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What is ethical investing and is it right for you?

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Are you interested in the idea of using your money to change the world for the better via ethical investing? Since the pandemic and with climate change high on the news agenda more and more people are looking at the ethical aspects of their investments. It is something we are discussing more frequently with clients. Here are a few of the questions our clients have been asking:

What is ethical investing?

Ethical investing is an overall term for an approach to investing where we consider the values of the businesses we are investing in, as well as the financial return we may achieve. You may hear the term ESG – which stands for environmental, social and governance factors.

Environmental factors might include the business’ energy consumption or their policy on climate change. Social factors could include their track record on workers rights, equality and diversity or the gender pay gap. Governance issues are about the way the company is run, such as whether they are open and clear on their finances.

It is important to remember that there is no standard industry definition of an “ethical fund”. For this reason we do need to look behind the headlines and the marketing brochures to find out exactly what individual financial institutions mean when they talk about ethical funds.

How easy is it to invest in ethical funds?

Many financial institutions are realising that customers are interested in these issues and are responding to demand. Fund managers are asking more questions around the ethical standpoint of the companies they invest in. Many funds now include considering ESG factors as part of their decision-making process. Some institutions offer specific “Ethical or ESG funds.”

Will I get the same level of return as a standard fund?

There has been some suggestion that ethical funds may perform better than tradition funds  but as with all investing, ethical funds involve risk. The value of ESG funds could always go down as well as up and you could get back less than you put in.

Can I choose not to invest in particular companies where I disagree with their ethics?

Yes, you can often opt not to invest in companies or sectors that you disagree with, for example tobacco companies. This is known as divestment.

What are my other options for ethical investing?

Instead of ‘avoidance’ ethical investing you might want to consider what we would term ‘impact’ investing. Here you might invest into something you do not like (or into a fund that does this for you more specifically) with the aim of making improvements.

As an analogy, if you object to factory farming you might stop buying intensively raised chicken. This just means there will be less chickens, but no incentive to change. Conversely, if you buy a free range chicken you are positively encouraging a change to practices with how you spend.

Are there any other advantages to ethical investing?

There is a suggestion that companies that do well in ESG analysis tend to be overall better managed companies. And that companies and sectors that are developing new technologies, for example in response to climate change concerns, are likely to be growing which would make for a good investment.

How can I find out more about the ethics of the funds my pension is invested in?

You may already be invested in an ethical fund – or it may be very easy to make the change to one. This will depend on your pension provider. If you are interested in ensuring your funds are invested ethically, book an appointment by calling 01543 410512.

Financial resilience: how would you cope with a life changing event?

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According to Scottish Widows, in the UK up to six million people each year suffer a life changing event that causes a sudden loss of income. Many more experience events that cause a sudden rise in outgoings. Examples include:

  • Loss of a job
  • Sickness leading to absence from work
  • Becoming a carer to a relative
  • The end of a relationship
  • Bereavement
  • Becoming a parent

Many of these events happen without warning, leaving individuals with little or no choice but to face them, but the impact can be substantial. The inability to pay essential bills and meet mortgage payments can lead to huge financial stress.

While many people have faced these challenges this year, the government support has enabled the majority to continue meeting their financial obligations. However, in more normal times, individuals need to find their own way through the new situation, coping with the stress of the event as well as the financial impact.

The ability to cope financially when faced with a sudden fall in income or unavoidable rise in costs is known as financial resilience. Not everyone has the financial resources to cope if they are unable to work. A poll of more than 2,000 adults by Zurich UK suggests as many as one in eight would have to sell their home to make ends meet if that ever happened. In the survey a third of respondents said they did not feel financially resilient.

How would you cope?

When asked how they would cope with a sudden significant loss of income:

  • 40% would rely on savings for the short term (i.e. less than 6 months)
  • 39% would find a second job that I could do with my illness/ injury
  • 26% would sell other possessions (e.g. any valuables, etc.)
  • 23% would rely on savings for the long term (i.e. 6 months or longer)
  • 18% said their partner would start work/ increase their hours
  • 17% would sell their car
  • 16% would move in with friends or relatives
  • 14% would find a cheaper place to rent
  • 13% would sell their home
  • 11% would get a lodger

These are all major decisions, and have a significant impact on you as well your partner and any family. Being financially resilient can and does help cushion the blow of these income shocks.

How can a financial adviser help?

Working with a financial adviser can help you look at alternate ways to cope with the impact of a life changing event or a major financial blow on your existing income. We take a long-term view with you, and take time to understand your financial situation, including the levels of savings or other financial support you have access to. We can then look at ways to protect your income that can help you in times of sudden change, to protect you and your family.

When you decide to insure your income, or your life, what you are really insuring is the financial stability of yourself and your loved ones. There are many options to explore depending on your circumstances and priorities, and it is our job as independent advisors to guide you through to achieve financial resilience for you and your family.

If you want to be more financially resilient and need professional advice to help you, please get in touch. Call us on: 01543 410512 or email enquiries@acuityfinancial.co.uk

Paying the price of the “University Experience”

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It’s no secret that the cost of the “University Experience” is now higher than it has ever been. According to The Guardian, the average cost of a degree per child is now around the £85,000 mark, and it is Parents and Grandparents who are playing an increasingly significant role in funding this. The estimated cost of studying in England is £22,189 over a 39-week year, and typical students (whose parents have an average household income) only receive £14,370 in loans and grants, meaning they (or you) need to make up a surplus of £7,819 on average, or £651 a month!

A lot of the older generation have money available to help, but it is locked away in pensions which cannot be accessed. Pension regulations now allow for income to be taken flexibly, on an as and when basis if needed, and this gives Parents and Grandparents the ability to help out the younger generation in paying for their university life, as well as have flexibility on how they take their own income. Let’s not forget that it is not only tuition fees that need to be paid, but books need buying, bills need paying and of course, social lives need funding.

If, on the other hand, you are a younger parent and are now worrying about how you will fund your child’s future education, that is also something we can help you with. Savings Plans and Investment ISA’s are now more important than ever, and they are something which we can look at setting up for you. With the limit on how much you can pay into an ISA now £20,000 per tax year, we can help you to maximise your saving potential for your children’s futures.

If you are in a position where you think that you can help out your Grandchildren or Children, and want to talk to someone about how you can do this, get in touch with us on 01543 440 300, or drop us an email at enquiries@acuityfinancial.co.uk.

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