Socially Responsible Investing (SRI)

What is Socially Responsible Investing (SRI)?

One of the biggest changes ever in the investment landscape has been the move in recent years to Socially Responsible Investing (SRI). While the concept may have begun in our country as an activity associated with religious societies – the Quakers not participating the slave trade – it has evolved immensely since. It is now a mainstream practice being embraced by both individuals and corporations.

Gone are the days when investors solely focused on factors such as diversification, investment income, rate of return, inflation, taxes and risks.  Nowadays, socially responsible investors are going one step further. They are also choosing to factor in whether a particular investment positively impacts society.

In other words, socially responsible investment works the same way as any style of investing. But in addition to the financial returns from an investment, it also considers the investments’ impact on environmental, ethical or social change

It enables you – the investor – to grow your money while doing good. And it allows you to invest in social causes you care about. 

Why Choose Socially Responsible Investing?

Who wouldn’t want a great way to boost their assets while also making a difference? That’s what SRI does.

Socially responsible investments seek to maximize the welfare of people and their environment while earning a return on one’s investment that is consistent with your individual goals.  In simple terms, the twin goals of socially responsible investing are: social impact and financial gain. 

Some question whether a do-good investment strategy can perform as well as standard investing strategies. The answer is yes. 

A 2020 research analysis from the asset management firm Arabesque Partners found that 80% of the reviewed studies demonstrated that sustainability practices have a positive influence on investment performance.

Several other studies have shown that SRI mutual funds can not only match traditional mutual funds in performance, but they can sometimes perform better. There is also evidence that SRI funds may be less volatile than traditional funds.

Even today, there are some that have doubts about socially responsible investing. Opponents have argued that by narrowing the field of investment options (such as avoiding weapons makers, gambling and tobacco stocks), the end result is a narrowing of investment returns. 

But now, there is a growing body of evidence (in addition to the aforementioned studies) that shows the opposite is true: SRI not only makes you feel good, but it’s also good for your portfolio.

What’s the Difference Between SRI and ESG Investing?

While at first glance, both SRI and ESG (Environmental, Social and Corporate Governance) investing look at a company’s broader impact, there are some distinct differences between the two.

First off, SRI investing is not as well defined as ESG investing. SRI is more subjective and based on an individual’s view of the world – political views, what is right and wrong, and what is ethical, etc. 

In contrast, ESG investments are measured by and scored on specific environmental, social and governance metrics. More specifically, ESG investing looks at specific factors, such as a company’s best practices when it comes to pollution or women’s rights

SRI, on the other hand, takes these factors into account and blends them with an investor’s personal values.

Bottom line: SRI involves screening investments to exclude businesses that conflict with the investor’s values. While ESG investing focuses on companies making an active effort to either limit their negative societal impact or deliver benefits to society (or both).

How to Participate in Socially Responsible Investing?

You have a number of options available to you if you want to invest in good causes. You can make socially responsible investments via individual stocks. However, the better (and safer) bet is to do so through socially conscious mutual funds and exchange-traded funds (ETFs).  A simple search on Magnifi indicates numerous ways for investors to access SRI funds with low fees.

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The information and data are as of the May 28, 2020 (publish date) unless otherwise noted and subject to change. This blog is sponsored by Magnifi.

This material is provided for informational purposes only and should not be construed as individualized investment advice or an offer or solicitation to buy or sell securities tailored to your needs. This information covers investment and market activity, industry or sector trends, or other broad-based economic or market conditions and should not be construed as investment research or advice. Investors are urged to consult with their financial advisors before buying or selling any securities. Although certain information has been obtained from sources believed to be reliable, we do not guarantee its accuracy, completeness or fairness. Past performance is no guarantee of future results. This content may not be reproduced or distributed to any person in whole or in part without the prior written consent of Magnifi. As a technology company, Magnifi provides access to tools and will be compensated for providing such access. Magnifi does not provide broker-dealer or custodial services.


Energy

Energy is vital for the well-being of the global population and a necessity for economic and social progress. It is also essential to our daily lives. We’re reliant on energy to power our cars and trucks, heat and cool our homes and offices, wash our clothes, manufacture goods, etc.

As the global population continues to grow, so will the demand for energy. Which is why investing in the energy sector could be an important move for your portfolio in years to come.

What is the Energy Market?

The energy market is composed of a large group of companies that produce or supply energy. It includes drillers, refiners, producers, companies providing equipment & services, and exploration companies in the oil & gas sector. The sector also includes integrated power utility companies such as renewable energy.

Investing in non-renewable energy provides exposure to natural gas, petroleum, and coal. Uses included heating and electricity generation, fuel for transportation, feedstocks for chemicals/plastics/synthetic materials. The major advantages of non-renewable energy are its reliability and ease of extraction, given that it is not weather-dependent, and can be accessed through drilling (onshore and offshore), mining, and fracking (hydraulic fracturing). Currently, about 85 percent of the world’s energy comes from nonrenewable fossil fuels—oil, natural gas, coal.

Renewable energy offers exposure to solar, wind, biofuels, geothermal, and hydropower. In the United States, renewable energy sources currently provide for 12% of total U.S. energy consumption and about 20% of electricity generation. These percentages are expected to grow significantly as public and private sectors shift away from fossil fuels.

Why Invest In Energy?

Presently there are 7.9 billion people inhabiting the world and it’s projected that number will reach 9 billion by 2037. Which is why it’s no surprise that in 2018 the U.S. Energy Information Administration (EIA) released a report that projected that global energy consumption will grow by nearly 50% by 2050.
The EIA also predicts that the share of renewables in the U.S. electricity generation mix will increase from 21% in 2020 to 42% in 2050. Solar and wind generation are responsible for most of that growth. Solar power is forecast to account for almost 80% of the increase in the US’s renewable electricity generation through 2050. And according to Global Market Insights, the global wind energy market should grow by more than 69% from 2021-2027.

You might think that because of these impressive growth forecasts for renewable energy that the non-renewable energy market will begin to shrink but that’s not the case. The transition away from non-renewable energy will not happen overnight, and will be measured in decades, not years. This is attributed to technological advancements that make oil and natural gas cost-competitive to extract, a lack of infrastructure to support complete green energy deployment, and the fact that a significant portion of end-use demand for oil has limited alternatives. The EIA is forecasting oil prices to be 25% higher by 2030 and 86% higher by 2040. They also predict that the natural gas share of the U.S. electricity generation mix will remain at about one-third of total generation from 2020 to 2050.

How To Participate In Energy Investing?

Picking individual stocks in the energy sector can be tempting with the potential for high returns for early investors. However, diversification is the superior strategy, as not all energy stocks will be winners. Therefore, the best solution is gaining exposure to the sector through energy-focused ETFs and mutual funds. A simple search on Magnifi indicates numerous ways for investors to access tech funds with low fees.

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Magnifi is changing the way we shop for investments, with the world’s first semantic search engine for finance that helps users discover, compare and buy investment products such as ETFs, mutual funds and stocks. Open a Magnifi investment account today.

The information and data are as of the October 13, 2020 (publish date) unless otherwise noted and subject to change. This blog is sponsored by Magnifi. 

This material is provided for informational purposes only and should not be construed as individualized investment advice or an offer or solicitation to buy or sell securities tailored to your needs. This information covers investment and market activity, industry or sector trends, or other broad-based economic or market conditions and should not be construed as investment research or advice. Investors are urged to consult with their financial advisors before buying or selling any securities. Although certain information has been obtained from sources believed to be reliable, we do not guarantee its accuracy, completeness or fairness. Past performance is no guarantee of future results. This content may not be reproduced or distributed to any person in whole or in part without the prior written consent of Magnifi. As a technology company, Magnifi provides access to tools and will be compensated for providing such access. Magnifi does not provide broker-dealer or custodial services.


Growth of Capital

Capital Appreciation

What is Capital Appreciation?

Capital appreciation refers to the increase in the price or value of assets since their date of purchase.  Put simply, it is the difference between the purchase price (cost basis) and market price (current price) of an investment.

For example, an investor buys 100 shares of a stock at $50, for the cost of $5,000.  If that stock rises in price to $75, he/she would have a 50% return ($2,500 profit) from capital appreciation. 

In addition to stocks, the capital appreciation investment strategy is used in a variety of assets, such as exchange traded funds (ETFs), mutual funds, commodities, real estate, and collectibles.  When such assets are sold, the profit is called a capital gain.

Why Investors Utilize a Capital Appreciation Strategy?

When successful, a capital appreciation strategy allows investors to benefit from above-average market returns.  For example, since 2006, one of the best performing capital appreciation mutual funds had an average annualized return of 14.52% compared to the 10.89% return of the S&P 500.  At first glance that might not seem like a big difference but if you invested $100,000 in the capital appreciation fund, it would be worth $764,223, versus $471,396 if you invested the S&P 500.

Capital Appreciation vs. Income Investing

The objective for the capital appreciation strategy is to invest in assets with the expectation they will increase in value. This strategy has a high growth objective and therefore assumes a higher level of risk.  

Due to this increased risk, younger investors often adopt the capital appreciation strategy.  Younger investors have jobs and earn salaries to pay for their day-to-day expenses.  Therefore, they can tolerate more investment risk in hopes of producing outsized returns.

Older investors, especially those that are retired, tend to shy away from the capital appreciation strategy and instead focus on income investing.  That’s because retirees are more risk averse.  They no longer receive paychecks from their employers and are reliant on the capital they’ve saved throughout the years to generate income.  

Income investing is an investment strategy that is centered on building a portfolio that generates a regular, dependable stream of income, which is paid out as a result of owning an asset.  This income can be in the form of dividends, bond yields, rent, and interest payments.

However, it’s important to note capital appreciation and income investing aren’t exclusive to younger and older investors.  People of all ages diversify their portfolios to incorporate both strategies.  For example, there are growth stocks that pay dividends and the value of rental properties appreciates over time. Therefore, when choosing between these strategies, investors must decide what their risk tolerance is, what their investment goals are, and what their time horizon is. 

PROS and CONS for Capital Appreciation Investing

PROS

  • Capital appreciation investments funds have historically beat the S&P-500 
  • A long-term approach benefits from deferred tax liabilities, with an investor only taxed when they realize the gain

CONS

  • Investments are generally higher risk with a weighting towards growth, which can lead to higher volatility
  • There is no guarantee of returns compared to income-generating investments, which is why a longer time horizon is important

How To Invest In Capital Appreciation 

The key to outperformance using a capital appreciation strategy is rigorous analysis, research, and diversification. Therefore, a great way to benefit from capital appreciation strategies from stocks is through the use of ETFs or mutual funds focused on this approach. For other assets, it’s recommended to seek out advice from trusted and experienced advisors.  A simple search on Magnifi indicates numerous ways for investors to access capital appreciation strategies.

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Magnifi is changing the way we shop for investments, with the world’s first semantic search engine for finance that helps users discover, compare and buy investment products such as ETFs, mutual funds and stocks. Open a Magnifi investment account today.

The information and data are as of the September 7, 2021 (publish date) unless otherwise noted and subject to change. This blog is sponsored by Magnifi. 

This material is provided for informational purposes only and should not be construed as individualized investment advice or an offer or solicitation to buy or sell securities tailored to your needs. This information covers investment and market activity, industry or sector trends, or other broad-based economic or market conditions and should not be construed as investment research or advice. Investors are urged to consult with their financial advisors before buying or selling any securities. Although certain information has been obtained from sources believed to be reliable, we do not guarantee its accuracy, completeness or fairness. Past performance is no guarantee of future results. This content may not be reproduced or distributed to any person in whole or in part without the prior written consent of Magnifi. As a technology company, Magnifi provides access to tools and will be compensated for providing such access. Magnifi does not provide broker-dealer or custodial services.