Investing in sustainability and generating strong returns – is it a pipe dream or reality? And what kind of returns can I expect as an investor?
If you’re reading this, you’re probably the type of person who doesn’t want to invest money in ways that clash with your moral principles. And you are not alone in wanting these things – the number of investors sharing such views is rising consistently. That being said, every investor wants to be able to achieve attractive returns when choosing an investment.
In this article, we explore what the latest investment trends are and why sustainability and attractive returns do not have to be mutually exclusive.
The future of investment & the trend towards more sustainability
Our lives are constantly changing, with the advent of new technology, digitalisation and other factors. The world of finance is no different. Some 30 years ago, opening a savings account with the local bank paying a high rate of interest was a smart way to invest money. In the current low-interest era, that’s no longer the case. That leaves the big questions of: what opportunities are out there and where can I invest my money?
Alongside factors such as yields and risk, sustainability is becoming an increasingly important factor for investors. A wide range of studies show that we are seeing a shift in the way people think, not just in society in general but also in the financial industry.
Sustainability is a catch-all term for all factors relating to socially responsible, environmentally friendly and ethical investment. This can mean excluding firms that aren’t environmentally friendly, or companies that manufacture weapons. But it can also mean actively promoting the topics that will lead us towards a cleaner, greener economy (for example renewable energy and e-mobility).
Here are some of the impact topics you can support when you invest your money with Yova:
- Gender equality
- Human rights
- Clean water
- Low Emissions
- Medical Technology
- Vegan champions (coming soon!)
Sounds good, doesn’t it. But what’s the financial upside?
Sustainability is an increasingly important investment factor
Sustainable investment strategies can ensure that assets do not become “stranded”, which is when they completely lose their value due to new regulations, shifting environmental factors or more environmentally friendly preferences. Given that demand for environmentally friendly technologies and products is rising, sustainable investments are becoming increasingly profitable.
Consistent population growth also offers potential for sustainable investments: the UN forecasts that the global population will reach almost 8.5 billion by 2030. Climate change, scarcity of resources and population growth are immense challenges facing our society and can only be resolved through technological advancement and sustainable solutions. However, these factors also offer opportunities for the companies that are innovating and helping to solve the world’s big issues.
Why you should invest sustainably today
There’s a growing body of evidence that show environmentally friendly, socially responsible investment opportunities also have the power to generate attractive returns. A study published by Munich-based ratings agency Oekom Research analysed the performance of an investment portfolio consisting of 300 shares in companies with good sustainability ratings. The shares in the companies were compared against the market average over a period of seven years. The result? The portfolio outperformed the market, growing in value by 31% compared to the market’s 27%.
There are a number of other interesting studies that have produced similar results (including from Harvard, Wharton, Royal Bank of Canada, Morgan Stanley, Center for Sustainable Finance and Private Wealth at the University of Zürich, Research Group for Sustainable Finance in Hamburg).
These studies not only show that sustainable investment is no riskier than conventional investment – but also that stronger returns can be achieved.
Sustainable investment opportunities
There are a number of different methods for investing sustainably (for more information on individual investment opportunities, click here). Here at Yova, we believe that stocks are the best way of investing sustainably. Many investors prefer long-term investments in stocks. Why? Here are the top 5 reasons:
Reason #1: Stock markets offer attractive returns over the long term. This allows risks to be well managed and adjusted in line with your own personal risk profile.
Reason #2: Stocks have good liquidity. In other words, they can be bought and sold easily if you need to withdraw your investment.
Reason #3: Stock markets are regulated.
Reason #4: Stocks offer a high level of transparency. As a registered shareholder, you know in exactly which companies your money is invested.
Reason #5: As a shareholder, you also have the right to attend annual general meetings and vote on key strategy decisions.
How much money is it possible to make with stocks?
Unfortunately, we cannot predict the future, no-one can. But what we can do is look at the past performance. Historically, stock markets have generated average annual growth of approximately 6% (in spite of financial crises and economic downturns). We design your investment so that it follows the long-term performance of the stock market as a whole (read more about that in A Complete Guide to Our ‘Efficient Frontier’ Investment Theory).
Investing for beginners: 3 tips for sustainable investment
Last but not least, here are our Top 3 investment hacks to help you invest sustainably, while growing your wealth in the long-term:
Sustainable investing tip #1
Think about what areas you would like to support with your investment. To help you decide, we have developed a free online tool. You pick the sustainable and socially responsible investment themes that are most important to you, and we show you exactly what stocks we recommend. With every adjustment you make, our algorithm makes sure your portfolio is financially sound.
Sustainable investing tip #2
Assessing risks is extremely important. That may sound expensive and complicated, but it doesn’t have to be. As your asset manager, Yova can take care of the heavy lifting for you, using proven risk management strategies. This saves your time and money (see our e-book Reduce your risk on the stock market for more information).
Sustainable investing tip #3
Never put all of your eggs in one basket. If your investment fails, you will suffer losses. Diversification of your investment is essential. At Yova, we minimise your risk by ensuring that you do not invest all your funds in the same place. Good diversification can be achieved through 30 to 40 different investments, spread across multiple industries, countries and company sizes.
But what does all this actually mean? Let’s take a closer look. Imagine the renewable energies market collapses in chaos tomorrow. If you only have one or two major investments, you may start to panic. If, however, you have properly diversified your investments, you can remain calm. That’s because your portfolio comprises many small investments that are not likely to implode at the same time.
Lucrative and sustainable investments – it is possible!
Innovations that do things like help us to preserve natural resources, generate clean energy, and fight poverty are essential for moving us all towards a positive future. Sustainable investment gives you the opportunity to play a direct role in shaping this change. Your investments give you the chance to make an impact, and strong returns at the same time.
Would you like to see what investing looks like at Yova? You can get your free impact investing strategy here – we personalise it according to your interests and risk preferences, while always ensuring it makes good financial sense. This service is completely free and it entails no obligations to invest with Yova.
If you have a strategy already, login to view it here.