By David Tenerelli, CFP®, CSRIC®
The best financial plans are aligned with personal goals, dreams, and aspirations. After all, a plan that is not guided by purpose and intention is susceptible to meandering toward mediocrity or even failure. One dimension of financial planning personalization involves bringing your money activities (earning, giving, investing, and spending) into alignment with your values, as misalignment can lead to inner conflict at best or self-sabotage at worst. Two methods that are sometimes used to move towards greater alignment are to refine your charitable contributions or focus on better understanding the underlying investments in your portfolio.
Regardless of the method chosen, weaving your personal values into your day-to-day financial decisions can help to bring an added sense of purpose to your financial plan. Generally, this can be accomplished in three steps:
- Reflect on your personal values and money mindset
- Understand the choices available to you in those four money activities (earning, giving, investing, and spending)
- Create an action plan to sync your lived life with your ideal life
Here, we specifically explore the process of orienting one of those money activities (investing) with your personal values, and how we can help.
Identify Your True Values
Of course, values are subjective and personal to each individual. Values could include principles such as honesty or loyalty, or they could be framed in terms of the things we cherish the most such as family, community, or faith. They could also be related to motivational intangibles such as creativity, adventure, harmony, challenge, autonomy, or achievement. Values provide a framework upon which we make decisions about how we allocate our personal resources (time, skills, energy, and money), and they inform the rubric with which we evaluate our activities.
Because money is such a powerful and pervasive force in modern life, analyzing money decisions from a values orientation is practically a necessity for living a purposeful life. In fact, we apply a values lens to money decisions all the time, perhaps without even realizing we’re doing so – for example, whenever we oblige or decline a fundraising request from an organization, balancing our convictions for the cause with our budgetary constraints and other giving goals.
While money itself can be thought of as values-neutral – after all, today it is mostly just data stored in computer systems – it is the ways that it is earned, given, invested, and spent that imbue it with values. That is, money can be used for purposes that are mutually beneficial and generative, or extractive and exploitative, but money itself does not carry values.
There is a lot to consider, but the first place to start is to take an inventory of your current financial life. These types of questions can help reveal the interactions of money with your values:
- Who is affected by your financial decisions?
- What benefits does money convey to you today?
- What, if anything, would you do differently if money was not a constraint?
- Are there certain money decisions you make based on principles?
- What role does money play in the activities, experiences, and relationships that cause you to feel deeply engaged and connected to the world around you?
As you answer these questions, consider any differences between the revealed values: which values were you taught, and which values truly resonate with you? Is there some overlap as well as some divergence? What people or events may have influenced that divergence?
Understand Your Money Mindset
You also need to understand your money mindset, which has been cultivated from your life experience and is generally formed during the first several years of childhood. You may have learned good financial habits from your parents. You may have even learned bad financial habits if you watched your parents struggle financially. Consider the questions below:
- Where did you grow up, and what was your family life like?
- What money lessons did you learn in your formative years?
- Consider your occupational history – do any themes emerge?
- What have been some of your best financial decisions?
- Who would you consider to be a financial role model? What contributed to their success?
Whatever your experiences have been with personal finances, they are one of the keys to understanding your money decisions and behaviors.
Be Honest With Yourself
Here’s the hard part. You need to be honest (but gracious) with yourself about the alignment of your values and your money decisions. This can be challenging, but it’s been said throughout history that self-reflection is one of life’s most difficult yet rewarding endeavors. (Socrates’ famous statement comes to mind: “The unexamined life is not worth living.”)
Part of that honesty may include a sense of gratitude for being in a position to consider values-oriented money decisions because such a position likely means having sufficient income and investments to enable such decisions. To be included in the only 58% of Americans who own some amount of stock market investments and in the roughly 37% who are not living paycheck-to-paycheck means that money decisions may be more complicated, but potentially more impactful and more rewarding when a values lens is applied to them.
Reflecting on any disconnects you’ve identified will help you get on the right path to better values alignment. If this process leads to greater fulfillment and a more purposeful financial plan, it will all be worth it.
Understanding Values-Oriented Investing
So how does any of this apply to investing? Hasn’t it been proven that the best way to invest is to simply diversify across asset classes, sectors, and geographies; keep costs low; and don’t do anything impulsive (that is, don’t sell your investments in reaction to the media’s short-term crisis du jour)? How could personal values possibly intersect with an investment portfolio? Aren’t the investments just the engine that powers the rest of the financial plan?
The answer varies widely, and it depends on how an investor defines financial success. For some investors, simply investing prudently and earning a financial return that is appropriate to accomplish their financial planning goals is considered satisfactory. They may have some variation of the mindset that suggests, “As long as I can enjoy life now and in retirement, and ideally help my kids to some degree, I’ll be happy. If there is any money left over, then I have a handful of causes that I’d like to support.” No doubt, this is a common and virtuous mindset.
Others may have more conviction about shifting the investments in their portfolio towards greater values alignment since financial success for these investors is qualitatively enhanced when the investments in their portfolio are better aligned with their values. The motivations for these portfolio adjustments are as varied as the values that inform an individual’s financial plan. Consider a few example scenarios:
- Perhaps an investor works as a pulmonologist, or maybe they lost a family member to lung cancer related to tobacco use, so they prefer to avoid holding tobacco companies in their portfolio.
- Maybe they grew up in an economically depressed neighborhood, and they want to avoid investing in companies that practice predatory lending.
- Or maybe they donate to (or even serve on the board of) a non-profit that provides clean water access to impoverished areas, and they wish to minimize their personal portfolio’s exposure to certain companies that have a history of toxic water pollution while redirecting that capital towards more responsible companies.
- Rather than avoiding certain types of companies in their portfolio, some investors may prefer to buy “the market” but also engage with portfolio companies to influence their policies and actions (or delegate those engagement activities to professional fund managers).
- Some values-oriented investors may even want to deploy a portion of their portfolio towards making a direct impact through targeted investments based on the needs of certain communities. By nudging the flow of capital away from potentially extractive or exploitative investments and towards regenerative investments, they may be seeking to reduce the need for charity.
Constructing an investment portfolio based on a values orientation is a very personal decision that should be made only by well-informed investors or those working with an advisor, and the extent to which the portfolio makes the desired impact depends on the degree and nature of customization and the investments that are utilized. There are many investment products available that purport to be managed using some sort of values-based methodology, but the actual extent of values alignment can be difficult to assess without the help of a professional, especially when the portfolio contains many different investments.
Sync Your Ideal Life With Your Lived Life
To achieve your ideal lifestyle, you must sync your day-to-day life with the values that connect you to the activities, experiences, and people which bring you the most fulfillment. Only then will you be able to create a financial plan and an investment portfolio that truly reflects your values. When your money decisions and behaviors are connected to your values, your finances become one of the tools that allow you to reach your ideal lifestyle.
Does Your Advisor Value Your Values?
At Strategic Financial Planning, our mission is to provide goal-oriented advice so you can live your life to the fullest. With your values in mind, we work together to make strategic financial decisions that merge your financial goals with your ideals. To learn more, call (972) 403-1234 or contact us online to set up a complimentary get-acquainted meeting so we can see if we are a good fit!
David Tenerelli joined Strategic Financial Planning, Inc., an independent, fee-only financial advisory firm in 2017. As a CERTIFIED FINANCIAL PLANNER™ professional and a Chartered SRI Counselor™ who holds an M.S. in financial planning and a graduate certificate in financial therapy from Kansas State University, he is passionate about helping clients to better align their financial plan and investment portfolio with their values. He and the team at Strategic Financial Planning, Inc. use a unique client-first financial life planning approach and process to help their clients get the most out of life.
The opinions expressed and material provided are for general educational purposes only, and should not be considered legal, investment, or tax advice. A values-oriented investment strategy could include or exclude certain investments or weight certain investments differently than a conventional strategy would, and such a strategy may result in lower or higher returns and lower or higher volatility than an investment strategy which does not include values-based criteria. A values-oriented strategy may seek to utilize funds in client portfolios which may target certain values-based outcomes, but investors may differ in their views of what constitutes desirable or undesirable values-based outcomes. As a result, a values-oriented strategy may invest in companies that do not reflect the beliefs and values of a particular investor. When third parties provide data and screening tools, there is no assurance that this information will be accurate or complete or that it will properly exclude or include all applicable securities relevant to a particular investor’s values, or that a particular fund manager will engage with portfolio companies in a way that aligns with the investor’s values. Investments selected using these tools may perform differently than as expected due to the factors incorporated into the screening process, changes from historical trends, and issues in the construction and implementation of the screens (including, but not limited to, software issues and other technological issues). There is no guarantee that use of these tools will result in effective investment decisions or the desired values-oriented outcomes.