What if you could make money and help the world, at the same time? Well, that time is now. Socially responsible investment (SRI) through a robo-advisor, a new fintech investing arena, makes it easy to invest along with your values.
It’s no longer enough just to make money investing, as evidenced by a growing number of investors who want their dollars to flow to companies that make the world a better place. And that cadre of investors just might want a robo-advisor to manage their investing as well.
What makes an investment socially responsible? There are several criteria. For instance, SRI investing avoids tobacco companies as their products cause health problems and death. Typically, a company’s social responsibility rating is based on its performance in three categories: environmental, social and governance (ESG). Positive practices across one or more of these spheres can land a company in the socially responsible category.
At the same time, robo-advisors are digital investment managers designed to grow your wealth through investing with models are based on sophisticated computerized algorithms, including ESG consideration. These fintech darlings have answered the call for socially responsible robo-advisors with a host of diverse options. Of course, you could choose a socially responsible mutual fund or ETF on your own. But, for the busy investor, let one of the many robo-advisors take charge of your investing, in line with your personal values.
Roster of Robo Options
Betterment, one of the oldest robo-advisors, has distinguished itself as a fintech innovator. With access to digital investing and human advisor guidance, the firm also offers an SRI portfolio. Designed to replace the U.S. large cap stock allocation in their diversified portfolios, the SRI alternative uses an ETF that tracks socially responsible companies.
Betterment’s socially responsible investment option doesn’t switch every single investment into an SRI holding but only the U.S. large-cap portion of your portfolio. To maintain its low fees, liquidity and diversification, the company reasons that investors need other types of investments, such as value, small-cap and international stocks and bonds in addition to the large cap U.S. SRI portfolio.
Wealthsimple, a Canadian robo-advisor, explains that their socially responsible investments are one of the biggest draws to their platform. The SRI funds that Wealthsimple offers focus on companies with low carbon emissions, those that further gender diversity and proponents of affordable housing. These goals are met through investments in up to seven SRI funds. The best part about Wealthsimple is that they offer access to a personal financial advisor to all of their investors.
M1 Finance continues to distinguish itself as a combination robo-advisor/DIY investment platform that’s available for free. Customers can choose their own investments from thousands of options or select pre-made portfolios. Then, M1 Finance manages and rebalances your portfolio. For SRI investors, in partnership with Nuveen, M1 Finance offers five socially responsible portfolios in diverse investment styles. M1’s portfolios span large-cap growth, large-cap value, mid-cap growth, mid-cap value and small-cap socially conscious investment funds, along with free portfolio management. The list of digital investment advisors with SRI options seemingly grows with each month.
Automated Investing With a Conscious
If you’re worried that your returns will suffer if you invest with your heart the Forum for Sustainable and Responsible Investment cites multiple studies that maintain SRI returns are comparable or better than their comparable fund peers.
As investors become more demanding, robo-advisors with socially responsible investment advisors will continue to expand. If you want to help the planet and save on investment fees then a socially conscious robo-advisor might be for you.
Barbara A. Friedberg, MBA, MS is a veteran portfolio manager, expert investor, and former university finance instructor. She is editor/author of Personal Finance; An Encyclopedia of Modern Money Management and two additional money books. She is CEO of Robo-Advisor Pros.com, a robo-advisor review and information website. Additionally, Friedberg is publisher of the well-regarded investment website Barbara Friedberg Personal Finance.com. Follow her on twitter @barbfriedberg and @roboadvisorpros. Friedberg does not invest in any of the aforementioned platforms.