the long term, potentially 45 years plus.
This makes it easier to invest in assets that might fall in value over the short to medium term or might not be readily saleable – this could include social housing, or renewable energy infrastructure for example. Investing in this type of project not only has potential to deliver long term returns and positive social or environmental outcomes, but it might also be the only way we see the change we need in the world. National and local governments are reliant on private capital to fund a transition to a clean economy,
Your pension might therefore be the best vehicle with which to drive the most innovative and focused forms of sustainable investing.
Don’t default.
To simplify the enrolment process, company pension schemes have a “default” pension option. This is the fund that will be suggested to you as a first port of call, if you don’t want to decide yourself from the wider options available.
Default pension funds can be a sensible choice, they are designed to provide potential for long term investment growth, to help manage investment risks and keep costs low. But does your pension scheme offer a default fund that aligns with your values? If you aren’t sure about the choices offered by the scheme, ask your employer or the pension provider without delay.
If you want your employer to provide better sustainable and ethical choices, then consider request this in conjunction with some of your colleagues. The helpful folk at the Make My Money Matter campaign have provided some great tips about greening your pension. Climate Action Report - Make My Money Matter
It’s also important of course to consider if any fund is also financially suitable to your needs. Does it offer potential to deliver the rate of growth that you need? Is the level of risk suitable for you? Is it aligned to the time you have remaining until your planned retirement date? If you aren’t sure about any of this, you should seek financial advice.
Get Personal with your private Pensions and Investments
If you are self-employed or have surplus savings and wealth beyond your salary and workplace pension, then you may have a Personal Pension Plan and/or an Individual Savings Account (ISA) that is invested in company shares (equities in finance-speak) and debt (bonds in finance-speak). Most modern pension and investment funds should offer at least one sustainable or ethical investment fund and some will offer a wide range of sustainable investment options. Switching to a new fund is generally fairly simple and either free or low cost. This site is a good start for looking up some sustainable/ ethical product and service providers Good With Money › More money, fewer problems.
Having a wide range of options can be daunting and the finance community isn’t always the best at talking in a layperson’s terms. Explaining all the options and the differences between them is beyond the scope of this article but the new Financial Conduct Authority (FCA) regulated fund labels are one way which you can check out an investment’s environmental and social credentials. These categorise funds into 4 groups:
To achieve any of these labels, the fund manager will have had to go through an approval process with the FCA and demonstrated that it has both an intention and a methodology by which it can achieve positive environmental and social outcomes with the majority of the assets that it invests in. You shouldn’t assume that a label is proof that this fund ticks your boxes, but labelled funds also have to provide you with further information so that you can see what it is the manager is looking to achieve. The label system does not yet apply to funds that are managed overseas, to pension scheme funds or to packaged portfolio options, although this is expected to change.
Choosing to invest your money in this way is not in any way niche or a nuisance. All financial services companies are increasingly expected to offer choices to investors who have ethical, social and environmental values and investor demand for these options are high. Before designing the sustainable fund label system, the FCA surveyed the public and found that 81% of those asked wated their money to do good, as well as achieve a financial return.
Some top investing tips
If you are going to be a DIY investor, here are a few tips to help you on your way:
Check charges. If you are investing a modest amount, be careful of ISA products that have a fixed fee. The fees can eat into a smaller investment, although can be very good value if you are investing a larger amount.
Long term only. No matter how attractive the underlying investments are to you, do not invest in a stock market-based fund unless you can invest for at least five years.
Plan ahead. If you know when you are likely to access your funds, think about reducing the risk of the investment well before do. You don’t want to be hit by a stock market crash just when you need your money. In the worst of these, such as the 2020 pandemic crash, you could typically lose around a third of the value of your investment. Most ISA accounts will allow you to switch all or part of your investment to a lower risk fund or to cash.
All that glitters is not gold. It’s always tempting to pick the investment fund that produced the highest return over the last year, five years or whatever other period is being measured. A word of caution, achieving the best performance can be due to skill but it can also be a result of taking more risk, backing a few areas to a greater extent than competitors. This may take the fund to the top at times, but markets move in cycles and different types of company go in and out of favour. Therefore, last year’s top performing fund might be about to take a dive.
Don’t put all your eggs in one basket. To address the previous issue, you can hedge your bets by diversifying what you invest in. The key here is to choose a range of investments that have different behaviours, which will act differently at different times. Holding 5 funds that all invest in similar areas can mean you hold 5 different versions of the same thing, and a lot of sustainable investment funds favour the same companies. If you do not wish to work with an investment adviser, then selecting a “multi-asset” fund is a sensible option. The fund manager then takes responsibility for diversifying across a range of different types of investment on your behalf.
Like many other industries and institutions, the finance sector has improvements and changes to make and a lot of work to do if we are to meet some of the challenges and crises that humankind faces. By starting a relationship with the financial services sector as a sustainable investor, you become part of that change.
Got questions for Rebecca? Pop them in the comments below or drop us an email to hello@dolilthings.org and we’ll pass them on.