Values-based investing starts with the idea that invested money is not neutral. When you invest, your capital may support the companies, products, and services represented within your portfolio.
A values-based investor considers those underlying investments and uses their ethical discernment when deciding which companies or industries they want their money to support. This can involve examining what is actually “under the hood” of an investment and making decisions based not only on financial considerations, but also on personal ethics, priorities, and values.
There are many different strategies that may fall under the broader category of values-based investing, and the level of customization can vary significantly from one portfolio to another.
ESG, SRI, and impact investing are all approaches that may fall within the broader world of values-based investing, but they are not necessarily the same.
ESG, which stands for Environmental, Social, and Governance, generally evaluates companies using factors related to environmental practices, social concerns, and corporate governance in addition to traditional financial considerations.
SRI, or Socially Responsible Investing, typically applies social or ethical considerations when selecting investments and may include screening companies or industries based on certain criteria.
Impact investing generally goes a step further by intentionally directing capital toward investments designed to create a measurable social or environmental benefit. This might include areas such as renewable energy, affordable housing, regenerative agriculture, or community development.
ESG and SRI strategies may frequently focus on screening publicly traded investments, while impact investing may also involve private-market opportunities intended to directly support specific causes or outcomes.
The label on an investment does not always tell you everything about what it actually owns.
An ESG or socially responsible fund may still hold companies that an individual investor would personally prefer to exclude. Different fund managers also use different definitions and screening criteria, meaning two funds marketed as “sustainable” or “responsible” can look very different beneath the surface.
One of the most important steps is examining the actual companies, products, services, and industries represented within a fund instead of relying solely on its name or marketing.
Holistic Finance uses specialized research and screening tools to examine investments across numerous ethical criteria and provide greater transparency into what a portfolio actually supports.
Ethical monitoring is an ongoing part of Holistic Finance's portfolio management process.
Holistic Finance uses an ethical research platform that pulls information from numerous data sources and provides frequently updated information regarding companies and issues such as fossil fuel involvement, weapons, environmental pollution, deforestation, single-use plastics, Indigenous rights concerns, and other ethical criteria.
These data can update nearly every trading day, allowing the firm to monitor changes affecting companies within its investment universe.
Holistic Finance also reviews portfolios from a financial perspective throughout the year, including monthly rebalancing reviews and a more comprehensive quarterly process that examines ethical considerations, financial soundness, sector diversification, company-size diversification, and overall portfolio construction.
No one can predict future market performance, and past performance does not guarantee future results.
However, excluding certain companies or industries does not necessarily mean abandoning diversification. A values-based portfolio can still include investments across numerous companies, sectors, and areas of the market.
At Holistic Finance, the goal is to construct diversified portfolios while applying the values-based screens that matter to the client. There may be periods when an excluded sector outperforms the broader market, just as different sectors regularly move in and out of favor.
Investors choosing values alignment should therefore understand that their portfolio may perform differently from one that does not apply the same ethical criteria.
For some values-based investors, accepting the possibility of periods of relative underperformance may be a reasonable tradeoff for maintaining greater alignment between their investments and their ethics.
The impact of any individual investment will vary depending on its size, structure, and where the capital is ultimately directed.
However, values-based investing is also part of a broader movement in which many investors collectively decide which companies, industries, and projects they want their capital supporting.
As an investor's assets grow, the amount of capital connected to those choices may become increasingly meaningful.
Values-based investing is therefore not necessarily about believing one person's portfolio will single-handedly transform a corporation. It is about aligning your financial resources with your priorities and participating in a broader shift toward greater transparency and intentionality in how investment capital is allocated.
A values-based portfolio can be designed with retirement income in mind.
For retirees or investors approaching retirement, portfolio construction often places greater emphasis on fixed income and other potentially lower-volatility investments relative to equities. The appropriate allocation depends on factors such as age, income needs, risk tolerance, time horizon, and the rest of the investor's financial plan.
Values-based fixed-income options may include U.S. Treasuries, municipal bonds, and certain impact-oriented investments, depending on the investor's objectives and liquidity needs.
Values alignment does not eliminate investment risk, and future returns or income cannot be guaranteed. The objective is to incorporate an investor's values while also considering the financial characteristics necessary to support their retirement strategy.
Possibly, although your options depend heavily on your employer's retirement plan.
Most corporate 401(k) plans provide employees with a predetermined menu of investments, and that menu may or may not include ESG, socially responsible, or other values-aligned choices.
Some plans also offer what is known as a brokerage window or self-directed brokerage option. When available, this may give an employee access to a broader selection of investments beyond the plan's standard menu.
Investors using a brokerage window should carefully evaluate investment selection, diversification, risk, rebalancing, and ongoing monitoring rather than treating it as an automatically managed solution.
Self-employed individuals with a Solo 401(k) may have considerably more flexibility when designing a customized values-based investment strategy.
You are not permanently locked into a values-based investment strategy.
Your portfolio can evolve as your priorities change. That might include adjusting individual company exclusions, modifying your values-based criteria, or moving toward a broader market portfolio.
Any changes should still take diversification and potential tax consequences into account, particularly when investments are held in taxable accounts.
The investment strategy should ultimately reflect both your current priorities and your long-term financial goals.
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