Season 2, Episode 9: How to Make Money in the Stock Market AND Make the World a Better Place
Investing in environmentally and socially-conscious funds can make you even more money for retirement, not give your dollars to the biggest assholes, and make you feel very virtuous while you do it.
So many of us want to invest in the stock market to make money for retirement, but feel pretty icky about where our money might be going. Do we just have to surrender to the greedy capitalists polluting our planet and perpetuating social inequities?
Listen to this episode to find out! (Spoiler alert: NO)
Sara and I grill sustainable investing expert Kacie Swartz about how to find funds that promote our values. And guess what?
They do just as well, if not better, as the traditional funds that have gotten away with regressive social policies and short-sighted slash and burn environmental damages in the name of profit.
Kacie explains how to find funds we can feel good about, without diminishing our returns, AND how this kind of activist investing is a very powerful way to change industries with our dollars.
Let me just tell you, it gets real fiery at the end. The good kind.
Here are some of the resources Kacie mentioned that are good for researching sustainable, environmentally and socially-conscious funds:
And here’s Kacie on LinkedIn.
Oh! And do you have a passive income story? A success? A failure? Tell us about it in a voice memo and e-mail it to: womenonthevergepodcast@gmail.com
Ask us your dumb investing and finance questions for Season 2 on our Ask Us page!
This episode was edited by our co-producer Kelly West. Music by Bad Bad Hats and Devmo.
Transcript for Season 2, Episode 9: How to Make Money in the Stock Market AND Make the World a Better Place
Caitlin Welcome to Women on the Verge of a Financial Breakthrough, a podcast where we're figuring out finance. One dumb question at a time. I'm the dummy. Caitlin Meredith, a coach and mediator based in the Bay Area.
Sara And I'm Sara Glakas. I'm an investor advisor and founder of Black Barn Financial and the Austin Women's Investing Group, which can be found on Meetup and Facebook.
Caitlin Before we start, do you know a woman who might be on the verge of a financial breakthrough? Will you text her a link to our show and maybe to other friends while you're at it? Also, please, if you can leave us a review. This helps other women on the verge find us and we read them and they make us happy cry.
Caitlin Today we have another special guest who's an extra, extra special guest. And Sara will tell you why.
Sara So I am really, really excited because Black Barn Financial has a new managing partner, Kacie Swartz, CFP, CMA. Those are the letters behind her name. What did that mean?
Caitlin Kacie. Oh, Kacie, I'll tell us.
Sara I'll let her tell you that. But I will tell you that I have known Kacie for eight years, maybe maybe nine years. And from the first minute I met her, I knew that I really wanted to be her friend and that I really wanted to work with her. And so over all of these years, I've been biding my time and waiting for this moment that I am so excited about. And she is joining Black Barn Financial with me. And we will be partners and colleagues going forward. And she will also be forced to be a guest on Women on the Verge of a Financial Breakthrough podcast.
Caitlin So part of the contract, right? You're at that end.
Sara Right? So that's exciting for everyone, really. But Kacie, welcome.
Caitlin Yes. Kacie, welcome. Thank you.
Kacie Guys. Thank you. Thank you so much for having me on the podcast and in your business. Sara And in Austin in general, I mean, I was just so very excited about what we're building together, and I cannot wait to tell all of your listeners what we're doing next.
Caitlin Well, you guys tell me. Remind me how you met.
Kacie So in 2014, I'm going to guess I was newly moved to us and I moved here in 2013 to become a personal financial planner. Previously, I had been a mutual fund wholesaler, which is kind of like when you are a pharmaceutical rep in a movie and you go visit doctors and try and sell them drugs.
Caitlin Or in real life.
Kacie Yes, exactly. I did have the rolling backpack and everything, and I was a mutual fund wholesaler, so my job was to sell the mutual funds to advisors. So I would travel around and try and convince people to use the mutual funds that we sold. But the byproduct really was that as I got to know more and more types of financial advisors, I really gravitated towards the RIAA space. The registered investment advisor. It's the highest level of transparency and ethical fiduciary responsibility and the cleanest, most transparent type of advising. And so that's what I wanted to do. So I spent a couple of years completing my education as a certified financial planner. And then once I was done with that, I told my husband that I didn't want to travel anymore and he gave me a short list of warm places to live. And we moved to Austin, Texas, and then I had to look around to build my network. So on Meetup, I found the Austin Women's Investing Group and I went to a meeting at I believe it was the Monkey Nest. This is 2014 and some gentleman is trying to sell us all on the idea of cryptocurrency that he was inventing, and I could not wrap my head around it. I was just like, This is the dumbest idea I've ever heard. What kind of scam is this? I hate everything about what this man is saying, but I love the lady that's running this meeting.
Caitlin Wait. The man was a guest at the Austin Women's Invest. Oh, okay. I thought it was just some random guy you met at the bar.
Kacie No, it's like a presenter, like angel investing, like different types of investing. You could do.
Sara It was. It was angel investing.
Kacie Like, maybe 15 minutes to speak about his crypto that he was starting, but he could not explain it in a way that anyone in the room was like, Why would I give you real money for fake money?
Speaker 4 A question we are still asking.
Kacie And I think about it to this day that like I, I was introduced to the idea of Bitcoin in 2014 and instead of buying some, my mind was just like, this is dumb. And I totally skipped it. So.
Caitlin Oh my God, there's so much I want to talk about that, but we're going to have to do that in another episode. We'll just add that to the list.
Kacie Yeah, that's exciting to talk to you about, I believe.
Sara Okay.
Caitlin Okay. We'll get the drinks out. Okay, But wait, whoa, whoa. I want to go back to a piece of your intro that might seem insignificant, but I have a feeling that it's how a lot of the, like, retail investors like me get introduced to the stock market is through index funds that are mutual funds that are the ones that are available through our workplace. And you were somebody that went workplace to workplace, to whoever the person was that chooses. We're going to offer these three mutual funds to our employees. I'm is is that correct?
Kacie That's close. But I actually would go to. Your advisor at Morgan Stanley or Merrill Lynch or Edward Jones or wherever, and convince that guy that the mutual funds I represented were better than all the other mutual funds out there and that we were the ones that they should use.
Caitlin Okay. And you'd get a cut. I'm assuming it was commission based. So you get a cut if they're like, okay, I'll put this in my menu that I offer to my clients and then they get a cut from you guys if they sell some of the shares. Shares? Is that the right word?
Kacie Yeah, that's right.
Caitlin Share. Share.
Sara Oh, yeah. Give me shares.
Caitlin Shares of the mutual fund that you sold them. So, like, there are many people making money in this chain before the actual person who's investing might see any money. And it might not actually be the best investment fund mutual fund for them, but there's an incentive for it to be sold to them.
Kacie Absolutely.
Caitlin That makes sense.
Kacie Yeah. And that's one of the things that I think is in our society kind of a taboo topic, but should not be, especially when you're the person asking the questions, is how does your advisor make money? How do they choose the funds? What kind of compensation do they receive from the funds, from putting them in their menu? Any of these questions about who benefits from me buying this particular fund right is totally valid and is a good question to ask of a person. If you're using a person or even just like Google it on the website, if you're buying them directly through whatever custodial bank, Fidelity, Schwab, Vanguard, whoever, to look at those and see like, where is the money going If I'm paying for this, where does it go?
Caitlin Right. And we had a whole episode about how if you're going to get a financial advisor, what are the questions to ask them? And that was definitely the classification being fiduciary, like who's financial best interest? Are they mandated to look after? But I think what's scary is that feels so normal to me and like, yes, of course that's what it should be. But the vast majority of people are in the financial services industry do not have that qualification. And so they can try to sell you whatever and you might never know what their well their incentive is. They make more money. We can we can guess that.
Kacie Yeah.
Caitlin But they seem like just helper people that are giving you a bunch of information. And so it's disappointing to learn that like, I mean, I it's not my first day in capitalism. I understand how it works, but like the gap in knowledge between how much they seem to know and how little I feel like I know in a situation like that makes me lend them more credibility than they deserve.
Kacie I think I think you're absolutely right. And one of the problems just again, in society in general is the fact that financial literacy is not a core competency for most people. It's not taught in schools. It's not emphasized at college. If you're not a business manager, you may never run across a lot of the even the vocabulary, right. What we're talking about. And then when you get into adulthood and you have to do all of these things, everyone just assumes that you already know. So nobody ever explains it a lot of times unless they're being compensated to do so. And so that puts you in a vulnerable position as the consumer to be at the mercy of who's explaining to them this to me. And what angle are they taking when they do explain it? What kind of biases are they bringing to the table? And so being a fee only planning firm like Black Barn Financial is the way that you know exactly what you're paying. And you get like an invoice. You get to see how people are compensated. Everybody wants to make money. I mean, yes, we live in America, but knowing what you're paying for things is not outrageous now.
Caitlin And I think that power differential and that factor that you brought up, that as adults, the the people that we are we were just talking about this off air, about insurance salespeople. It's like they're the people we're going to learn the most about insurance from. Also, by the way, they're the ones that make money off of our insurance decisions. And so it makes it really tricky to know what information to believe, where, where and how to do our own research, who to trust, etc.. So you pretty much summed up the first season of our podcast just.
Sara In your last. We're done Picasso. Yep, yep. Right.
Kacie We've got it. Okay, so you saw how that whole industry worked from that side and we're like, I'd like to be one of the good guys. I'm going to go back. So tell me what the letters are. CFP Certified Financial Planner and then what's the CMA?
Kacie Yeah, the CMA is not as well known. That's a certified. Investment management analyst. And it's if I when I compare the CFP to something that most people actually know about, I'll say, and being a CFP is kind of like being a CPA, right? Because you have to go through a lot of education, you have to sit for a big scary test and you have to do continuing education hours to maintain your your fluency in modern techniques. Right? But being a CFP is kind of a generalist and then being a CMA or a CMA or a certified investment management analyst, that is a little more specific about researching investment choices. And it's useful for people who are not not buying individual stocks or bonds, but buying pooled investments like mutual funds and exchange traded funds, because it gives me a little bit of a deeper knowledge about the metrics of comparing so that I can make it apples to apples when I'm looking at different options and also constructing portfolios. And that's where sometimes those individual stocks and bonds do come back in. But mostly I prefer to use low cost diversified funds.
Caitlin You'll fit right in here. That's what we're always telling people.
Kacie Yeah, exactly. And there's a really great reason for that. There's a lot of a lot of backtesting in history to show that most of the time if you hold something long enough, the average is going to outweigh any kind of gamble you might have made, but it doesn't always win. And so some people are very, very lucky. But, you know, we don't all spend all of our money on the lotto just because we know of a guy who knows a guy who once won the lotto. Right. But with the CMA, it really does help with investment research. And then also working with endowments and foundations to make sure that they are doing everything they need to do to be a fiduciary risk. Fiduciary fiduciary. I don't know what the right word is responsible to the groups that they are supporting.
Sara Oh, okay.
Kacie Ficuciarily, I guys, how would you say fiduciary.
Sara Fiduciary.
Caitlin Money wise.
Kacie Basically to be responsible with fiduciaries so that they will do the right thing for whoever they're supporting with their foundations and endowments?
Caitlin Okay. Well, and the first part of that, not so much the foundation part, because we are part of one, but is directly related to why especially we wanted to talk to you and have you be a guest. Because the number one question I get from my friends about investing, who we all have like the heebie jeebies about the stock market in general and capitalism, even though we're all in it and we have to survive. And it is like, I don't want my money going to the bad guys. I don't want to invest in big oil, big whatever it is that we have either goes against our sort of environmental values, our values about equity, anything, but we feel like, God, how would I even go about researching how to invest in with my values, like using my values as the guide? And also I feel like the prevailing, like the pushback I imagine getting is like, Oh, well, you'll lose your money. Like you won't make as much if you do the like Green companies that give everyone health insurance and don't want to hurt Mother Earth that like nice idea. But if you need a retirement, you need to go with the big boys. So you are going to tell us about ethics. How do you call it ESG? What is that? What is that category for this type of investing we're talking about?
Kacie See, exactly. This is one of the barriers to research for so many individuals, because there is no one term for this type of investing. The oldest term is socially responsible or sorry, socially responsible investing. So that's a good Google term, sustainable investing, good Google term, socially conscious. The ESG is the most recent kind of trend and that stands for environmental, social and governance. And specifically, that is supposed to be more about the fundamentals of a company. Those are supposed to be metrics by which companies can be measured for their impact on environmental issues, their impact on social issues and governance issues. Again, all of these things can be a little bit murky because a lot of these companies, maybe they have a great score on the environmental side, but maybe their labor practices are crap. Like you just never know. Can we say crap?
Caitlin We can say it, say it again.
Kacie It's crap. And so you run into that sometimes. And and for those of us that do care about how our money is invested and who are supporting with our dollars, which again in the U.S. is like the best way, in my opinion at least. To to create change. Like, there's a reason all these politicians need money, right? It's because money changes things. And and you can get a lot done outside of political channels if the dollars are aligned with what is actually good. And so so do it. When you're doing that research, you have to kind of prioritize what is the most important thing to me. And right now, environmental topics are the easiest way to invest because you can do a lot of of deleting the social and the governance. They get a little more murky. Like it's really hard to tell if companies are moving the needle on equity between minorities and amongst minorities, I mean, or if their labor practices are getting better or what they're doing for affordable housing. Like those things can be a little bit murky. So environmental is a lot easier. But, you know, all of those different elements are being researched by a huge field of analysts.
Caitlin Okay. So, Kacie, you said governance. And I got a little worried because I think of that as like a government. And then I get worried like, are we talking about government investing? And I worked a lot in Africa. And governance is like anti-corruption measurement. So I'm just will you define what the governance piece of it is?
Kacie So the governance is more about how is the business itself run? So it's about who, how diverse is the board, how are the executives compensated, How what are the ethics of the business? Like you say in in Africa, maybe there's a lot of U.S. companies who are working in Africa. How willing are they to pay bribes, for example? What what's their history of corruption? How many cases have been brought against the company for certain practices? All of that information should all be available. And and for those of us who are individuals, we can't research all of that for every single company, especially in a mutual fund which might hold hundreds of names. And those names change all the time. And so employing mutual fund companies and exchange traded fund companies who have staff who that's their whole job and they pool their research together is very, very useful.
Caitlin Wow. Okay. And the social part of it is like, did they have policies that support gay and trans rights? Do they have provide birth control for their as part of their health plans, like social I'm assuming a sort of like the values that they follow through on with their employees?
Kacie Yeah, exactly. They're human capital. Like how what what are they doing in action with other groups, Right? What is their liability of their products and how have they dealt with it? The sourcing of the materials that they use in the first place, All of those are different things that like it's like you say, it's really the social is more like as a web or as a network. Where do they fall?
Caitlin What I want to work for that company, right? Like that. Question Okay. You also said that it's easy to delete ones. So what does that mean, delete them like with environmental criteria.
Kacie So the old model of mutual funds that are personalized or tailored to individuals or to particular requests was more about removing the offending company. So, for example, if you wanted a mutual fund, you just wanted a standard large U.S. company fund, but you don't want to hold oil companies, then they would just take those out.
Caitlin I gotcha.
Kacie Rather than the more like proactive version where we are seeking companies who are doing X-Y-Z Okay.
Caitlin It's like getting a bouquet and being like, I hate carnations, so I'm going to take out the four carnations, But whatever did the rest of it first is like starting from scratch. I want a tiger, Lily. I want it. Whatever. That's more labor intensive, maybe more research, maybe more expensive.
Kacie It might be. And unfortunately, it gets even more complicated because sometimes they'll say, Well, we are going to include a carnation, but it's going to be an orange carnation because the orange carnation in this particular metaphor is actually doing a lot of really great work. And wind energy, for example. Okay. You know, because these are conglomerates, man. I mean, they're huge, huge, huge companies with. Multiple profit centers. So even if they are evil on one side, they may be doing some good work on the other side. And sometimes it gets really complicated.
Sara Yeah. Hey, Kacie, do you think that you could talk a little bit more about that level of complication for investors? Like, if someone comes to you and they say, like Caitlin said, like, listen, I have an idea that I would like to be as responsible as possible. What do you do if if we have two sides or two extremes? What do you say to the person who maybe is super duper specific about who and what they want to exclude versus would you say something different to someone who maybe is a little bit more general in saying, I don't even really know what my options are? I want to do the best I can, but not let the perfect be the enemy of the good. Are there two different ways of thinking about that, or is it actually does it kind of lead to the same approach when you're talking to someone.
Kacie The second person who is willing to compromise a little bit? Of course, that's much easier to fulfill their request. So there's a there's a huge field or universe of investment choices that will fit those metrics. Especially if they do know what they care the most about. Like if it's promoting the welfare of women and girls, there's funds for that. If it's about promoting clean water. There's funds for that. And they're really decent funds, right? The person who says it is very important to me that I am focusing all of my dollars on a company that does X, Y, Z. That person is more likely going to need to pay for that research. So they're going to pay for it through holding a separately managed account or an impact fund, something that's really tailored just to them. And the price point for entry into that kind of fund is usually a lot higher. So sometimes you might need to be what's called an accredited investor. Have you guys talked about that one?
Sara No.
Kacie Okay. Well, we won't need to get into it too much. But being an accredited investor means that you can prove that if this thing goes to zero, you're not totally screwed. So you either have income over 250,000 a year and or a net worth of over a million.
Caitlin Okay. Those don't apply to me now.
Kacie But what you're saying is, Caitlin,.
Caitlin I just going to come clean here and that, you know, Kacie, that's not me. But the idea being like, you have to be so fancy pants and rich that you can take this big gamble on a stock market investment and it won't ruin you. And then you're the burden of the state.
Kacie Yeah. Yeah. It really stinks, because to get, like, truly special tailored types of investments, you do have to pony up more cash, which I guess is kind of true. Like, if you wanted a custom made suit, you've got to pony up the cash, right? But for the rest of us, you can just get a nicely tailored suit.
Caitlin So J.Crew has sales and they really have some nice things.
Sara Well, okay. Do alterations, right?
Caitlin Yes, they will.
Kacie Yeah, that's what I'm describing. So there's actual phone companies out there that have already done that work for you, and they will provide investments that that fit your metrics as long as they're not completely narrow.
Caitlin So I just have a more basic question here that I'm realizing I don't get. We advise people that a smarter path, if you have limited dollars, is an end index fund that has a whole basketful of different companies rather than individual stocks. But what's to prevent me from saying, like doing my own research and finding 30 companies that meet my criteria and buying shares in all of them? Is that not a mutual fund that I've created for myself?
Kacie Yeah, that's exactly what a mutual fund is. But are you going to continue to do that research? Like, what's what's your hourly rate? Right. So can you afford to spend that amount of time managing your portfolio?
Caitlin Okay. So I do that once and I'm like, sweet, I've got the picks, but it doesn't end there. Like, I'll have to keep updating those picks. And that's where a lot of labor goes. It continues. Labor goes.
Kacie In. Yeah. And not only the picks themselves, but let's say you chose company A, company B and company C. Okay, well then, now how much money are you putting in those? And as they, you know, ebb and flow through the stock market, are you rebalancing? What are you doing with new contributions? I mean, the work continues. Yeah. And so outsourcing it to a fee only financial advisor is one of the ways that you can say I don't have unlimited hours for. I don't have unlimited knowledge. Analysis paralysis is a real thing. I need somebody else to pull the trigger because it's so much harder when it's your own money. I'll just outsource this. I'll pay somebody else to worry about it.
Kacie And even if you're not paying an advisor to do it, if you find a mutual fund who does it for you and you're paying the manager of that mutual fund to choose those companies, then you follow the fund. You can jump on quarterly calls with the manager and figure out what they're, you know, what their investment thesis is and how they're doing it. But you don't have to follow all of the companies that are in the fund's portfolio.
Caitlin I gotcha.
Kacie Yeah. And girl, I mean, if you subscribe on any of those mutual fund websites, they're going to send you so much investor education, like you will have to wade through it. There will be so much.
Caitlin You know, it's not going to happen. Yeah. Tell me what button to press. Make it all go away.
Kacie And the ones that do focus on on, you know, socially responsible, responsible and sustainable investments, they also include a lot of really cool anecdotes about the work they do with the individual companies or with the individual mandates that they're trying to meet. So honestly, I find those a lot easier to read because they're really fun and invigorating stories about the work that a particular group has achieved with, you know, let's say it's it's harvesting palm oil or maybe it's the reduction of water pollution in a particular bottling company, like all sorts of really cool stuff where you read it, you're like, Dang, I feel good about this one. And that's why they put it out there. I mean, it's still marketing, but it's actually also true.
Caitlin Okay, so let's think of a few different scenarios of our listeners where you have the person who just got their job, their first job, and they're getting the brochure that I hate. That's like, Tell us where you want to invest your money and you just want to get it done as soon as possible. What are they looking for it like? Are these funds available from everywhere or does it just depend on what your work places Benefits Person chose for the employees?
Kacie Unfortunately, at this time, the workplace funds, if they are an aggressive plan like a401k for three B are for 57, legally they cannot hold ESG options. So a person who is trying to do the right thing through their investments are going to need to just choose the low cost, most diversified kind of S&P 500 type options through their work plan and then use their non-work dollars to focus on what they care about.
Caitlin It's illegal for a workplace benefits department to offer environmentally, socially and governance conscious mutual funds.
Kacie Yeah, unfortunately at this time it is. There has been conversations in the legislature and the executive branch about the metrics being undefinable and or contrary to American exceptionalism, which is something that the state comptroller here in Texas is, I guess, Right. Actively trying to make it so that and not only the funds themselves, like he's trying to say that if a fund company offers ESG investments, that they are not allowed to do business with any of the branches of the state of Texas. So that means that no one in any kind of state sponsored retirement plan would be able to invest in Vanguard, BlackRock, any of the major companies that provide ESG funds at this time, that has gone nowhere because it's frankly stupid. But it is one of those things that there's some truth to it. They are correct that it's hard to do the metrics on these funds. But alternatively, if they if the people are asking for it, I think that they should just make it easier to understand the metrics and add the funds to those investment menus.
Sara And this is where recording this episode in January 2023. So that's that time frame that we're looking at now, as Kacie has been talking about, these these rules can change. And so as of now, this is kind of where the where we are in the fight.
Caitlin It is this culture war category or legitimate worry about companies fooling investors who are socially conscious into buying their product when it actually doesn't fulfill the expectation of the consumer.
Kacie I think the answer to that would probably be biased by what you care about. So I will admit that I think that there is some goodwill behind the idea that that it should be easier to understand these funds. But I do think that, yeah, there's also a culture war element because the people who are pushing this generally have the same demographics. So they're opposed to environmental, social and governance funds on a personal level, and they're using their power to limit their reach. But from the retail side, you can see how much people care because you can see the inflows into funds that have these kind of names. And that is one of the ways that people have been vulnerable. Like I do understand you see something and it's labeled the Green Fund and you just say, Hey, man, that sounds great. I want that one. Well, that's why you kind of got to open the hood and see what's in there. Like, why is it called that? What does it do? How long has it been around?
Caitlin Oh, it's going to take me a little while to, like, wrap my head around the fact that it is illegal for a workplace to offer an ESG fund to their like. It feels like we get to have informed consent and do our research and choose what we want to do. That aside, me as a freelancer, putting together my own solo for a1k or a brokerage account or just a random IRA, what are the things I can do except dedicating 20 hours a week to researching funds which I do not have time, aptitude or willingness to do. How can I find places to invest that like it being realistic? Like I well, maybe answer that question and then the next question is like, and will I make as much money as I would if I just did? And the top.
Kacie Ones. Oh, my gosh. The the wonderful answer then. Spoiler alert. Yes, you will. Because there are really great companies that have been around for decades that provide these types of pooled investments, mutual funds and exchange traded funds. And that's why I frequently will just call them pooled investments, because it's kind of tomato tomato on if they're a mutual fund or exchange traded fund. I'm sure you guys have talked about that before, but they really act fairly similar. It's really just that the pooled investments, like there's multiple companies inside. But but if you can trust the managers who are running those funds, that's what I think is the most important. And like I say, Vanguard, BlackRock, lots of these companies out there, Fidelity, Schwab, they all have kind of like entry level funds in this space where they are doing that exclusionary measure. They're taking out the the fossil fuels, They're taking out a lot of the the kind of like tobacco stocks or firearms stocks. A lot of those are just automatically excluded. There is kind of a a pyramid approach to how deep are you willing to look into the investments? And as the consumer, you can really choose what level you're comfortable with. And it's going to come with a slight increase in price and a smaller universe to choose from. So for those of us that are kind of in like the entry level or maybe one up, those those big custodial fund names are a great place to start. And then I think that you kind of graduate from there into the funds that do. Investor proxy voting. Shareholder advocacy, which is like my very favorite thing that I could talk about all day long. And the returns have this really long track record in general because a lot of these companies have been around since the eighties, so they can show you in all different market environments how their performance stacks up to the standard asset class performance.
Caitlin And when you say companies, you're talking about the companies that put together the index funds or the pooled funds, not the actual whatever Birkenstock.
Kacie That is the companies like stocks.
Kacie Okay, So I'm talking about the fund managers that hold, let's say Birkenstock and Patagonia and whoever else. But yes, I'm just talking about the the managers who put together the investments.
Kacie And going on Vanguard. What I just like Google before I log into my account. Vanguard ESG funds. Absolutely Index funds. They have a whole series of articles in investor education prepared because it is such a hot topic. So the the Vanguard website's great, the Morningstar websites great. All of those articles are free. That s m s c I website. That one's a really great one. And then there's some newsletters too, like depending on how interested you are that you can subscribe to get more information about the different innovations in the different fund companies. So that one is probably not for everybody because it's not as fun. But you know, I get all of those different newsletters so that I can keep track of what is the latest and greatest in these different fund companies.
Caitlin It sounds so simple. I'm suspicious. Like we can all just today log into our accounts, shift where our index funds are checked to the ones that meet the ESG thing. And it's done. And now we're. We're like sustainable investors.
Kacie I mean, yes, you are. However, when again, when you open the hood, the names are going to be very familiar. Right. So you're going to still hold a lot of Apple and you're going to hold a lot of Netflix and all of these different companies that meet those different metrics. Because when you have a sustainable investment, they are not like inventing companies that are perfect. They are finding existing companies that are doing less bad than their peer group.
Caitlin So we're managing our expectations. We're not like all.
Kacie Like that's the key to a happy life.
Caitlin We're not like the Rainbow Redwood Company. We're not going to discover all of these new companies that are like killing it. And women are half of the.
Sara Yeah, it's.
Sara Supervisors.
Sara And labels.
Sara And oatmilk. No.
Sara No, I mean, but I.
Sara But I do think that's important to know that, you know, if you follow especially like an environmentally conscious firms or companies that are maybe at the very beginning of R&D on new technologies, a lot of those new technologies that we hope will eventually save us and the Earth are not to market yet. Right. They're not they're not owned by a company that you can own in a mutual fund. So like Kacie said, you will kind of open the hood of these funds and be like, oh, just it's just these these companies again, like I've heard of all of these.
Kacie I know Home Depot, like, how is U.S. right.
Caitlin And for me socially? Well, what about if I am really interested in black owned businesses or women owned businesses or like a niche? You know, I really want to support I want to show that these companies get capital support from investors, you know, both in like a principled way and, you know, in a real concrete way. I want to support them with my dollars, but also I'm investing. So I also want I need I don't want I need to make money off of these investments over time so that I can retire.
Kacie Again, it depends on the price point, right? So if you can afford to do kind of a higher level in that pyramid, like closer to the top of the pyramid impact investing where it's a tailored fund, then absolutely. Throw your dollars at it. Some private equity people are out there supporting those businesses. There's individuals that are rich that help support individual small business owners. And and this is something that you can be a part of if you have the cash. If you don't, then you are kind of getting in at the junior level with these companies that we care about, where they do the shareholder advocacy and they do the proxy voting. And you write to those fund companies and tell them what you care about, or you choose funds that are dedicated to promoting the welfare of women and girls or promoting people of color owned businesses or whatever it is that your particular topic is like, you can narrow it down and invest in that. And then if you are not finding a lot of things out there that meet what you're looking for, you certainly can correspond with those fund companies and tell them, I want to see more sustainable fashion, whatever your thing is that you care about, because they take that seriously and they're trying to create things that will buy. So if they get enough of us that are saying, This is what I want, they'll definitely do it. Eventually.
Kacie That's what shareholder advocacy means. That means, Oh.
Kacie I know I want a new rally. I'm excited now to talk about it.
Caitlin KC What is shareholder advocacy?
Caitlin Oh my gosh, Caitlin I thought you'd never ask.
Kacie So shareholder advocacy is truly, in my opinion, the best way to move the needle on what businesses care about and what they invest in and what they do, all of their different practices. If you want to impact change, you have to communicate with the companies, right? Well, let's just pretend the three of us all hold like 100 shares or whatever, and we each write a letter to Home Depot. This is what I want. Home Depot could not care less. 300 shares is a drop in the bucket. However, if all three of us own 300 shares of, let's say, a fund, can I name individual funds? Sure. Okay. So let's say we all owned 300 shares of Green Century. They have a large cap fund and there's hundreds of thousands of other individuals that also hold Green Century fund. And we're kind of creating a laser focus on that particular industry and that particular company by giving our proxy to the manager of that particular fund. So we are saying this is a fund where we're investing in this fund because we trust this manager to do good things at the shareholder meetings and in their communication with the corporation. And they will do that with the power of all of our shares behind them, because when they go to the annual shareholders meeting, which I'm going to pause for a second and go back a little bit, this is like the core thing about being a shareholder versus a bond owner. So when you are a when you hold a bond, it's a contract where you're, oh.
Caitlin My God, the share means a share of stocks.
Kacie It's a share.
Caitlin A share you. Mind blown. Okay, I'll. I'll take my question off the air.
Kacie No, no, you're I'm glad you did, because that's like the main, like starting point. Bonds have a lower expected return because they are a contract with set terms. Somebody is going to give you back the money you lent them with interest. Being a shareholder means you own a share of the company and therefore you receive a share of the profits. Okay, So you get to go to the meeting once a year where all of the shareholders get together and decide what to do. Well, none of us actually go to those meetings, right? Most of us just throw those those messages away when they hit our email. But if instead we hand them over to this fund manager, the fund manager has the power of millions of dollars behind them. They go to that shareholder meeting and they say, I have some serious metrics for you about let's just say it's pollution, water pollution. Here are my industry experts that I paint with the money at my mutual fund company who have some ideas for you that you should implement. Please research them. We will work with you. I will be a lobbyist to make this happen. And if you don't meet my metrics in whatever time frame I have designed, we will not invest in you. We will take our dollars away from Company A and we will put them in company B because company B will work with us.
Caitlin Now I feel like I'm at the movie right.
Caitlin Like the edge of my.
Caitlin Seat, part of the Disney movie where the underdog wins the wins the big race. Like, it's so amazing. I love it.
Caitlin When does this happen? Like, is this happening already? I mean, are enough of us not just throwing away the fat envelope that we get saying, like there's a shareholder meeting, There's enough people responding to those?
Kacie No, there's not. That's why the fund manager comes in, because instead of you and me owning, let's just call it Home Depot, like you and me, each holding 100 shares of Home Depot. We're not getting anywhere. But if we hold, let's say the Green Century Fund, which holds Home Depot inside its pooled investment, then they are concentrating all of us together to hold enough shares to really make a difference. So instead of you and me and all of our friends like unionizing to agree on something, we're handing those proxy votes to the proxy person, the fund manager, and saying, I don't have time to look into this. You vote for me. I trust that you'll do the right thing and you'll report back to me on what you've accomplished.
Caitlin Is that an opt in thing, The proxy? Like, how do I make sure when I'm investing around those things, I've also given over my proxy? Do I have to do it every before every meeting once a year, or does that automatically happen?
Kacie It's automatic. It's part of it's part of the prospectus when you buy an ETF or a mutual fund.
Caitlin That was the right answer.
Kacie Yeah. Yeah.
Kacie You haven't missed the boat on any of this. Now, you might get another proxy from the company you're investing in that says, Hey, we're having our own shareholder meeting and we want your opinion on this board of directors or, you know, this new share class we're going to offer. But you only have to go to one of those rather than the hundreds of the individual companies inside the fund.
Sara So this is super interesting. Kacie, can you talk about which funds participate in this way? Because not all funds are activist investors, right? Some of them are also throwing away their fat envelopes and not doing what you just described.
Kacie Yeah, that's true. And those are the entry level index funds. Unfortunately, they because it costs money, Right. Like they don't want to spend or they don't want to charge us, whatever it might be. They don't want to increase their internal expenses by doing this. So if you are investing in some of those basic index funds, you're not going to get impacts like shareholder advocacy. It's just not like in the starter package, it's in the package one up, you know what I mean? Like a slightly different company.
Sara How do you find the funds that are participating in these in the proxy voting and taking part in more activist ways?
Sara Mm hmm.
Kacie I think that you use kind of like a fund filter on on one of your favorite research websites, something like if you are investing through Fidelity, you can use their fund filter to look at all of the different ESG funds. Same thing at Schwab or E-Trade. At Vanguard, you're mostly going to get Vanguard answers, which is fine. But also Morningstar is terrific and Morningstar kind of aggregates a lot of data. So that's one of the best places, I think. And honestly, their their ESG like coverage is really great. So I like Morningstar, too.
Caitlin When you say the entry level, I think me okay, I'll do entry level the next level. I feel like I missed a thread here. I have to make $2 million to invest in the next level.
Kacie No, no, I'm sorry. I was just still picturing that pyramid. Like, to me, the most available are those index based funds. That's right. BlackRock, Vanguard, whatever.
Caitlin Where I just go in, click done.
Kacie Yeah, they're done and they're and they're excluding the really bad actors for whatever, you know, goal you're trying to achieve. Right. But they're not going to do any of the extras, which is fine. You know their point. Oh for internal expenses you get what you pay for. It's fine.
Caitlin They're not paying somebody to go to all the shareholder meetings, putting them up in a hotel, giving them podiums.
Caitlin Like.
Caitlin They're the plane tickets. They're just like they're on auto pilot.
Kacie Yeah, exactly that. And also all of the all of the research and the analysts that they have to hire and like all of the the Bloomberg terminals, they have to buy to do the research. Those things are so expensive, by the way. But, you know, there's there's a lot that goes into it to stay on top of these things. And so so when I'm picturing that pyramid and I'm saying upper level, what I mean by that is the price point. So instead of paying the point, oh, for internal expense, you're probably going to be paying like point two or point for like you could. Pay 1% internal expenses, but don't. That's a lot. But there's there's plenty in that like midrange price point where you're going to get shareholder advocacy, you're going to get proxy voting, all of those different like bells and whistles and all of those warm fuzzy stories about the impact that they've created because that's one of the things that they provide, is they tell us what they've achieved.
Caitlin So this number you're telling us to evaluate, it's where do we find it? And also what is it called? Again, it's not supposed to be point four. It can be point two, but not point one.
Kacie I know. I'm sorry. It's so, so confusing. Yeah. These are what we call the internal expenses when you are Googling or when you're looking at documents about a particular fund, you want to look for expense ratio. Or internal expenses. Sara, Can you think of other things they might be called?
Sara You might want to look for management fees, fund fees. I'm trying to think what Morningstar calls them. I think Morningstar calls them expense ratios.
Kacie Yeah. Expense ratios, general is the general term, but. But the metrics are basically the average right now for a fund that's like actively managed, which means the manager is buying and selling. I think the average price point is 0.75. So sometimes that's represented as 75 basis points because it's less than 1%. So they call it 75 basis points or 0.75 of 1%, whatever. A lot of the the Vanguard funds that are supposed to be like the low cost leader, though, are the Wal-Mart of mutual funds. Those are all like 0.04 or four basis points or 0.07. They're very, very, very cheap. Right. And then kind of that mid-tier that I'm talking about that I feel personally I feel is acceptable for a fund that's like doing special work is kind of that anywhere from point 2% up to like point 75, something like that. If you have a very special fund that's like seeking out health clinics in emerging market countries, like you're going to have to pay for that. It's going to be over 1%. But these are all like, it's all subjective.
Kacie Yes, I agree. Like and that's just across the board, whether you're talking about ESG or whatever, if you're looking for something specific where you're asking a fund manager to find a small subset of the investable universe and put it in a package for you, you're going to pay more for that.
Caitlin You guys is another way to think of it. Is the overhead for the fund?
Kacie Yeah, absolutely. It is the overhead and this is how it's represented.
Caitlin Okay. Because I think about that and who what charities, what nonprofit organizations to donate to, what's their overhead? How much is going to direct beneficiaries versus how much you know? And there's really specific ratios that you look for in terms of that. And so this is the way to apply it to the index funds that we would invest in.
Kacie Yeah, I'm going to steal that analogy because that's exactly what I needed was what's it called, like Charity Finder or, you know, one of those websites. Yeah, Yeah. Where they rank them and they tell you how efficient they are with your dollars. That's exactly what we're getting into. What's the overhead? And is that overhead spent on important things? You know, like, like Sara was saying, if you're searching for a needle in a haystack, it's going to cost money.
Caitlin Well in. It's the decisions we make all the time. As consumers. If you buy fast fashion and it's super cheap, like cheaper than it could be if they're paying their employees a living wage, you're getting it for cheap. But if you're investing in clothes that are by companies that are perhaps paying their employees a living wage, then you're spending more. But it's consciously you want to be spending more because that's part of the investment. And I think of this similarly that like, if I want to do that level investment, I'm willing to pay for it. I just want to make sure that it's going where I think it's going well.
Kacie Not only going where you think it's going, because I agree with you. I think a lot of us that are willing to do this kind of research, we're also okay with paying a little bit more for the people doing the research as long as their performance is there. And and I think that that's the extra component. So when you are looking at a fund that purports to be doing something good for the environment or for, you know, the the culture in general, that's all well and good. But one of the ways that you can tell if it is greenwashing is is the expense ratio where you think it should be for that type of fund. And how long is the track record, how long have they been in business and what's their returns compared to the most realistic benchmark? Benchmarks in general are all very common. So if it's a if it's a fund that's focusing on like, let's say, small companies, you want to see that benchmark being something like, you know, the Russell 2000, you know, or the Exxon.
Caitlin Never heard that before in my life. But okay.
Kacie Nothing that you can learn if it's internal if it's like. Our companies blend in fund huge red flag. Don't don't do that.
Caitlin This is the equivalent of saying my band is really big in Luxembourg.
Caitlin Like, like or like it's really.
Caitlin Big in Europe. And you find out that it's just like in a very small country.
Caitlin Named Liechtenstein, and.
Kacie They do great with females between the ages of 35 and 45 and Liechtenstein. And then you go there and it's just their mom.
Caitlin Okay.
Caitlin So who they say they're hanging with and like, it is important and it should be familiar benchmarks as your colleague milepost, not ones that are totally either not clear. So they're not being transparent or esoteric to a level that we wouldn't even have ever heard of it. That said, I had never heard of the Russell 4000.
Sara So 2000.
Kacie 2000. Yeah.
Kacie But basically if they are inventing their own benchmarks, like they're that's a red flag then like why, why are you doing that? Sometimes it's a legit reason, but. You know, as a as a retail investor or as an entry level person, just keep going. There's plenty of other fish in the sea.
Caitlin Okay. Now, Kacie, I'm excited about applying this, but I'm also nervous that like, oh, there's a bunch of factors here. I do have to be serious about looking into all these. Are there any you've mentioned that you like Morningstar because they aggregate a bunch of information about these. Are there any nice lady bloggers who are in this space or other other personalities or somebody that's like actively try? If you don't know of any, that's fine. We don't have to. But. But I'm curious if I there are so many smart people tracking this stuff that I'd like to take advantage of that and not reinvent the wheel like like I do for voting guides. You know, I don't always do all the, like, grassroots research for every single proposition I find people I trust whose views are substantiated. And I say like, okay, I'm going to go with them on this. Is there a version of that for the ESG space that you trust?
Kacie That's really interesting.
Caitlin Or should we invent it?
Sara Yeah, it's happening live.
Caitlin Kacie, you are the person. Welcome to your blog, Kacie. You know, I.
Kacie Gosh, it's tough because there are plenty of of media resources that you can find these answers in. And honestly, now that I say that, I would imagine that the same risks add up here with bloggers and other websites. But the concern would be sometimes people pay for good reviews. But, you know, you just have to have the same common sense you have with any kind of review. My favorite is Green Money Journal. That's what I subscribe to. And I think that it's very helpful, very useful. So I think those are good. I mean, that's that's the main one. Between that and Morningstar that I find helpful. And then. Kind of branching off from those different companies I mentioned that do this. The warm and fuzzy anecdote stories. I think those are always useful to simply because you can cross-reference them sometimes to see, okay, well, Calvert says that they do this and that. But what does Morningstar think about Calvert? Or if I'm looking at Parnassus Funds, which is another really, you know, focused on on the shareholder advocacy type company. What does what does it come up with if I Google their reviews on, you know, not only Morningstar, but let's say the the different MSCI blogs and stuff like that. So you can always kind of cross-reference some of the companies.
Caitlin Okay. So, Kacie, what I want to do is just trust everything that you're telling me. And I do also. But also we're telling, like our listeners to like we want to empower them to do their own research and to figure out for them. So the where I'm stuck now is how can I tell if an index fund is a good investment? You know, like what I understand the overhead that's like the entry level, like overhead, all that. But like, I don't the reason I have a vanguard Total stock market index fund is because I like I just have faith because Sara told me that like over time in the decades until I retire, that that based on past performance with no guarantee of future results, etc. again and again, that that's a good quote unquote good investment. How so? I'm going on faith. I know I should do the nitty gritty research, but the constraints of real life are going to just make me believe you, too, which I'm happy to do. And I but I'm privileged to be able to do like your people that I've known. Whatever. If I'm on my own desert island, there's wi fi, but no connection to either of you. And I have to choose between for green funds or ESG funds that all seem fine. What is the detail I'm looking at to see who who's going to have me in the mix of it for the next 40 years, along with the total stock index fund? Like not guaranteeing I'm getting bloody rich but isn't like they just don't have, you know, I might as well invest in my uncle's yacht. Like.
Sara I'm going to jump in here first. Caitlin, I didn't give and I'm going to give Kacie a minute to think about it. But I would say if you're on a desert island and you have narrowed it down to four funds that you are trying to choose from, I would look at just the summary page of that fund's prospectus and read the paragraph where they explain exactly how they invest and pick the one that is closest to what you're trying to achieve. And if you don't have time to do that, I think if you have if you've narrowed it down to four funds, just pick one and move on with your life. Okay? That would that would be planned.
Caitlin By some point. Okay. But wait, wait, wait. I'm not going to overthink it. But what I think my interpretation of what you just said is that I'm going with my values again and I'm talking about something other than my values. Now I'm getting into selfish, looking out for myself, part of it where I'm start. The starting point is I'll only look at ones whose values I agree with, but from there, who's going to perform? What do I look for to make sure that this is an actual wise investment, money wise, Like once I've narrowed down and what you're saying is, look under the hood, if it's Apple, whatever, if it's these companies that I recognize, then like it's hard for me to envision a world where they all go under. And so just like any index fund, I'll ride along. Okay. Is there anything else I should be looking for to make sure that I'll still be a player in the stock market?
Kacie Well, I would say that, yeah, If all of them have that summary description and they all meet what you're trying to achieve and you still want to narrow it down, then I would probably look at their performance metrics and unfortunately, slash fortunately, 2022 is a real stinker of a year. So you actually have a down market for the first time in about 15 years to compare like a significant down market. And of course, I'm not saying that your fund should have positive returns in this year, but they should be negative in a reasonable manner. You don't want them to be completely atypical compared to. With their peer group and or to their benchmark. Not only in this one year return, but skipped the three year and the five year like. Let's go out to the five and ten year and maybe even the inception. If it's if it's super long, what's the annualized average return? Is that something that matches what you're trying to achieve? If it's an all stock fund, is it close to 10%? If they've been around for more than ten years, it's probably going to be close to 10%. And if it is okay, well, then that's doing what you're trying to achieve. If it's a blended fund, well, what's the expected return of its peer group? Right. So there's there's different kind of like ranges of expected returns for given allocations. And and if they all are the same there then yeah just point and shoot like just.
Caitlin Okay but it's also what you gave me is also data information to use to delete if one of them is an outlier and is perform much worse than the others, then I delete that and I go with the others. Like they should all blend in together and then it doesn't really matter. Okay. Well. KC. Are there people that think if you invest in this ESG funds, you won't make as much money as if you invest in just like, quote unquote, normal mainstream index funds?
Kacie Of course there are. Yes.
Caitlin Right. I was expecting you to say like, yeah, you can earn almost as much like a but it's for a really good cause. So you should do it anyway. And you're have a very, I'm going to say, bullish confidence that these index funds are just up their players like everyone else. And you're not sacrificing your financial future by investing in them. And we're not propaganda. I just want to make it clear that that if that in fact is your perspective.
Kacie That is my personal perspective. And yes, it is not the view of any companies that I represent or anything like that. But yes, my personal investments for myself and my outlook on sustainable investments in general are that these are going to be profit leaders over the next generation because at the end of the day, all of these analysts and all of these fund managers who are reviewing these individual companies, they are not stupid and they are looking at these sustainability metrics as profit centers. If a company doesn't have to pay for labor disputes and doesn't have to pay for oil spills and doesn't have to pay because a teenager shot at the school using bullets that they bought illegally at their store, those are profit centers. And so this is just another fundamental metric that you can evaluate a company by the same way that you evaluate companies for their other things that analysts and fund managers are looking for. What's the p e ratio? What's the evidence? All of this stuff that we don't need to know. What it means is what the analysts and the researchers are looking for. And the sustainability metrics are the same thing. They're going to become more and more transparent. Right now they are all voluntarily reported by these companies, but the inflows into this portion of the investable universe are showing that people care. And so in analysts and managers are being, you know, assigned to this space, they are all swarming after the money. And the money has to be clean. Right? We have to be able to evaluate and and review these different holdings to make sure they're doing what we think they're going to do. And if they do those things, there's so much research about how diverse boards outperform companies that have parental leave policies, keep their workers. I mean, this is not rocket science. Like it just makes sense that you will be more profitable if you don't have huge employee turnover and you let people be on your board that have outside ideas like, come on.
Caitlin That is the clarity. I saw it.
Caitlin Thank you for doing so.
Kacie Excited about it. I get so excited about it because it is a future that I really believe in and I love that money, which is also something I love, can be used in a way that it achieves these kind of goals.
Kacie Right? And so it's no longer just like it's my conscious and I'm willing to sacrifice and it's like it's also a good financial investment because it's the future and it's like kind of the only option for the future to have sustainable industries and ones that value different perspectives and not just.
Kacie The traditional.
Kacie Anecdotes. Have we heard since COVID about companies that allow remote workers are retaining their employees during the great resignation of the last two years? How many times do you see tech companies out there on LinkedIn and Twitter saying, Hey, did your boss just tell you you have to go back to work? We're hiring. We're not going to say that. Like these are so simple and being caught up in old fashioned ideas about how you have to rape and pillage the planet to have achievable returns is just not the way.
Caitlin Yes, I agree with you. We're going to let Kacie go on. Just like Fiery.
Caitlin Said, It's going to do a lot. No, I don't want you.
Caitlin To cool down. Like this is it. This is what we and our collective voice with our dollars, especially those of us who have been, like, shut out of investing. Shut out is a very active like have not felt included or invited into the market and investing don't have the power that goes along with it. And I think we don't think of it as a way of like doing advocacy or the kind of activism that we want to do and the fact that we can A and B, that we'll be financially rewarded for doing so is like the best news ever.
Kacie Yeah. Caitlin That's a whole topic that I didn't even get into, but that is some research as well that those people that have not felt the impetus to join the stock market for whatever reason, because younger people and people who care about the environment and other metrics like that, those people care about activism. And if this is a way that they can be active, it's just another pressure point to move them into investing. And I certainly welcome them. But also if it makes the barrier to entry a little bit lower, if they are seeking out funds that align with their values, then it's A-plus. A-plus. I'm so excited.
Sara What's one thing you would advise women on the verge of a financial breakthrough to do today in this realm to help build her financial future?
Kacie Oh, gosh. The one thing that I would recommend a woman on the verge of a financial breakthrough to do is have a good heart. Think about what is the most important thing to her. Because if she is thinking, I like the idea of socially conscious in general, it can get really muddy and it can get really easy to get caught in a loop. So you have to refine what you care about and what where you want your dollars to go.
Caitlin An example would be, as you said, clean water, environmental sustainability, something like that. And that lead and.
Kacie Okay. Yeah. Like, personally, I have some clean water funds. I have some funds that are focused on technology breakthroughs that will use less energy, you know, things along those lines. Whatever is important to individuals.
Sara That's awesome.
Sara Thank you so much, Kacie.
Caitlin Thank you, Kacie. Thank you.
Kacie Guys. Thanks for putting up with my overenthusiastic commentary about the future of investing.
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Caitlin Hey, before we go, thank you so much to Kelly West, who co-produced and edited this episode.
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Sara If your partner is making you ask for money, giving you an allowance are not letting you know about family income. This could be economic abuse.
Sara Learn more at thehotline.org, or call one 800 799 safe.
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Sara This podcast contains general information that is not suitable for everyone. The information contained herein should not be construed as personalized investment advice. Past performance is no guarantee of future results. There is no guarantee that the views and opinions expressed in this podcast will come to pass. Investing in the stock market involves gains and losses and may not be suitable for all investors. Information presented herein is subject to change without notice and should not be considered as a solicitation to buy or sell any security.