Many investors these days expect their portfolio to do more than turn a healthy return. They also want their assets to support causes close to their hue. It’s not enough while growing in value for one’s portfolio to do well; it must also do good.
If you want to invest sustainably, you’re hardly alone. Eighty-three percent of investors want to make sustainable investments, and sustainable investing now makes up a third of the assets under management in the United States. Most of this investing is tied into exchange-traded funds, which offer low fees and steady performance across an array of equities.
There are plenty of ways to invest sustainably that go beyond ETFs, which may not offer the returns you’re looking for. You also have less risky options for sustainable investments than stock holdings, which may be too aggressive for you. Other sustainable investment options like farmland investing can have a bigger impact while also creating the opportunity for a larger potential return.
Here’s what you need to know if you want to invest sustainably or incorporate sustainability into your portfolio.
Caring about the environment and sustainability is a great first step toward building a portfolio designed to make a difference. But there’s much more to developing a strategy than this intention alone. You’ll also want to think about where you want to have a positive financial impact, as well as where the sustainable investment opportunities are.
Picking out the best sustainable investments means incorporating your principles into your portfolio planning. If, for example, you want your investments to fight climate change, you’ll want to determine which companies either have that same goal, be it through carbon-neutral operations or donating to environmental causes. You’ll also want to make sure you don’t hold any oil or petroleum investments in your portfolio, either through stocks or mutual funds.
Many financial services firms have their own rubric for what makes an investment sustainable. Most focus on certain criteria when assessing the sustainability of underlying assets in a fund. These can include carbon emissions and offset purchases, water usage, and the amount of waste they produce.
A sustainable portfolio should do two things: invest in companies that are innovating to help make for a greener world, and help generate a return on your investment. Much like with conventional investing, this means determining which businesses have the greatest potential for impact. You’ll also want your investments to offer growth opportunities as well in order to propel your portfolio further.
Growing interest in sustainable investments means it’s an increasingly crowded place to put your assets. The good news is that this increased interest has led to a rise in well-performing funds. A recent study found that sustainable investing funds usually perform as well as other kinds of funds, dispensing with the false assumption that values-driven investments come at a cost.
Simply moving money from conventional funds to sustainability-driven investments may not create all that much upside for you as an investor, however. Alternative sustainable investments may offer you more upside and a bigger slice of the pie as conventional options get even more popular.
Farmland investing, for example, can beat market returns over the long run—be it via sustainable investments or otherwise. Researchers found that a $1,000 investment in Iowa farmland from the 1950s to today would be worth 25 percent more than what you’d gain through the S&P 500 under the same conditions. That means farmland offers a better yearly rate of return on average than Wall Street, rewarding smart investors with bigger returns.
Portfolio diversification can be a challenge for even the savviest investor. This is a particularly challenging task for people who want to invest sustainably and still maximize their portfolio. For example, you might want to avoid purchasing shares of a renewable energy fund since they will both likely have the same stocks in their asset allocation. Tempting as it might be to pick out several businesses in a single sector, it’s not a great way to build value.
Diversifying investments in different sustainability sectors, such as solar energy and sustainable agriculture, is a much better strategy. This is true for most portfolios as well: when you’re able to spread investments across a wider array of industries and sectors, the better prepared you are for growth across any number of them. Leaning too hard on sustainable investments in one market sector might leave you exposed to too much risk as well.
You should also consider moving beyond stocks and funds to make the most of your investments. Alternative investments have long been an attractive option for investors who want to move beyond the markets to generate value. Farmland makes for a perfect alternative sustainable investment: you can take a direct role in building sustainable agriculture and move money out of turbulent markets at the same time.
Plus, with FarmTogether, it’s easy to get started: our team of investing professionals will pair you with opportunities that align with your personal beliefs, financial strategy, or agricultural sector of interest to you. The FarmTogether platform makes it easy to incorporate as much farmland into your portfolio as you like as well, which makes it easier to dial in the right amount of diversification for you.
The sustainable investing sector is taking off with few signs of stopping. Geopolitical policy favors increased efforts to make the world cleaner and greener, and even corporations are beginning to acknowledge the role they play in solving climate change. That’s why it’s a great time to learn how to invest sustainably. Or, if you’ve already started to build a sustainable portfolio, it’s a wonderful time to learn about how you can make more of a direct impact.
FarmTogether is the perfect addition to a sustainable portfolio. We focus on farmland investment opportunities that offer sustainable solutions and technologically advanced farming practices. With FarmTogether, you can benefit from the knowledge that your investment is achieving your financial and ethical goals at the same time.
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Disclaimer: FarmTogether is not a registered broker-dealer, investment adviser or investment manager. FarmTogether does not provide tax, legal or investment advice. This material has been prepared for informational and educational purposes only. You should consult your own tax, legal and investment advisors before engaging in any transaction.