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How Can I Create a Sustainable Investment Portfolio?

Many people have a negative attitude toward investing money. The reason is that there are so many companies that do not bring good into the world.

However, investing is one of the most profound things in nature. Every plant invests energy into creating seeds out of which grow more of its sort. A lot more energy, water, and care must be invested in growing the seed until it becomes a healthy plant by itself.

Investment is growth. Without your parents investing time, money, and love in you, you wouldn’t be here.

Before we dive into investing money, I first want you to get rid, once and for all, of all your negative connotations about investing in general.

Good investments are sustainable.

What’s the definition of sustainability?

Sustainability is the ability to exist constantly. […] The 2005 World Summit on Social Development identified sustainable development goals, such as economic development, social development, and environmental protection.

Wikipedia

So there are three dimensions to sustainability:

  • Economic
  • Social
  • Environmental

A sustainable investment, therefore, would be economic, socially responsible, and environmental (or ecological).

How to build a sustainable investment portfolio?

Be Economic!

Don’t buy individual stocks from solar companies! This is the stupidest thing you can do according to plenty of research. First of all, your investment has to be economic. Don’t forget this. The solar company may be social to its employees and good for the environment, but it may not make a lot of sense economically.

Even if you were a professional who had plenty of time to invest in studying companies day in and day out, you won’t beat the market consistently! There’s plenty of research suggesting that most active fund managers who select individual stocks underperform the market.

So if you simply buy and hold a low-cost passive index fund or ETF (Wiki), you would beat most professional investors! Guaranteed!

So to be economic, you need to buy the whole index. Everything else is stupid for 99.999% of the people (and you).

Be Socially Responsible and Protect the Environment

We already know that you should buy low-cost passive index funds. Now, if you bought the whole market (e.g. the S&P500), you would end up owning tobacco and weapon companies, or silver mines which heavily exploit their workers.

Fortunately, you can restrict these large stock indices to only include companies which have above-average social and ecological scores. There are many different ways but a reasonable choice that is not too restrictive is the MSCI World Socially Responsible Investment Index. The index consists of the 392 most sustainable companies all over the world. It is built from the universe of the MSCI World index which consists of 1650 companies. So only one out of four companies is included in the sustainability index.

The fact that the index still has 392 companies means that you are reasonably diversified—your success does not depend on a single companies performance.

If I were you, I’d consider investing my stock percentage of my overall portfolio (e.g. 50% of all the money you intend to invest) into a low-cost Exchange-Traded Fund (ETF). Just google “MSCI World SRI ETF” and you’ll find plenty of interesting investment products that can be considered as “sustainable investments”.

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