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Investing Blog Roundup: The Impact of Impact Investing

A recent paper from Jonathan Berk and Jules H. van Binsbergen took a look at “The Impact of Impact Investing” (a.k.a. ESG investing or socially responsible investing).

Their conclusion:

“We conclude that at current levels impact investing is unlikely to have a large impact on the long-term cost of capital of targeted firms. A substantial increase in the amount of socially conscious capital is required for the strategy to affect corporate policy. [Mike’s note: elsewhere in the paper, they estimate that in order to cause a 1% change in the cost of capital, impact investors would need to control more than 80% of all investable wealth.] Given the current levels of socially conscious capital, a more effective strategy to put that capital to use is to follow a policy of engagement. By purchasing the stock in targeted companies rather than selling the stock, socially conscious investors could potentially have greater impact by exercising their rights of control through the proxy process or by gaining a majority stake and replacing upper management.”

This is the case I have been making for years. But from a purely financial point of view, it’s clear that investing in broadly diversified low-cost mutual funds (rather than buying a handful of individual stocks) is the best decision. And unfortunately when we invest via mutual funds, we give up our voting rights in the underlying shares. The fund company gets to vote those shares instead (or not vote them).

Nearly 20 years ago (December 2002) Jack Bogle argued to the SEC that mutual fund shareholders should have a right to know how fund managers vote the fund’s shares. Unfortunately, the availability of such information is still quite limited.

Other Recommended Reading

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Investing Blog Roundup: How Do Household Finances Change After Children Leave?

I hope that you enjoyed your holiday season. I’m looking forward to 2022, and I hope you are as well.

Recommended Reading

As always, thanks for reading!

Investing Blog Roundup: Happy New Year

I hope that 2021 has treated you well.

As for me, it was on the whole a good year, working with individual clients again for the first time in many years, enjoying a number of climbing adventures with friends, and sincerely appreciating the ability to safely spend more time with friends and family, relative to 2020.

As always, thank you for reading, and I wish you the best for 2022!

Other Recommended Reading

Investing Blog Roundup: Advice-Only Financial Planning

A 2020 Kitces Research survey found that roughly 70% of advisors charge based on assets under management. For many people — especially people with a history of taking a DIY approach to personal finance — that’s a deal breaker. Despite recognizing the value of getting advice from a professional at various points in time, they’re uninterested in paying an ongoing fee.

The result: a growing sub-field of “advice-only” financial planning.

Other Recommended Reading

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Investing Blog Roundup: Tax Provisions in the Build Back Better Act

I hope you enjoyed the Thanksgiving holiday.

The House recently passed the Build Back Better Act, which includes a range of individual income tax changes. It is not, however, a sure bet that the same will actually pass in the Senate and become law.

As far as the version passed in the House, it does include a provision that prohibits Roth conversions of after-tax amounts after 2021, which would effectively end “backdoor” Roth strategies.

Recommended Reading

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Investing Blog Roundup: Are Digital “Nudges” Investment Recommendations?

Smartphone applications (and even traditional websites) are generally built with user psychology in mind: what do we want the user to do with our application, and how do we design the application in such a way that encourages the user to do that? For example, Facebook, Instagram, etc, are built to be as addictive as possible — to get you to interact with as many things on the site/app as possible, to continue using it as long as possible, and to get you to use it as often as possible.

What about brokerage apps/websites? If they’re designed in such a way to increase the likelihood that you’ll make a particular financial decision (e.g., trading more often or buying a particular security), at what point does that cross over into the realm of being a “recommendation” — subject to the regulation that would come with investment recommendations from a broker-dealer?

Recommended Reading

Thanks for reading!

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