🎯 Pick Stocks? Get Lost 👋

Making the case for investing in ethical ETFs

Here we are, week 2 of 💵 Better Your Bread 🍞. I am humbled by the number of people who have reached out to subscribe to the newsletter, commented on the post, and supported the idea. I want to reiterate I am not some financial wizard 🧙that is going to make you thousands of dollars or recommend a stock to change your life, I am an advocate of investing for the long term in a meaningful way. You can invest in companies that do better and are making strides to make the world better while still gaining the returns you hope for each year.

Alright, on to week 2!

First off, I want to link to last week’s post of BYB that explains the purpose of the blog and provides context for those who haven’t seen it. Again, the purpose of the blog is to better your bread and make your money materially important. Feel free to subscribe to the blog via email at the bottom of this post and as always, make sure to shoot me an email anytime with any questions at cmahoney@justcapital.com, connect with me on LinkedIn, reach out on Twitter @iCharlieMahoney, and follow me on Medium (Charlie Mahoney). Beyond happy to help.

Let’s continue where we left off last week. My goal was (and still is) to have you look hard at your 401k, your investment portfolio, or your stocks you’ve invested in through brokerage accounts (Robinhood, Schwab, Fidelity, Stash, Acorns, etc).

Investigate your investments!

The point of this week is to showcase just how hard and pointless stock-picking is. We all have a friend who pitches a stock we don’t buy and 6 months later it returns 50% in the market, absolutely crushing it. Guess what? That friend only speaks up when the stock is up. When COVID-19 hits his or her’s recommendation to buy Delta stock, you have now lost all the money you put in. Delta, coming off of an unbelievable year in 2019 with a 20.39% return is now down -66.8% YTD with the NY Times anticipating the airline industry is projected to get worse.

How are you supposed to anticipate that? What if Delta never recovers from that 67% drop? How do you pick the right stocks? Short answer: YOU DON’T!

Who has the time for that anyway? Even portfolio managers whose literal job is to pick the right stocks fail to beat the index they are benchmarked against. For the last 15 years as of 01/2020, only 37% of active US Equity mutual fund managers — meaning portfolio managers who are paid millions of dollars each year to do better than the S&P 500 — actually beat the S&P 500.

That is out of 2,000 😱 investment portfolio managers and their teams! Their job is to beat the benchmark by stock-picking and most of them can’t. The answer? Exchange-traded funds or ETFs.

When I was at Morningstar, the message was that it has never been a better time to be an investor. Fees to invest are down, information is abundant, long-term investment structures are there. Now at JUST Capital, I honestly believe there is no better time to invest in companies that think long-term, actively work to reduce carbon emissions, and take care of their workers, customers, and communities. Our climate is changing at a rapid rate, COVID is ruining the economy, and still, there are companies sitting on billions in cash or receiving government bailouts when they’ve used all of their profits to prop up their stock price in the past decade. It is important to reward the companies doing the right thing right now to show your support and reiterate how you expect corporations to behave in the future. 👏👏👏

Times of crisis allow the true leaders to shine through. Look at Jack Dorsey of Twitter donating a billion dollars to COVID relief or at Bill & Melinda Gates contributing 255 million to combat the pandemic. True leaders find a way to iterate, to come through the hardship, to soldier on. These same leaders have always guided their companies through these times of crisis. Since 1928, the S&P 500 on average has returned 9.7% per year. Investing in 500 stocks rather than 4 or 5 reduces risk and produces long-term results. This is why exchange-traded funds (ETFs) are the best option for people our age — they allow you to invest in 500 or 1000 companies at once, reducing your risk and diversifying your portfolio.

Seems like a safer bet than putting your money in stocks your friend told you about!

With that said, the past 100 years are not going to be the same as the next 100. Climate change is going to alter the way we live with NYC is projecting 45 days above 95 degrees by 2100 (imagine the subway 😵). Furthermore — Americans will expect more out of the companies they work for… job hunting and buying products from companies that pay fair wages, pay all genders equally, have diversity policies, and act ethically. Long gone is the idea of thinking short term.

Investing your money into ETFs and index funds is the right play. So why don’t I invest in the S&P 500 given it has done so well historically and proven itself? I agree that it’s a good choice if you support all the companies in the S&P 500… But keep in mind there are some companies in the S&P 500 you may not want to invest your money into. This bring us to our weekly ⚡shock stocks⚡. The intention is not to shame companies, but for you to understand what stocks you’re supporting with the hope that you make a change in your portfolio to align with who you do want to support. Looking at couple stocks in the S&P 500:

• Altria Group 🚬 🚬 🚬, one of the worlds largest producers & marketers of tobacco is the 77th largest company in the S&P 500
• Facebook, with controversial collecting and sharing of certain user information, is the 4th largest company in the S&P 500

Altria is way more controversial here, given it owns Philip Morris (Marlboro) and has a 40% stake in JUUL, but Facebook has a lot of nonsupporters as well. Say you wanted to avoid both stocks… Instead of putting your money into the S&P 500 ETF (Ticker SPY), you can put your money into the S&P 500 ESG ETF (Ticker: SNPE) which not only excludes the stocks listed above but reweights the index to invest in companies with the highest ethics. This is just one option but there are so many more. There is not a perfect one-size-fits-all solution, so do your research and speak with a financial advisor. There are plenty of options for investing in ETFs dedicated to women-run companies, disease treatment, healthy nutrition, combating climate change, and many others.

ETFs are cheap, you can buy them easily (via Robinhood or any brokerage platform), and there are many thematic choices to support what investments you believe in. It’s so important and the only way to make real change in the world happen, penny by penny! 💪

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Disclaimer: I aim to provide accurate information on personal finance and investing, but it may not apply directly to your individual situation. I am not a financial advisor and we recommend you consult with a financial professional before making any serious financial decisions. The content on Better Your Bread is informational and educational purposes, thank you!