Aligning Portfolios with Personal Values

Financial planning and investment advice is personal.  Sounds silly to even type that because most financial firms say that. However, efficiency matters in scaling a business and, oftentimes, process is placed over people. That said, personalization is our secret sauce in developing meaningful relationships and financial plans that align with our client’s values.

Part of why we love our job are unique conversations between clients. Think about it; everyone has different goals and worldviews, so not everyone has the same education funding goals for kids/grandkids, view of retirement, how much risk they want to take in their portfolio, how they exit a business, or how they view distributing assets to kids, grandkids, charity, etc. Therefore, different strategy recommendations are required to meet a variety of needs/goals.

One area we want to continue to educate clients is values-aligned investing. This article is just an introduction to the idea.  The concept is rooted in the reality that, when investing in stocks, we make money or “gains” by profiting from business activities.  In the 1700’s the Quakers refused to profit from the slave trade which is largely seen as one of the first well-recorded instances of values-aligned money decisions. Over the years, this has evolved in many ways and across many values sets from faith-based, to environmental, human rights, etc.

In its simplest form, there are two thematic ways to integrate values and, generally, used in combination:

• Exclusion = “I don’t want to own ABC company because of XYZ”
• Inclusion = “I want to own ABC company because of XYZ”

Exclusionary screens can take many forms and can vary wildly based on one’s unique beliefs/values.  Oftentimes exclusions are through the lens avoiding companies that profit from addiction/misery/suffering.

For example, Alcohol has many alarming statistics but for this case study, it’s important to discern where profits come from as the question isn’t about the morality or health of drinking, or the moderate and safe consumption of alcohol.

In the book Paying the Tab: The Costs and Benefits of Alcohol Control, Duke professor, Philip J. Cook, documents that 10% of US drinkers account for more than 50% of alcohol consumed. England’s National Institute of Health reported that 4% of the population accounted for 23% of all industry revenue.[1]

More recently, we’ve seen explosive growth in gambling stemming from changes in regulations and the ease of betting from our phones. In 2024, the sports betting industry posted a record $13.71 billion in revenue.[2] In the U.S., searches for “gambling addiction help” have risen by 23% since the 2018 legalization of sports betting.[3] Even before this increase in sports betting and betting by phone, 80% of those in Gamblers Anonymous reported that they wanted to die.[4]  Companies in the business of gambling receive a disproportionate amount of revenue from those facing addiction, not those who are responsible.

Investors can ask themselves, “is this the type of business I want to profit from?”

Perhaps easier to explain than the complexities of an exclusion, an inclusionary screen looks at the business from a positive side.  Is the company actively reviewing material risks to its business (e.g. if a technology company, cybersecurity risk).  Does the business attract and retain talent? Does the business pay fair wages and have safe workplaces? Do the products add value to society? Does the business positively impact the communities where they do business?

For example, is the company a biotech company working to create a treatment or drug that will bring healing and health to the world?  Maybe it’s a company that is helping feed a growing world population?  What about a company helping solve issues related to water, waste or energy security?

All said, and done, our job as advisors isn’t to proselytize a value system, but to ensure our clients know that they can customize how they invest in alignment with their values.

Eliminating certain companies or sectors does reduce the “opportunity set”; however, there are roughly 53,795 publicly traded companies globally[5]. It’s our belief that IF an investor wants to include values that exclude certain businesses, there are plenty of available stocks in the universe to build a prudently diversified portfolio.

Learn more about your values for investing here: https://www.yourstake.org/ui/visitor/wizard?advisor=chris-flores