Updated: Sep 17, 2021
Recently, I was asked, “what is your position on investing in environmentally or socially friendly companies?”. I suppose this question can be further expanded to, “what is your opinion on investing in the crypto-currency markets?”, or any other new fad or technology that comes up with a hint of FOMO or HYPE? Well, as a passive, index-tracking, relatively low risk investor, I have to separate my opinions on these things from the current realities to answer this question. We have all been inundated in the media, by politicians, and with marketing schemes that suggest “the earth is on fire, the oceans are dying, global plagues (zombies) are coming, money is worthless, and the world has lost it’s humanity”. There are all kinds of movements and new products being offered to solve (or exacerbate) these problems. From carbon-reduction initiatives being forced on populations to dolphin-free tuna to supplements that reverse illnesses to cryto-currencies, the markets and capitalism always seems to win, and any big challenges for the markets are simply new opportunities to make money in disguise.
First my opinion. The world and markets are changing (constantly). People, particularly the younger generations, are starting to expect bigger and more meaningful change from their governments and corporations. They realize their votes and wallets matter and they are getting involved. They realize their money has it’s own voice, and they are getting increasingly choosier how they spend it. They are having a harder time getting ahead in life due to growing inflation, and they are being increasingly exposed to the erosion of humanity and destruction of the environment by past atrocities and the past generations omissions to correct them. Older generations didn’t realize or experience these problems and/or chose to ignore them over the years, and the newer generations will now have to endure them for longer and perhaps to a greater extent in their lives before reversals are made. The newer generations are expecting corporations and governments to take accountability now, and address these problems. Today, many sovereign currencies and precious metals are becoming questionable as a store of value, and cryptos have filled a gap, particularily in countries where money has lost significant value and economies are struggling to dig themselves out of debt. All these changes are going to come and, in reality, have started already and are picking up momentum. The shift in all these areas will happen in it’s own time and at it’s own scale. I don’t doubt this shift will happen, it has already started, and I believe that it needs to happen for the benefit of everyone on earth and the future generations to come.
Now the reality. As a passive investor with investments in global, index-tracking ETFs, am I going to rush out and buy into new companies or asset classes that hold strictly socially- conscious shares, environmentally-conscious shares, or crypto-currencies? Absolutely not! In reality, the quality companies held inside any global, index-tracking ETF are already making plans and/or are underway towards these shifts and changes. And if they are not, they risk losing market share and/or market capitalization in the future. There is no need for me to make drastic changes or take on more risk as a retiree, as these changes will happen naturally and in time within the companies already making up the stock market indices. These companies did not get become great companies and part of these ETFs by sitting on their thumbs while world change was happening. They anticpate change and are proactive. When crypto gains a foothold in the index as a cash-equivalent or as a product within the banks, …. that is when I will hold it. When a new-fangled company grows and gains a foothold in the indices that is when I will hold it. It will happen matter-of-fact within these index-tracking ETFs and without intervention on my part. I will hold these assets when the ETF Manager decides they should become part of the index-tracking ETF mix I already hold. There are much smarter people than me managing these ETFs, and when they feel crypto or other company shares will add value while delivering the risk I expect, they will be added. In all likelihood, they are already there because the companies in the indices have made changes or taken a stake in some form or another. That’s the joy of these ETFs, they do not require excessive thought or adjustments on your part. They already hold hundreds or even thousands of quality stocks and bonds that are meant track the indices. You only need to look into the holdings in an all-in ETF like VBAL or VGRO or VRIF from Vanguard or similar ETFs to see that you cannot buy this kind of diversification and simplicity on your own without a ton of work and ongoing oversight.
Lots of people have gotten rich by chasing new market offerings, and an equal amount, if not more, have become poorer. These new offerings are generally high-risk, high-volatility investments with short investment horizons. In their infancies, they are subject to many market factors and challenges including regulation, trust, cash-flow, etc. If you are playing this game, my only advice is not to put all your eggs in one basket, ESPECIALLY AS A RETIREE! Bitcoin, for example, has seen a 323% increase in the last year, a -19% loss in last 6 months, and a 5% gain in last month. Does this return seem predicatable to you? Bitcoin is as predictable as it is to predict when people will want or need to take their money out for the next purchase or fad, or when they will decide to put their money back in. Etherium has similar story and new competition is emerging regulary. Who knows who the winners will be? Marijuana stocks are another example. The frenzy built early when marijuana was legalized in Canada after Trudeau was elected, some companies did well, others failed horribly over time. You are taking some chances with new companies and new market offerings. That is just not the way of quality index-tracking ETFs.