GOOD MONEY - Market Crisis Highlights Sustainable Investing

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Your guide to profitable and socially responsible investing

By Judith L. Seid, CFP ®

Light BulbThis
financial crisis has its own unique characteristics unlike any in our history.
For twenty-five years individual Americans, and their government, have been
on a binge of borrowing and excess spending.  That could not continue
forever. 

The first down-payment on a retrenchment was the crash of the tech boom in
2000.  The next down-payments are the current crashes in the value of
our stock investments and our homes, occurring right now.  As the financial
markets restructure, we’re seeing some positive shifts toward a more
sustainable economy.

Our Perspective as Socially Responsible Investors
We have received a lot of questions about the performance of socially responsible
investments during this market crisis and to date, we don’t have quantitative
data that is conclusive enough to say whether or not SRI has faired better
than non-SRI portfolios.

However, there are several reasons we believe that, when the dust settles,
we will find that SRI has come out ahead of the pack.

First, SRI money managers have been screening out companies involved in predatory
lending for several years.  Many of the investment vehicles we utilize
for your portfolios do not invest in financial companies that engage in these
practices.

Second, SRI is about taking a longer-term view on investing.  Instead
of sacrificing the long-term sustainability of our planet or humanity in order
to make a profit this quarter, we aim to strike a balance between financial,
social, and environmental returns that will stay for the long haul.  The
meltdown of the markets has shone the spotlight on the dangers of short-term
thinking. Our expectation is that as the financial markets begin to focus on
longer-term perspectives, the value of evaluating Environmental, Social, and
Governance (ESG) as part of the due diligence process will become clearer and
better understood. As some recent studies highlight, including the United Nations
Environment Program’s Finance Initiative report Show
Me The Money: Linking Environmental, Social and Governance Issues to Company
Value
, ESG factors can be material to corporate financial
performance, but often this plays out only over the mid-to long term.

Third, the challenge of our country’s dependency on foreign oil is one
that remains at the top of the political agenda despite all the noise surrounding
the upcoming elections.  Many smaller alternative energy and clean tech
companies have been significantly undervalued during this market crunch and
have produced some amazing buying opportunities.  Meanwhile, $18 billion
dollars in the recent bailout package was earmarked for clean energy incentives.

Our Stake in Solving the Problem: Shareholder Advocacy
The disastrous effects of predatory lending are not news to the SRI industry.  For
nearly a decade, SRI leaders have warned that abusive lending practices – besides
being unethical – are not fiscally sustainable.  Unlike the conservatives
who are now placing the blame on the sub-prime borrowers themselves, we believe
that the problem stems from the companies who target disadvantaged populations
to improve their own bottom lines.  Our industry has
fought Household International’s predatory lending practices, engaged
Citigroup on this issue, and continues to advocate for changes in Wells Fargo’s
lending practices. Back in April of this year, one of our colleagues attended
Wells Fargo’s annual shareholder meeting and addressed the gathering
with these words: 

Our interest as shareholders in raising these issues is simply that predatory
lending is bad business. Sub-prime, predatory lending practices bump up corporate
profits in the short term, but are driven by shortsighted, extraordinary
greed on the part of financial institutions.  We believe that using
the American dream of home ownership to boost profits at the expense of the
citizens of this country is egregious, and is the cause of the current financial
collapse of this country.

What Should You Do?:
Don’t just take our word for it, you can see sound investment advice
being touted by Warren Buffett, the second richest man in the world, October
17th, 2008, in the New York Times, pointing to his incredible move
to invest $24.5 billion into US Stocks over the past two weeks.  One simple
rule dictates his buying  “Be fearful when others are greedy,
and greedy when others are fearful.”

There is no question that we are in recession.  Even after the credit
markets start to recover, we still have several quarters of negative growth
ahead of us.  Recovery from this bear market will likely take years, not
months, and we may not have hit bottom yet.  There are plenty of things
you can do to help yourself through these difficult times. 

  1. Common sense needs to replace fear.
  2. This is a time to spend less and save
    more.
  3. It’s a time to focus on family and friends and less on material
    things.
  4. Make sure your cash reserve is adequate and can fund any major cash
    needs over the next few years.
  5. Reduce debt if you have any.
  6. Turn off the ‘fear mongers’ on
    television and remember that you are invested for the long term.
  7. If you aren’t planning to retire for five, 10 or more years, don’t
    worry.
  8. If you are planning to retire over the next five years, consider working
    for a few extra years.  It can make all of the difference in a more
    comfortable retirement, please request our list of 10 reasons to delay retirement.
  9. If
    you are already retired and living on a fixed income, cut expenses where
    possible.  Consider the new trend of “un-retiring” for a
    period of time, or part-time work, or even turning a hobby into extra cash.
  10. Continue
    to save & invest – buying into the market when prices
    are down is a sound investment strategy

“Markets are capable only of creating temporary declines. 
Only people can create permanent losses.”  --Nick Murray

Judith L. Seid, President and founder of Blue Summit
Financial Group, Inc,  is a certified financial planner who has actively
used Socially Responsible Investing (SRI) for her clients since 1992.  She
firmly believes that “We can influence corporations to change their
policies by avoiding investments in irresponsible companies and by seeking
investments in companies with positive practices and products.” Socially
responsible investing (SRI) exists for investors looking to use the power
of financial investment to create sustainable social change.  For
more information on Sustainable Investing, contact Judith at Blue Summit
Financial Group in La Mesa, (619) 698-4330; www.bluesummitinvest.com.


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