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Responsible investing – a financial adviser’s view

HL financial adviser, Steve Nowosad, gives his view on responsible investing.

Important notes

This article isn’t personal advice. If you’re not sure whether an investment is right for you please seek advice. If you choose to invest the value of your investment will rise and fall, so you could get back less than you put in.

This article is more than 6 months old

It was correct at the time of publishing. Our views and any references to tax, investment and pension rules may have changed since then.

As investors we’re becoming more and more aware of our actions and the consequences they have on our planet.

Responsible investing is growing in popularity and it’s become easier than ever. With so much choice, there are lots of ways of going about it.

Some like to avoid certain industries that they deem unethical like arms, alcohol, tobacco, fossil fuels, gambling, pharmaceuticals, and animal testing. Others like to take a more positive approach and look for companies operating in a more sustainable, responsible and ethical manner.

How and what you invest in will depend on your experience and the level of responsibility you’d like to take.

If you’re a more seasoned investor and happy to make your own choices, you might be more comfortable buying shares. They will give you the most control over what you’re investing in, remember though investing in individual shares is a higher risk approach and you’ll need to keep a close eye on the companies you choose to buy in case they change over time.

For lots of investors buying shares can be daunting and time consuming, so they choose to invest in funds instead. This gives investors a degree of ongoing management and makes diversifying in lots of different areas easier.

As the ongoing decisions within a fund are made by the manager(s), you don’t have as much control as you do with holding direct shares. So, it’s important to only invest in funds where you agree with the criteria being used to select the investments.

Every fund will have a mandate set out to explain what it aims to achieve and the parameters within which it can invest. Some funds will screen out certain areas that ethically minded investors don’t want to invest in. It’s then for you to decide if that approach mirrors your personal views.

Other funds will positively identify companies which meet their selection criteria and operate in a sustainable, environmentally friendly fashion.

How to build a responsible investment portfolio

This article is not personal advice. All investment can rise as well as fall in value, so you could get back less than you invest. If you’re not sure if an investment is right for you, please seek advice.

The art of compromise

In practice, you might find it difficult to match your own personal views exactly. It’s likely that you might even need to compromise on having some smaller weightings to investments you might not entirely agree with.

It’s important to understand the side effects of investing entirely into ethically biased investments. By the very nature of focussing on a more select group of companies you’re excluding investment into certain areas. Narrowing down your investments can increase the level of risk because there’s less diversification.

A balanced portfolio

While you might want to do your part to help the environment, investors should be mindful of their own need for returns to meet their objectives.

It’s of course possible to blend a portfolio of responsible funds with a range of funds that aren’t specifically designed in the same way. You can still look at the factsheet of other funds to check how big or small the weighting to certain key areas is. This can help decide if it’s something you’re happy to include as part of the bigger picture.

In summary, there’s no right or wrong answer. Responsible investing involves a wide variety of personal viewpoints. Investors should take their time working out what they’re comfortable with, read up on a number of potential investments and then make choices from an informed position.

The number of responsible funds is continually increasing and we’ve selected a few as part of the Wealth Shortlist which could help you get started.

If you’d like an extra hand to help you reach your goals, you’re in the right place. While we won’t give advice on individual shares, my colleagues and I are dedicated to helping clients achieve peace of mind with their investments and financial plans.

It starts with a quick call with our advisory helpdesk to help you find out more about our service. If it looks like taking advice is right for you, we’ll book your free initial consultation with me or one of our other financial advisers. We’ll discuss your options with no pressure to take advice and no charge. If, having heard what advice can offer, you decide to go ahead there will be a charge which will be discussed with you.

To get started, give our advisory helpdesk a call on 0117 317 1690 or book in a call at a time to suit you.

Book your call back

Important notes

This article isn’t personal advice. If you’re not sure whether an investment is right for you please seek advice. If you choose to invest the value of your investment will rise and fall, so you could get back less than you put in.

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