Women prefer value-based investing. This is how it affects their wealth

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Women prefer to invest in a way that helps the environment and brings public good, some studies have found. Such a value-based investment could help boost women’s overall enthusiasm for investing and increase long-term wealth, according to financial experts.

About 52% of women would prefer to invest in companies that have a positive social or environmental impact, according to a recent study by Cerulli Associates. This is true for 44% of men.

Although not a huge gap, the difference of eight percentage points is “meaningful,” according to Scott Smith, who led Cerulli’s study of investor behavior. And the discrepancy largely remains when comparing women and men in different age and wealthy groups, he added.

The trend also exists outside the United States. About 43% of women (compared to 34% of men) consider the company’s position on social or environmental issues “very important” when deciding whether to invest, according to S&P Global, which surveys investors in 11 countries, including the United States.

“Almost every new client I get wants to invest with their values ​​in mind,” said Cathy Curtis, a certified financial planner based in Oakland, California, whose clients are mostly women.

“And if they haven’t done it before, they’re asking me to do it now,” added Curtis, founder and CEO of Curtis Financial Planning and a member of the CNBC Advisory Board.

ESG funds

Investment funds that use so-called environmental, social and management principles have grown in popularity in recent years. These investments (also known as “sustainable” funds) can invest in companies that focus on renewable energy or that promote racial and gender diversity, for example.

Investors put a record $ 70 billion into ESG funds last year – 14 times more than just three years earlier, according to John Hale, director of sustainability research for North and South America at Sustainalytics, which is owned by Morningstar.

In 2021, there were three times more mutual and exchange traded ESG funds than five years ago, holding a total of more than $ 350 billion, he said.

Women are most interested in investing in companies that: pay workers fair or maintenance; are leaders in environmentally responsible practices; and who do not sell “undesirable” products such as tobacco and firearms, respectively, according to Cerulli. (Men have the same three best preferences for ESG.)

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“It’s more of an emotional thing with women,” Curtis said of their ESG propensity. “It’s absolute because they don’t want to be invested in things that they think are harmful to the environment. [or] harms the causes of women.

“They really care about these things.”

Meanwhile, women tend to invest less than men in general: about 48% currently have money in the stock market against 66% of men, for example, according to a recent NerdWallet survey. This is despite evidence that female investors tend to be better long-term investors than their male counterparts.

The typical female-headed household also has less wealth: about 55 cents for every dollar of wealth owned by the typical male-run household, according to the St. Louis Federal Reserve Bank. Among household retirement accounts, the typical woman has saved $ 28,000, less than half of the $ 69,000 reported by men, according to the Transamerica Center for Retirement Research.

However, ESG enthusiasm among women has the potential to make them more enthusiastic about investing in general, which could be beneficial for long-term wealth creation, experts say.

“It simply came to our notice then [ESG] discussion, “Curtis said.” They don’t care how big the U.S. capitalization is and how many international and emerging markets they have. [in their portfolios]”

Return on investment

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In fact, women’s values ​​tend to override the return on investment considerations, Curtis added.

Among all individual investors, 70% believe that sustainable investment implies a financial compromise – an increase of 64% in 2019, according to the Morgan Stanley Institute for Sustainable Investment. The share is higher (83%) among millennials compared to older age groups.

However, the data do not seem to support this “myth”, according to Morgan Stanley.

About 74% of sustainable funds have ranked in the top half of their respective investment categories in the last five years, according to Morningstar. In other words, ESG fund investors tend not to sacrifice performance for their values. (Of course, ESG funds are not always better. Many of them had a difficult 2022, for example, largely due to exposure to the technology sector, experts said.)

“For investors and advisors who have been reluctant to invest in sustainable funds because they have the impression that such funds as a group are chronically declining, [2021] is another proof that this is not true – as in the last five years, “said Hale.

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