By Steve Doster
If you find yourself with a large cash balance right now, rather than simply holding onto it, there are ways to use this money positively. Charitable donations and ESG investments are great means of ensuring your cash does good for both you and the world. Numerous charities are in dire need of help. If you can give, please don’t delay! Of course, you need to keep money for your own living expenses, and you will also want to set some aside for your future. Cash for long-term goals like retirement can be invested in mutual funds that help the world with climate change, diversity in the workplace and sustainable operations.
There are many situations that could result in you holding onto a lot of cash right now. Inheritance, home sale and vested stock options are just a few examples of how you may find yourself with a large bank balance. With the uncertainty that has come along with the COVID-19 pandemic and so many people losing their jobs, it is difficult to know what to do if you find yourself in this position.
My first recommendation is to give some of it away. Nonprofits are being stretched beyond their limits. They need all the financial help possible. Charitable giving is a personal choice. The nonprofits you give to will be based on your own passions and causes that you care for most deeply. You can choose the right nonprofits that align with your values and beliefs, but please consider donating some of your excess cash.
Money required for your own long-term goals like retirement should be invested in a diversified portfolio. Even with the uncertainty in the world, money invested now will grow and outpace inflation over the long-term. The risk of not investing is that cash will not earn more than inflation. This erodes the buying power of your money.
There is an impactful way to invest that helps the world and our communities; it is known as ESG investing. ESG stands for environmental, social and governance. These three categories have several measurable factors to determine a company’s commitment to sustainability. ESG investing combines traditional investment analysis with these three factors to identify the companies that are forward-thinking on sustainability issues and better positioned to thrive in our changing world.
Companies rank high in these ESG factors when they perform common sense actions like reducing greenhouse gas emissions, enforcing nondiscrimination policies, employing a diverse workforce, linking executive compensation to long-term results instead of destructive short-term results, using sustainable manufacturing processes and utilizing renewable energy.
For investors using an ESG approach, there are benefits in addition to doing good with your money. Research from Morningstar and MSCI found that mutual funds using ESG factors performed equally as well as non-ESG funds. Additionally, those funds with an ESG tilt had lower volatility over time. This means less of a rollercoaster ride through different market cycles. Recent data is showing that ESG focused mutual funds held up better than non-ESG funds during the most recent downturn.
The more people who use their money to invest in companies that operate under the ESG standard, the more other companies will be forced to adopt ESG methods to receive investors’ money. And the more companies that adopt these sustainable practices, the more expansive change occurs.
If you are holding onto cash, take action and use your money to create the change you desire. Donate to charities and invest in ESG funds.
Steve Doster, CFP® is the financial planning manager at Rowling & Associates – a fee-only wealth management and CPA firm helping individuals create a worry-free financial life. Rowling & Associates works to a fiduciary standard of care helping people with their taxes, investments, and financial planning. Read more articles at www.rowling.com/blog.