Category Archives: Finance

Socially Responsible Investing

You probably consider yourself to be a pretty values-driven person.

Maybe you’re rigid about recycling, always support your local firefighters, volunteer at the soup kitchen during the holidays, and try to donate a pint of blood to the Red Cross.

What you get in return is the feeling that you’ve done your part to make the world a little bit of a better place.

But what if you could give—and get back? Watch your money make a difference and give yourself an opportunity to build a nest egg?

Enter socially responsible investing, or SRI.

At its core, it’s when you weigh both social impact and financial return while choosing investments for your portfolio—and it’s become an increasingly popular way for people to invest in causes they believe in.

In 2013, $6.57 trillion in assets under management were devoted to socially responsible investing—an increase of 76% since 2012, according to the Forum for Sustainable and Responsible Investment in the U.S., or US SIF.

Nancy Somers, a Minneapolis–based life coach, began shifting parts of her portfolio about a decade ago into more SRI-oriented investments because “it’s important to me [to know] where my money is going and what it’s doing in the world,” she says. Somers invests in a mutual fund that tracks socially responsible companies, as well as bonds and other micro-lending vehicles that enable her to provide financing for people living in poverty.

“I researched a lot and found the funds that I felt were doing what I wanted [them] to do,” she says, noting that she’s owned her mutual fund for five years and has been very pleased with its performance. And her microfinance efforts “have enabled me to do one-on-one lending—I’ve gotten a lot of satisfaction out of it [and have been able to] support many people.”

Interested in putting your own money where your values are? We delve into four of the most common ways to get started with SRI, so that doing good goes from just being a warm and fuzzy feeling to something you can take to the bank.

Know Investor Optimism Hits

The Great Recession left some deep scars in the American consciousness, like a fear of overspending and an understandable wariness of the stock market. But slowly, surely, we’re regaining confidence, and new research shows that investor optimism is at a seven-year high.

According to the Wells Fargo/Gallup Investor and Retirement Optimism Index, 56% of investors say that now is a good time to invest. Compare that to 2012, when the majority said it was not an opportune time to put their money in the market. Meanwhile, slightly less than half of investors rate the financial markets as an “excellent” or “good” way to grow their assets, up from 37% just one year ago.

That confidence translates to actual investing behavior, too: As many as 78% of Americans polled currently own stocks.

This is all very promising, but there’s a discrepancy. While investors are more willing to plunk money into the stock market, they’re not as focused on planning for retirement: Although 96% of survey respondents with access to a 401(k) said they’re contributing to the plan, only about one-third have upped their retirement savings in the last year.

More than two-thirds of investors readily admit they could be saving more for retirement—so what’s stopping them? While the problem may be partly psychological, practical factors seem to be getting in the way as well. Respondents say they believe Americans have trouble setting aside ample funds for retirement because they’re struggling to keep up with daily expenses.

Other folks may be relying on Social Security—more than half said they would save more if they were certain they wouldn’t receive Social Security payments upon retirement. (Counting on government support is likely a mistake: Experts say there will soon be insufficient funds left to pay future retirees.)

Know More About Economic Crystal Ball

Expect the unexpected” might as well have been the economic mantra for 2014.

It was the year of a record-setting stock market rally, plummeting oil prices, increasing employer confidence and a strengthening U.S. economy that outpaced analysts’ expectations.

While these factors are fueling investor optimism going into the New Year, can we expect more of the same—or will the economy throw us some curveballs?

While we can’t throw out any 2015 stock market predictions, we can make some educated guesses on what lies ahead on the financial landscape by picking the brains of some of the country’s top economists.

So we asked three well-known market watchers—Bernard Baumohl, chief global economist for The Economic Outlook Group; Francisco Torralba, an economist at Morningstar; and Steve Cochrane, an economist and managing director at Moody’s Analytics—to weigh in on the top trends they believe could impact portfolios in the coming year.

Trend #1: The bull market isn’t over—but it may be weaker.

2014 was the third straight year the S&P 500 scored double-digit gains, ending the year up 11.4%. The tech-heavy Nasdaq was up 13.4%. And although the Dow Jones Industrial Average slid in December, it still recorded its sixth straight year of gains.

Despite a volatile January start, all three analysts believe that stocks will continue their solid gains as the U.S. economy continues to strengthen.

“Rarely have we seen such an alignment of positive economic factors in the U.S.—low inflation, low interest rates, lowering gas prices, rising employment and improving confidence by business leaders,” Baumohl says.

But don’t expect a rally as robust as last year’s. Single-digit percentages are more likely, he adds, predicting something close to 7% for the S&P and 9% for the Nasdaq by the end of the year.

The Federal Reserve, however, will have a big impact on how the markets fare. If the Fed raises rates in a sudden spike, Cochrane says, the economy could experience some sudden turmoil.

Financial Safety Net

The saying “living on the edge” can be thrilling when it applies to a spontaneous trip or a bold career move.

Yet for a growing number of Americans, it means the sobering reality of living on the financial edge. According to a recent Bankrate.com survey, 29% of respondents don’t have any money set aside to cover an emergency expense—an uptick from 26% last year.

In fact, even as the economy and job growth improve, America’s savings rate has reached its lowest point in five years. Only one in five responded that they have enough saved to last for three months or less. Another 22% said that their emergency funds could tide them over for six months, the time period financial planners recommend.

“These results are further evidence that Americans remain woefully under-saved for unplanned expenses,” said Greg McBride, Bankrate’s chief financial analyst, in a statement. “And rather than progressing, [Americans] are moving in the wrong direction.”

Despite this lack of financial preparedness, Americans are still generally hopeful about their economic outlook. Bankrate’s Financial Security Index has surged in the past year with a 13-month high as of February 2015. The optimism isn’t altogether surprising, considering the economy 280,000 jobs last month. Still, the modest 2.3% increase in wages from April 2014 to April 2015 hasn’t been enough to help some Americans make ends meet.

A separate survey from Capital One Bank found one in four people struggle to keep up with monthly bills and don’t have much left over to save. Another one in 10 admit to regularly spending more than they earn.

Despite the bleak savings outlook, people are generally aware of the need to sock away more, with more than half of Americans reporting that they feel happier when they save.

Need to boost your own emergency savings? A good starting point is to organize your budget using a one-number strategy, which prioritizes paying off fixed costs, non-monthly expenses and funding your savings goals, then using the leftover flex amount to spend guilt-free.

Money Gets in the Way of Major Life Decisions

A new survey from the American Institute of CPAs finds that 51% of Americans have delayed a significant decision because of financial anxiety—a huge uptick from the pre-recession stat of 31% in 2007.

Of these delayed milestones, higher education was most frequently postponed, with 24% of people putting off college due to financial concerns.

Another 22% held off buying a home in the past year, while 19% decided to forgo an expensive medical procedure and 18% deferred their retirement plans. Even family life was affected, with 12% making the decision not to move ahead with marriage plans.

Lack of savings is the primary culprit (cited by 60% of respondents), followed by concerns about the U.S. economy, difficulty paying bills, a need to care for parents or other relatives, and concerns about paying down credit card debt.

Ernie Almonte, the chair of the AICPA’s National CPA Financial Literacy Commission, believes the recession also taught hard lessons.

“When you peel the onion back, you start to see that what they have experienced—their parents, friends losing their homes or jobs, or people in so much debt they file for bankruptcy—stuck with them,” he tells MarketWatch. “People are looking at things now and saying ‘I don’t have enough savings for that’ or ‘I will put it off for a year or two until I’m financially stable.’”

This increased caution may still pay off in the long term: the vast majority (85%) of respondents reported having made positive changes to their financial behavior since the recession, such as following a monthly budget, increasing savings rate and adding to an emergency fund.