Environmental, Social and Governance (ESG) Investing

An increasing number of investors are seeking a more ethical portfolio with an emphasis on socially responsible and sustainable investing. An emerging trend is environmental, social and governance (ESG) investing, with these factors used to evaluate the financial return and overall impact. 

The ESG score measures how investments and companies perform in these categories:

  • Environmental – carbon emissions, air and water pollution, deforestation, green energy initiatives, waste management, water usage
  • Social – employee gender and diversity, data security, customer satisfaction, company sexual harassment policies, human rights at home and around the world, fair labor practices
  • Governance – diversity of board members, political contributions, executive pay, large-scale lawsuits, internal corruption, lobbying

Many view “sustainable” investing as very vague. The ESG criteria hopes to provide a grading of investments that clarifies what sustainable involves. ESG scores are calculated using different methods. Some ratings are created by using data collected from company disclosures and government, academic and NGO databases. Other scores are developed with self-reported data from participating companies.

Recent benefits of ESG investing include higher returns and a lower downside risk than traditional funds and conventional investments.  To start investing, you can search on your own to identify an ESG fund or an individual stock with a high ESG score that fits your investment beliefs and goals.  Investors can also use a robo-advisor to guide their ESG investment choices.

For additional information on ESG investing, click on the following links:

Article #1

Article #2

Article #3

Teaching Suggestions

  • Have students search online to identify ESG funds or companies they might consider for their investment portfolio.
  • Have students talk with others to obtain the level of interest for ESG investing among potential investors of various ages.

Discussion Questions 

  1. What aspects of ESG investing do you find attractive?  What are your concerns?
  2. What concerns might be associated with methods used to create ESG scores?

Active Management. Good or Bad?

“Advisors and investors are increasingly focused more on lower fee products amid expectations that finding consistently strong performing active funds is hard.”

Passive investing (index funds and exchange traded funds) has been a trend on Wall Street for years.  So, what’s different?  The answer:  The trend is increasing at an alarming rate and investors are now retreating from actively managed funds that are beating their benchmark index.  According to data from Morningstar, investors pulled $99 billion from the actively managed funds that beat their benchmarks over a 12-month period ending January 31, 2017.  This is a remarkable trend given that most investors typically chase funds with high performance and high returns.

The reasons are many, and certainly lower fees is part of the reason, but not the only factor for this dramatic trend.  Another very important factor is that the number of managed funds that consistently beat the index over a long period of time is small.  According to data from Charles Schwab, the number of funds that score in the top 25% for at least two years is 1,098.  The number of funds drops to 702 at the end of three years, and to 33 funds at six years.  Only 4 funds score in the top 25% for at least seven years, and none stay in the top 25% for eight years.

The article goes on to say that this trend may encourage more actively managed funds to focus on bringing down the fees for their investment products in order to compete with the expense ratios for index funds and exchange traded funds.

For more information, click here.

Teaching Suggestions

You may want to use the information in this blog post and the original article to

  • Discuss the difference between index funds, ETFs, and managed funds.
  • Reinforce how important fees and performance are when choosing a mutual fund.

Discussion Questions

  1. What is the difference between a managed fund, an index fund, and an exchange traded fund?
  2. Which type of fund do you think could help you obtain your investment goals? Why?

Robo Investment Advice

Automated investment services are expanding.  Many financial service companies are offering “robo advice,” in which investors complete an online questionnaire and a computer program generates and monitors a portfolio of funds.  Robo-advisers are also designed to automatically rebalance a portfolio based on changes in the market as well as any changes in the amounts allocated to certain investments.

With many investors already making their own trades online, investment companies believe that robo advisors have these additional benefits:

  • lower costs for obtaining advice and conducting transactions.
  • an ability to adjust the portfolio for tax purposes by selling shares that have declined to offset gains.
  • an easier investment approach for younger clients with less-complicated financial lives.


Some will be concerned about automated portfolio management.  Human advisors will still be available to address issues about mortgages, insurance, estate planning, retirement income, and other topics that robo-advisers are not yet equipped to answer.

For additional information on robo advice, click on the following articles:

Article #1
Article #2
Article #3

Teaching Suggestions

  • Have students ask people to describe the process they use to select investments.
  • Have students create a framework to analyze when using robo advice might be appropriate for an investor.

Discussion Questions 

  1. What are benefits and drawbacks of robo advice?
  2. What factors might be considered when using robo advice for investment decisions?


Mutual Fund Rankings, 2015

“If a bull market must continually climb a wall of worry, then the current bull, which started more than six years ago, should be on the brink of exhaustion.”

As a preamble to Kiplinger’s 2015 Mutual Fund Rankings, this article describes the concerns that investors have about interest rates, corporate earnings, the economy, political upheaval, and other factors that could impact not only mutual fund investments, but all investments and the U.S. and the world economy.

In addition the article also provides links to Kiplinger’s Mutual Fund Finder tool and specific information about the top-performing mutual funds including large-company stock funds, midsize-company stock funds, small-company stock funds, hybrid funds, large-company foreign stock funds, small- and midsize foreign stock funds, global stock funds, diversified emerging-market funds, regional and single-country funds, sector funds, and alternative funds.

For more information, click here.  

Teaching Suggestions

You may want to use the information in this blog post and the original article to

  • Remind students that there are many factors that can affect mutual fund investments.
  • Show students how to use the link to the Kiplinger Mutual Fund Finder tool that is described in the article.
  • Stress the importance of a long-term investment program–especially when planning for retirement.

Discussion Questions

  1. Assuming you believe there is a strong possibility the value of your mutual funds will decrease over the next 12 months, would you sell your funds or would you hold them? Explain your answer.
  2. Depending on your answer to the above question, what factors did you consider to help make your decision?
  3. Pick one fund you believe could help obtain your investment goals. Then use the Kiplinger Mutual Fund Finder to research the fund. Based on the information, would you still want to invest in this fund.

How to Open a Mutual Fund Account at a Brokerage Firm

“It’s easy to figure out the right type of account—just start with what you’re saving for.”

Too often, investors want to invest, but they don’t know where to start.  While most investment companies and brokerage firms make it as easy as possible to open an account and begin investing, for many would-be investors opening an account is confusing and often traumatic.

The link below describes a practical approach that helps would-be investors to begin investing at Vanguard—one of the largest and most successful companies in the investment world.  Note:  The link below provides information for Vanguard, but other investment companies and brokerage firms provide similar information on their websites.  At the Vanguard site, there is basic information about mutual funds.  Then specific information about fees and no-load funds is included in the section “Discover Vanguard’s Advantages.”  Next, there is a section on choosing the right fund.  Then, information about different types of investment accounts is provided.  Finally, there is a 3-step process that can be used to open an account.

For more information, click here.

Teaching Suggestions

You may want to use the information in this blog post and the original article to

  • Remind students of the advantages of beginning to invest sooner rather than later.
  • Visit the Vanguard (or other investment or brokerage firm websites) for more information.
  • Encourage students to open a mutual fund investment account when they have saved the money needed to begin an investment program.

Discussion Questions

  1. Why do you think people are reluctant to begin investing?
  2. Even though investment companies and brokerage firms make the process as easy as possible, people are often “afraid” to open an account and begin investing. How can you overcome this fear?

Basics of Investing in Mutual Funds

“. . . Learn how to invest in mutual funds with these informative tips.”

This Money/CNN article provides the following 10 statements along with a brief explanation of each statement to help beginning investors learn about fund investing.

  1. What exactly is a mutual fund?
  2. Mutual funds make it easy to diversify.
  3. There are many kinds of stock funds.
  4. Bond funds come in many different flavors too.
  5. Returns aren’t everything – also consider the risk taken to achieve those returns.
  6. Low expenses are crucial.
  7. Taxes take a big bite out of performance.
  8. Don’t chase winners.
  9. Index funds should be a core component of your portfolio.
  10. Don’t be too quick to dump a fund.

For more information, click here. 

Teaching Suggestions

You may want to use the information in this blog post and the original article to

  • Provide an introduction to the “basics” of mutual fund investing.
  • Point out that this is just one article in the Money/CNN series. By clicking on the next button at the bottom of this article, students can access more articles and obtain more in-depth information about fund investing.

Discussion Questions

  1. Based on the information in this article, why do you think investors choose mutual funds?
  2. The article mentions that there are both stock and bond funds. What is the difference between these two types of funds?  Which type of funds do you think could help you achieve your financial goals?
  3. Why are taxes and expenses important when you choose a mutual fund?

3 Simple Steps to Check Up on Your Mutual Funds

By using three simple steps, you can evaluate when to buy, and when to sell mutual fund shares.

This short article describes three simple steps that investors can use to monitor the value of their fund investments.

Step 1:  Go to www.morningstar.com or look up funds via the Kiplinger fund finder tool at www.kiplinger.com, and check out 1-year, 5-year, and 10-year returns.

Step 2:  Compare your fund’s performance with the average returns for similar funds or with an appropriate benchmark like the Russell 2000 index for small company stock funds.

Step 3:  If your fund’s performance doesn’t match up with similar funds or with a specific fund benchmark, dig deeper to see if the fund managers have changed their strategy or if there are reasons why the fund is a poor performer.

While the above steps can identify funds that you may want to sell, the same three steps can also help you identify funds that you want to hold or even buy more shares in a top performing fund.

For more information go to http://www.kiplinger.com/article/investing/T041-C009-S002-3-simple-steps-to-check-up-on-mutual-funds.html

Teaching Suggestions

You may want to use the information in this blog post and the original article to:

  • Explain how easy it is to use the Internet to obtain information from Morningstar, Kiplinger, and other sources that can help investors evaluate a fund’s performance.
  • Discuss ways investors can monitor the value of fund investments.

Discussion Questions

  1. How can a fund’s performance help you determine if you want to sell shares or buy more shares in a fund?
  2. Why should investors examine a fund’s performance over different time periods?
  3. In addition to performance, what other factors should be considered when evaluating a fund investment?

The SEC Mutual Fund Cost Calculator: A Tool for Comparing Mutual Funds

“Fees and expenses are an important consideration in selecting a mutual fund because these charges lower your returns.”

One of the common complaints from fund investors is that they don’t understand the different types of mutual fund fees.  And they are often surprised how fees can substantially lower their returns on fund investments.

This article provides basic information on fund fees and how they lower returns.  It also provides a link to the FINRA (Financial Industry Regulatory Authority) Mutual Fund Expense Analyzer.  By entering a fund’s ticker symbol, you can compare fees and performance for different funds.  And if you don’t know the fund’s ticker symbol, you can also search by using the fund name or key words.

For more information go to http://www.sec.gov/investor/tools/mfcc/mfcc-int.htm

Teaching Suggestions

You may want to use the information in this blog post and the original article to

  • Stress how fees and charges lower an investor’s return on a fund investment.
  • Illustrate how to use FINRA’s Mutual Fund Expense Analyzer.

Discussion Questions

  1. Why should load charges, management fees, and other charges be considered when evaluating a mutual fund?
  2. Use FINRA’s Mutual Fund Expense Analyzer to evaluate the Fidelity Small Cap Growth Fund (Symbol – FCPGX) and the Vanguard 500 Index Fund (Symbol – VFINX). Which fund had the highest fees and sales charges?  Which fund had the highest return over the 10-year period?  Note:  You will need to access the Mutual Fund Expense Analyzer through the SEC link at  http://www.sec.gov/investor/tools/mfcc/mfcc-int.htm.

Brokerage Services Buying Guide

“Whether you’re a seasoned investor, a newbie, or someone retesting the waters after a scary loss, financial services companies want your business.”

In this article, Consumer Reports evaluates a number of factors that investors should consider when choosing a brokerage firm to help them achieve their financial and investment goals.  Brokerage firms were rated for customer satisfaction.  (FYI, USAA was number 1 and Scottrade and Vanguard tied for second place.)  In addition to customer satisfaction ratings, other factors discussed in this article include

  • The amount of professional advice and if there were costs or requirements for free advice.
  • A discussion of retirement plans offered by various brokerage firms.
  • Steps you should take when choosing a brokerage firm.
  • Questions you should ask when choosing a brokerage firm.
  • Sales tactics that raise a “red” flag when choosing a brokerage firm.

For more information go to http://www.consumerreports.org/cro/brokerage-services/buying-guide.htm

Teaching Suggestions

You may want to use the information in this blog post and the original article to

  • Point out to students that not all brokerage firms are the same and that the information in this article can help them choose the firm that can “best” help them obtain their investment goals.
  • Because this is a lengthy article, you may want to assign this as a homework assignment with students answering the questions below.

Discussion Questions

  1. What types of advice were offered by different brokerage firms?
  2. Did the information in the article help you understand the advantages and disadvantages of retirement plans?
  3. What specific steps should you take before choosing an advisor or a brokerage firms.
  4. What were some of the “red” flags you should watch for when choosing a brokerage firm?

Survey Says: Investors Are Getting Scared

“As world unrest surges and the stock market wobbles, investors have gotten nervous.”

At least three separate sentiment polls indicate stock investors are worried about the trouble in Ukraine, the Middle East violence, continuing projections for a long-overdue correction or worse in the financial markets, and frustration with Washington politics.

For example, respondents to the weekly American Association of Individual Investors survey indicated their strongest levels of pessimism in almost a year.  A survey by Investors Intelligence (which polls investor newsletter editors) indicates a drop in investor bullishness compared to the previous survey.  And, a Bank of America/Merrill Lynch survey of investment strategists indicated heavy bearishness on Wall Street.

For more information go to http://t.money.msn.com/top-stocks/survey-says-investors-are-getting-scared-1

Teaching Suggestions

You may want to use the information in this blog post and the original article to

  • Reinforce the relationship between world affairs, the economy, and the financial markets.

Discussion Questions

  1. At the time of this post, the world situation is troublesome to say the least. What is the relationship between world events, the economy, and the financial markets?
  2. These three recent sentiment surveys indicate that there are more bears than bulls? How would you define a bear?  A bull?
  3. Even though the sentiment surveys indicate investors are pessimistic about the market, some analysts view the market’s bearishness as a buying opportunity. Why could pessimism in the financial markets signal a time for investors to purchase stocks or mutual funds that invest in stocks?