Women prefer value-based investing. Here’s how it affects their wealth

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Women prefer to invest in a way that helps the environment and does social good, several studies have found. Such value-based investments can help increase women’s overall enthusiasm for investing and increase long-term wealth, according to financial experts.

About 52% of women prefer to invest in companies that have a positive social or environmental impact, according to a recent survey by Cerulli Associates. This is true for 44% of men.

While not a huge gap, an eight percent difference is “significant,” according to Scott Smith, who leads Cerulli’s research on investor behavior. And the disparity largely remains when comparing women and men in different age and wealth groups, he added.

The trend exists beyond the borders of the US. Some 43% of women (vs. 34% of men) think a company’s stance on social or environmental issues is “very important” when deciding whether to invest, according to S&P Global, which surveyed investors in 11 countries, including the U.S. -in.

“Almost every new client I take on wants to invest with their values ​​in mind,” said Cathy Curtis, an Oakland, Calif.-based certified financial planner whose clients are mostly women.

“And if they haven’t done it before, they’re asking me to do it now,” added Curtis, founder and CEO of Curtis Financial Planning and a member of the CNBC Advisory Council.

ESG funds

Investment funds that use so-called environmental, social and governance principles have grown in popularity in recent years. These investments (also known as “sustainable” funds) may invest in firms focused on renewable energy or that promote racial and gender diversity, for example.

Investors pumped a record $70 billion into ESG funds last year — 14 times the amount just three years ago, according to Jon Hale, director of sustainability research for the Americas at Sustainalytics, which is owned by Morningstar.

There were three times more ESG mutual and exchange-traded funds in 2021 than five years ago, holding more than $350 billion in total, he said.

Women are more interested in investing in companies that: pay workers a fair or living wage; are leaders in environmentally responsible practices; and that do not sell “objectionable” products such as tobacco and firearms, respectively, according to Cerulli. (Men have the same top three ESG preferences.)

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“It’s more of an emotional thing with women,” Curtis said of their ESG inclination. “It’s absolutely because they don’t want to invest in things they see as damaging to the environment [or] harming women’s causes.

“They really care about those things.”

Meanwhile, women tend to invest less often than men in general: About 48% currently have money in the stock market versus 66% of men, for example, according to a recent NerdWallet survey. This is despite the fact that female investors tend to be better long-term investors than their male counterparts.

The typical female-headed household also has less wealth: about 55 cents for every dollar of wealth held by the typical male-headed household, according to the Federal Reserve Bank of St. Louis. Among family retirement accounts, the typical woman has saved $28,000, less than half the $69,000 reported by men, according to the Transamerica Center for Retirement Research.

However, ESG enthusiasm among women has the potential to make them more enthusiastic about investing in general, which could be beneficial for long-term wealth creation, experts said.

“It definitely gets them more involved because they care about it [ESG] discussion,” Curtis said. “They don’t care how big-cap the US is and how many international and emerging markets they have. [in their portfolios].”

Investment returns

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In fact, women’s values ​​tend to outweigh considerations about investment returns, Curtis added.

Among all individual investors, 70% believe that sustainable investing means a financial trade-off – an increase from 64% in 2019, according to the Morgan Stanley Institute for Sustainable Investment. The percentage is higher (83%) among millennials compared to older age groups.

However, the data does not appear to support this “myth,” according to Morgan Stanley.

About 74% of stable funds ranked in the top half of their respective investment categories in the past five years, according to Morningstar. In other words, ESG fund investors tend not to sacrifice performance for their values. (Of course, ESG funds don’t necessarily always outperform. Many have had a rough 2022, for example, largely because of tech sector exposure, experts said.)

“For investors and advisors who have been hesitant to invest in stable funds because they have the impression that such funds as a group chronically underperform, [2021] it’s further evidence that that’s not true — as the last five years have been,” Hale said.

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