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:
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:
“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.
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.
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.
Depending on your answer to the above question, what factors did you consider to help make your decision?
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.
“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.
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.
“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.
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.
Why should load charges, management fees, and other charges be considered when evaluating a mutual fund?
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.
Each of the seven tips described below can help both experienced and beginning investors improve their investment skills.
Invest in what you understand. To avoid getting caught in a stock-market bubble and to remain calm during an economic downturn, you should know something about a company’s true worth.
Less debt means less risk. Look closely at a company’s balance sheet to determine if a company has too much debt that could hamper the company’s growth or ability to weather an economic storm.
Use dividends to diversify your stock holdings. Instead of reinvesting dividends in the same stock, take cash dividends and use the money to buy stocks in different companies in which you have few holdings.
If you use funds, look under the hood. To diversify your investments, make sure your existing funds don’t own the same stocks in the same companies.
The right stock can replace a bond. Look for high-yield, dividend stocks to replace all or a portion of your bond holdings.
Cash isn’t trash. Cash can be used to take advantage of stock-market downturns or corrections.
Patience is a virtue. Sometimes it just takes time for a stock to increase in value.
Students begin by using a pull-down menu to select the type of fund they want (any fund, U.S. stock funds, international stock funds, taxable bond funds, or municipal bond funds).
They refine their choice by choosing a fund style (large cap, emerging markets, high yield bond, etc.)
Next, students select performance and fee and management criteria, (total return for different time periods, risk, load charges, if any, expense ratio, etc).
The last step is to click the “Find Fund” button at the bottom of the screen.
You may want to use the information in this blog post to:
Help students realize that a fund screener can be a logical first step in finding the right fund for their investment portfolio.
Demonstrate how the Kiplinger Mutual Fund Screener works or create a homework assignment where students use the Kiplinger Mutual Fund Screener.
Remind students that while a fund screener can identify funds that meet the investment criteria they have provided, there is a very real need to complete a more in-depth evaluation before investing their money.
1. What are the benefits of using the Kiplinger Mutual Fund Screener?
2. In addition to the information provided by the Kiplinger Mutual Fund Screener, what other types of information would you want before investing your money? Where would you obtain this information?
Since 1971, the Mutual Fund Education Alliance (MFEA) has been dedicated to informing and educating the investing public about how they can use mutual funds to achieve important lifetime goals.
The website for the MFEA provides both beginning and experienced investors with a wealth of information that can be used to become a more informed mutual fund investor. For example, the MFEA website provides information about
When markets are passing though choppy waters, investors often rely on the healthcare sector to safeguard their investments.
Healthcare funds are often considered a safe investment because the demand for healthcare services does not vary with market conditions or upturns or downturns in the economy. Many of the companies in the healthcare industry, often found in healthcare funds, also pay regular dividends which can help offset a decline in a fund’s share price or increase total return for this type of fund investment.
In this article, Zacks Investment Research, provides a brief description of the five top rated funds listed below
Fidelity Select Biotechnology (Symbol FBIOX)
Prudential Jennision Health Sciences A (Symbol PHLAX)