Impact Investing & Values-based Wealth Management Index

Download the PDF here: Wahed – Impact Investing & Values-based Wealth Management Index – 6.2

What Is Impact Investing?

Wahed considers “Impact Investing” as making investments that align with an individual’s values such as social and environmental goals or religious beliefs. Also sometimes called “Values-based Investing.”

The Covid-19 crisis has had a significant and lasting impact on consumers’ finances across the U.S. Many factors, including historic unemployment, soaring healthcare costs, and rising debt, have led to an economic fallout that continues to play out in real-time.

And while those already in tenuous financial situations look to be suffering the most — the inverse has been true for those on the other end of the wealth spectrum. To put it simply, over the past 18 months, the rich have gotten richer. For those already on a solid financial footing, the ability to work remotely and greater flexibility in where and how they live has given them the ability to focus on growing their wealth, including investing more.[1]

But regardless of the type of impact on their finances, the pandemic has caused many consumers to reevaluate how their financial decisions affect the world around them long-term. Investopedia and TreeHugger reported recently that 58% of consumers increased their interest in Environmental, Social, and Governance (ESG) investing in 2020.[2] Findings like these illustrate how the intersection of money and values have gained more interest from investors and how it’s become more ingrained in the traditional investing world, with many firms adopting environmental, social, and governance strategies as part of their decision-making processes.[3]

With this as a backdrop, Wahed, a financial investment company advancing values-based investing, is releasing its inaugural 2021 Impact Investing & Values-based Wealth Management Index to shed light on how U.S. investors have shifted to values-based wealth management strategies since the onset of the pandemic and gauge their views on impact investing.

To do so, Wahed surveyed over 1,000 retail investors 18 and over throughout the United States in the fourth quarter of 2021. The survey sample was weighted for the U.S. population by age, region, and gender.

Key Findings from Respondents

Gen Z Money Management was Most Impacted by the Pandemic

Just as the pandemic impacted how people make decisions around their health and safety, it has had a massive effect on people’s financial decisions. Over half (57%) of respondents have admitted that Covid-19 has changed how they manage their money. While many Americans dipped into their emergency funds to gain financial stability, reduce 401K payments, and reduce overall spending. The pandemic also changed more basic money management by simply altering the lives of Americans who were forced into sheltering at home and found a plethora of new time on their hands.

That’s likely the driving force behind 76% of Gen Z saying they changed their money management since the onset of COVID-19. Many within this demographic used the abundance of free time granted by the pandemic to educate themselves around investing and overall financial literacy to begin wealth building for the first time. Indeed, 36% of Gen Z respondents said they’ve invested more in the stock market since the onset of the pandemic – more than any other generation.

With the rise in “meme-stocks” from the likes of Game Stop and AMC, young investors found themselves entering the stock market. According to a GOBankingRates survey, 72% of respondents in the 18-to-24-year age group who are currently invested in the stock market said they started investing in stocks and cryptocurrency within the last six months.[4]

Additionally, investors’ propensity for risk also shifted dramatically during the pandemic. According to the asset management firm Schroders, 35% of investors took the opportunity to raise their exposure to higher-risk investments in 2020.[5] This likely signals the reality that for many, investing became necessary in the wake of job loss, health concerns, and other financial impacts of the pandemic.

Investing Differently & In a Socially-Responsible Way

The last two years have affected how Americans manage their money and the motivation behind their investment decisions.[6] The desire to make financial gains and use investments as a vehicle to drive long-term societal changes are no longer mutually exclusive.

As a result, many Americans want to support values they believe in socially and fiscally support them as well. 80% of those surveyed say that since the onset of the pandemic, investing in ways that align with their values are at least “fairly important”, with 58% saying “very important” or “important.”

Unfortunately, while values-based investing is important for the majority of those surveyed, the fact is that most retail investors are not currently making values-based investments. Only 35% of individuals surveyed put money into an ethical or socially responsible investment in the last year, perhaps showcasing that consumers struggle to find the right way and the right platforms to invest in a values-driven way.

Weighing Alternative Wealth Building & ESG Impact

Looking deeper into the wealth management shifts that have occurred since the beginning of the pandemic, surveyed respondents say they are saving more in bank accounts (46%) and saving more in IRAs (16%) in addition to their increased interest in the stock market. And when it came to less traditional investing methods, nearly 14% said they are investing more in cryptocurrency, and 12% are investing more in other alternative investments (e.g., NFTs, real estate, etc.).

Americans all over the country were forced to make major, life-altering decisions regarding their finances, jobs, and overall habits. When the government began its initial round of stimulus relief, many people used the money they received to invest. Betterment previously reported that 46% of respondents said they invested at least some of their stimulus check, with 70% spending at least half.[7]

One of the riskiest investments Americans made centered around cryptocurrencies such as Bitcoin, Etherum, and Dogecoin. Interestingly, while Gen Z led in increased stock investments, Millennials (23%) led in increased cryptocurrency investments, compared to 16% of Gen Z and 14% of Gen X respondents. While crypto may be enticing for its exciting uncertainty, digital ease, and derailment from the traditional financial system — all things Millennials generally find attractive — many investors believe this form of investing is at odds with their inclination to invest in a socially responsible manner.[8]

In fact, over two-thirds (67%) of respondents believe that investing in cryptocurrency is not socially responsible. Some trace these views to the enormous energy consumption and wavering government standards that come with cryptocurrencies. Given this, associating crypto with values-based investments can be an understandable challenge for investors who want to ensure their investments are making an impact aligned with their beliefs.

The Need for an Ethical Advisor — Human vs. Robot?

When determining how to manage socially responsible investments, today’s investors are faced with several choices. First, should they control these types of investments themselves or use an advisor. And secondly, if they choose to use an advisor, is it best to use one of the human or digital variety. Respondents were fairly evenly split on if using an advisor or investing in a socially-responsible way on their own would be more effective. 54% of respondents believe it would be more effective to invest in a socially responsible manner while completely controlling their investments. In comparison, 44% said it would be more effective if an advisor assisted.

If they were to go in the direction of choosing to use an advisor, retail investors said fees would be the top priority. “No annual fees” came in first place with nearly 65% saying it’s a leading factor in choosing an investment advisor, followed by “no charges on transactions made” (39%) and “credibility of the financial institution” (31%).

When it comes to going with a traditional advisor or modern-day robo-advisor through a digital platform, it was somewhat surprising to find that just 16% of respondents say they have ever used a robo-advisor. However, this number grew to 20% for Gen Z and 27% for Millennials. This might be further evidence that while Millennials have been quick to utilize technology to manage investments, not as many in Gen Z are following suit. Instead, some of Gen Z has looked to technology from financial service firms such as Robinhood to execute more real-time trading.

The future of digital financial services for younger Americans might be a combined approach that offers digital wealth management tools alongside neobank features. In fact, an even half of respondents said they would be more likely to use a digital wealth management app on their phone if it offered both investing and banking options. That percentage grew to 70% for Gen Z’ers and 63% for Millennials. Comparatively, only 31% of the youngest Boomers (aged 57-66) said they’d be likely to use a fintech app if it offered both banking and investing.

The Value of Values-based Investing

When it comes to values-based investing, what ranks higher, values or returns? For many, values outweigh the return. Over 50% of respondents say they’d be willing to get less return if they knew the company they invested in aligned with their views and beliefs.

But just because they would be willing to get less of a return doesn’t mean they believe they have to accept lower returns. Nearly 43% say they agree that it’s possible for socially responsible or ESG investments to outperform the market.

The attitudes towards investing are not only diverse but are fluctuating among investors as well. And while everyone’s investing journey is different and based on a wide variety of factors, the fact remains that investing to have a socially responsible impact is becoming just as, if not more, important than rendering financial returns.

 

About Wahed

Launched in 2017, Wahed is a financial investment company that aims to advance financial inclusion through accessible, affordable, and values-based investing. The company has made significant in-roads in the world of ethical and halal investing by creating an easy-to-use digital platform with free portfolio recommendations. Wahed’s services have already attracted over 250,000 customers in the US, UK, Malaysia, and beyond through its website or mobile app.

Wahed Invest LLC (Wahed) is a US Securities and Exchange Commission (SEC) registered investment advisor. Wahed Invest provides brokerage services to its clients through its brokerage partner Apex Clearing Corporation, a member of NYSE – FINRA – SIPC and regulated by the SEC and the Commodity Futures Trading Commission. Registration does not imply a certain level of skill or Halal investing made easier (for new investors to start with Wahed) training. Wahed does not intend to offer or solicit anyone to buy or sell securities in jurisdictions where Wahed is not registered or a region where an investment practice like this would be contrary to the laws or regulations. Any returns generated in the past do not guarantee future returns. All securities involve some risk and may result in loss.

 

Citations and footnotes:

[1] Robert Frank, The wealthiest 10% of Americans own a record 89% of all U.S. stocks. CNBC, 2021.

[2] Kara Greenberg, Demand for ESG Investments Soars Emerging From COVID-19 Pandemic. Investopedia, 2021.

[3] Sean Collins and Kristen Sullivan, Advancing environmental, social, and governance investing. Delloit, 2020.

[4] Yaël Bizouati-Kennedy, The Surge of Young Investors: Shocking Number Entered Market in Past 6 Months. GOBanking Rates, 2021.

[5] Richard Dyson, Market shock: how did investors react to the impact of Covid-19?. Schroders, 2020.

[6] Megan Leonhardt, 64% of Americans changed their spending habits during the pandemic—here’s how, CNBC Make It, 2020.

[7] Betterment, How Memestocks Affected Investors’ Actions And Emotions. Betterment, 2021.

[8] Sophie Kiderlin, Millennials’ love affair with crypto is burning red-hot right now – two out of three say it’s more attractive than ever. Here’s why they like it so much. Markets Insider, 2021.

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