Value Based Investing: Should You Try It?

value investing

Warren Buffet, perhaps the world’s most famous investor, has made his fortune with the help of value investing. Does looking at his success make you want to invest in value stocks. Have you searched about the best value stocks right now? This post is going to help solve a lot of your queries. And don’t worry, investing in value stocks is usually ethically sound, so if you are a millennial investor who wants to get some investment tools which can have a positive social impact as well, value stocks are not off the mark. Let’s find out more.

What is Value-Based Investing?

If you are an investor who wants to make investments that are socially and ethically responsible, you might have heard of like Socially Responsible Investment strategies (SRIs), value-based investments, or impact investments. These all relate to value-based investing, which is an investment approach that looks at the environmental and social impact of a company’s actions, product and leaders. A vast majority of people want to invest their money in companies that have a positive impact on the environment, culture, society and government. In other words, they don’t want to make money at the cost of other people. They want to get richer while enriching the society, environment and culture.

In a 2017 survey, 75% of respondents said they were interested in making investments in companies or funds that aim to achieve financial returns and social or environmental impact. More specifically, the millennial demographic of investors had an overwhelming 86% interested in value-based investing. Millennials are not ready to sell their souls to buy stocks, that is pretty obvious.

This demand for value based investing has urged some investment advisors and financial professionals to do more legwork as they dig into corporations’ activities, products and personnel. Upon their research, the advisors can recommend companies or investment products that match their investors’ preferences and beliefs. While some investors might have no tolerance towards certain products, they might be more open towards some.

A few common areas of investor concern include:

  • Animal welfare
  • Carbon emissions
  • Child labor
  • Clean technology
  • Toxic emissions and waste
  • Water stress
  • Community relations
  • Health and safety of employees
  • Diversity
  • Nuclear power

This isn’t an exhaustive list and different value-based investors can focus on different things, something which might be specific only to them.

Value-Based Investing: Pros and Cons 

Millennial or not, there are good reasons for socially responsible investing. For one, it ensures that you’re not putting your money toward something you oppose for moral or religious reasons. And that makes sense.

But there are valid questions concerning this approach as well. One problem is the difficulty of measuring a company’s impact. There’s no standard or yardstick to compare against, so what’s good and what’s bad? Another problem is accountability. A company may claim to use clean technology, for example, but who’s in charge of making sure that company follows through on its promise? Because socially responsible investing is so new, there are still lots of kinks to work out.

The good news is that because people are asking questions about corporations’ social impact, multiple companies and fund managers are responding. Many now publish a Corporate Responsibility Report, which is just another $20 phrase that means companies are self-reporting on their efforts to have a positive impact on the environment, social causes, and culture overall. You can look online to find these reports for thousands of companies.

Should You Try Value-Based Investing?

Value-based investing isn’t something we can ask you to do or not do. Ultimately, it has to be your call since the value is yours after all. A simple investment rule applies here as well though: If you don’t understand it, don’t invest in it. If you’re confused about anything, ask questions. Make sure you feel comfortable investing in something before you hand over your money. If you don’t understand how an investment advisor or fund manager chooses companies to invest in, get clarification. It’s your money, so you have the right to know. If your advisor gets frustrated or angry, take your business elsewhere and find another investing pro.

It’s advisable to invest your hard-earned money in stable, long-term investments that consistently perform well over time. You can also try to spread your investments over four classes of mutual funds, growth, growth and income, aggressive growth, and international. If one sector tanks for a while, your funds in the other sectors can help balance things out and keep me moving in the right direction. When you invest, you have to think long term and wait patiently for your portfolio to grow over decades, returns do not start showing up overnight.

A great way to start investing is also working with a financial advisor. Even if you are a seasoned investor and have been investing for years, working with a financial advisor is always helpful. Financial Advisors can always be beneficial to your investments. Whether it’s about the ethical value of the companies you are investing in or their performance history, financial advisors can always help you out.

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