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Investors Want More Than Returns

SoudersInvesting is more than just making money. Making money may be the end result, but when we consider who we are in relation to our wealth, what it means to us and why we are investing, it becomes much more. As Vincent Van Gogh has been quoted, “Let’s not forget that the little emotions are the captains of our lives and we obey them without realizing them.” A successful investment program is guided by goals, values and purpose.

There are emotions in which most investors are unaware, yet they have a big impact on whether they are happy with their investment management program or not. In the 2011 book, “What Investors Really Want,” Meir Statman, its author and noted behavioral finance expert, found that investors derive three kinds of benefits from their investment. These are utilitarian, expressive and emotional.

Most investors are familiar with the utilitarian benefits of investing. In short, these are the returns the investors receive. This aspect of investing often focuses on identifying each investor’s goals and tolerance for risk and creating an investment program that is appropriate for both.

Expressive benefits from investing focus on how investors want to express their values and other aspects of who they are as people through their investments. This may not be a conscious need by the investors, but is important to identify and include the process of creating an individual’s investment program.

And the emotional benefits for investors focus on how their investments make them feel. This can be a specific company, industry or other classification, like the impact a company has on the environment, its employees, and the communities in which it operates. These emotional “pulls,” whether conscious or not, need to be determined for each investor.

Most investors do not fully understand all aspects of the utilitarian, expressive and emotional benefits that reflect who they are while taking into account their investment goals. However, this is vital information that guides an individual investment program and informs decisions with long-term consequences.

For example, understanding the source of an investor’s wealth plays a role in shaping what their money means to them and their view of themselves. The “purpose” of an investor’s wealth accounts not only for their goals, but includes their values and desired impact of their investment program. Investors must also consider their own emotional reactions to market extremes and how that might influence their behavior.

More and more investors are becoming interested in sustainable investing as they begin to consider how their own values are reflected by the broader impact of their investments. This is evident in the immediate and often catastrophic share value decline of a company that hits the headlines for irresponsible behavior. Additionally, today, $6.57 trillion invested has integrated an environmental, social or governance criteria, double from what it was in 2012.

“Sustainable, Responsible, Impact (SRI) investing has evolved dramatically over the past 25 years,” said Steve Schueth, the president of First Affirmative Financial Network, an SRI investment firm in Colorado. Schueth explained, “What used to be a limited set of avoidance criteria has become a robust data driven process aimed at identifying and investing in the most responsible corporate citizens.”

Investors who have a connection to their investments through their personal values or emotions are less likely to fall into a “greed and fear” trap. When people who have investment programs that fully reflect who they are as people, they are more likely to stick with those programs. These investors are better able to avoid Ill-timed investment decisions, such as selling out after a sharp market decline or buying into rapidly rising markets. Investing is much more than money, it shapes our lives and the world around us.

By Eric Souders

Eric Souders AWMA, is an independent advisor at Ascendant Financial Solutions. Find his video series “What’s Up With The Economy?” on YouTube. Securities offered through Geneos Wealth Management, Inc. Member FINRA/SIPC. Advisory services offered through Geneos Wealth Management, Inc. and Ascendant Financial Solutions.

 

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