Insight
More and more people want to get into investment – and today, most people want to make responsible investments. After decades of being an exclusive members club, investment is finally opening up to the masses. Low cost online platforms have made accessing shares, investment funds and even peer-to-peer lending super easy. However, finding a truly responsible investment is decidedly NOT easy.
To help you sort the truly sustainable from the shameless spin, below are four easy steps to follow to make responsible investments today.
When it comes to investing responsibly, start by deciding what that term means to you. How would you feel, for example, if you were investing in oil and gas companies? If that is a big no then you’ve already cut out most ‘ethical’ or ‘ESG’ funds on the market as these funds typically only screen out tobacco and other ‘sin’ stocks like gambling, alcohol and the worst chemical weapons.
Instead, you should look for a fund whose management clearly states that fossil fuel is a no-no. Funds like this include the Liontrust Sustainable Future range and WHEB Sustainability. The same for animal testing, weapons or even issues like gender diversity and water scarcity: there are specialist funds out there for everything. The more specific you can be the greater chance you will be investing in what you care about.
Knowing how much you want to invest is also an important part of deciding what to invest in, and how. If you have, say, just £50, you could open an account with the UK’s first impact investment app, Tickr. Then you could either leave it there or contribute anything from £5 per month. Or you could make a direct investment in a renewable energy, housing or social impact project through Abundance Investment, Ethex or Energise Africa.*
Or, if you have a lump sum of £100 and can save £25 per month, you can invest in the Liontrust, WHEB and other leading sustainable investment funds through a low-cost online platform. These include AJ Bell YouInvest, Fidelity Fundsnetwork or BestInvest. If you have a really big sum then you can speak to a specialist adviser like EQ Investors, Blue Sphere Wealth or Tribe Impact Capital who can build a bespoke portfolio for you.
When opening an account with any platform or adviser, you will need to decide what type of account to use. In the UK, typically a Stocks and Shares ISA is a good place to start. These accounts allow you to invest up to £20,000 per year in shares, funds and investment trusts without paying any tax on the gains you make – no matter how much money you make. General Investment accounts don’t have any limits on investments, but don’t have the same tax benefits.**
If you are looking to make responsible investments within a pension, then you will need to sniff out a good Self Invested Personal Pension (SIPP) or a Lifetime ISA (LISA) account with an online platform provider like the ones mentioned above, or through an adviser. You can find out all about this in the New Money Pension Manual – our guide to helping you make responsible investments today for a better future for everyone.
All investment should be for the long term and responsible investments are no different. It is important that when you make an investment of any shape or form you are doing it for three years or more. This is because markets are bumpy. One year you might see your investment rise by 5%, then fall by 15%, but the third year it bounces back 25%. The latter is fairly common after a market tumble.
Over this three year period you would have made an average annual gain of roughly 15%. Had you pulled your investment out at the end of year two, though, you would have lost roughly 5%. The longer you leave your money in the market, the more you will gain. Unless you’re investing in tobacco or oil and gas, that is. Thankfully these are losing money every year as we transition to a healthier, carbon neutral world.
*These are peer-to-peer investments and considered very high risk. Do not put in what you can’t lose.
**In the UK, people that pay basic rate tax (20%) can earn up to £1,000 on cash savings and investments in funds, trusts and peer-to-peer loans. Higher rate payers (40%) can earn £500 and additional rate payers don’t get an allowance. Click here for more info.
Originally posted here
