The existential angst facing investors

Investing with purpose – the why and the how

We all feel somewhat lost at times and sometimes an existential crisis ambushes us, seemingly from nowhere. To be fair, existential crises do sometimes coincide with big life events or significant birthdays. Turning 30, 50 or 60 doesn’t get less intimidating; navigating a baffling array of study fields; facing a career-crossroads; facing setbacks and learning to thrive despite them are all daunting experiences. Is it any wonder that our heads are spinning? 

Reducing the pressure associated with investing
Can we not simplify purpose in at least one area of our lives? Can we release some of the anxiety associated with investing? IS there a clear answer as to why and how we invest our hard-earned money? As an economist, I would respond “Yes, on the one hand. However, the answer is no”. Depending on where you are in life, there are often multiple goals to consider when structuring your investment portfolio. The objectives and needs of a professional starting out in an industry differ from those of a working parent, which differ from those of a retiree. However there is a common understanding for each life stage that the purpose of an investment portfolio is to deliver financial returns. 

When viewed through a broader lens,  which considers both our intergenerational and intragenerational impact, we can no longer afford to focus solely on financial returns. And we become acutely aware that our decisions have a knock-on impact. We are not alone in this, after all. I won’t go into the list of societal issues or environmental disasters that can and have resulted from a narrow-minded focus on monetary gains. However, I will point out that, as modern investors, we have the ability and, one hopes, the desire to shape a different future. It sounds somewhat trite, but we need to “do good, while doing well”. 

Purpose driven portfolios
Our purpose-driven investment portfolios can serve multiple objectives. They can speak to our nuanced understanding and lived experience of what society, the environment and our communities need. We seldom speak about it, but the concept of altruistic self-interest is quite fitting. 
For example, if you help your neighbour with his website so that he can generate more revenue, that is altruism. However, given that (a) it gave us feel good and (b) it might mean that your neighbour can buy his own sugar instead of borrowing from you, there was definitely an element of self-interest involved. By now, we should all be on the same page when it comes to the importance of purposeful investing and hopefully some of our investment anxiety has subsided.

A simplified approach to purposeful investing
Nonetheless, this duality, this balance between altruism and self-interest, this imperative to “do good, while doing well” can seem daunting. Let us turn to the how. There is no blueprint, but there are guidelines. It could be as simple as (an individual) allocating a portion of investment returns to a Trust, NGO or NPO which serves a purpose which resonates with them. Far more effective, however, would be to invest with an asset manager who supports initiatives which speak to your purpose. As investors/asset allocators, engage with asset managers on ESG and CSI (Environmental, Social Governance and Community Spending Initiatives), selecting managers who can simultaneously fulfil financial expectations and needs. This speaks to a thorough, well-structured manager selection process. In terms of asset allocation and portfolio construction, think about whether a combination of higher-yielding investments and more purpose-oriented investments can still deliver the desired financial and societal return.

A well-diversified portfolio therefore not only makes sense from a risk and return perspective, but it also allows investors or asset allocators to target specific impact objectives. This may include: 

• Allocations to non-traditional asset classes, including real assets or private markets. 

• Be adaptable enough to take advantage of new opportunities as and when they arise. 

• Assess whether investment timelines are realistic and reflective of investment needs, and reconsider how to structure portfolios with an appropriate time horizon. 

In a society which tends to have a short attention span (fast food, fast fashion, bite-sized news-snippets), we are sometimes blinded by short-run volatility or blind to the long-run pay-off. It may be appropriate to be invested in an asset class which will “plod along” at first, but deliver excellent financial returns over the long-term, and in a way that aligns with investors’ purpose. 

This may still seem like a tall order. Remember that we are not in this alone. Much of the angst around the ‘how’ can be shifted to the shoulders of a multi-manager with the requisite manager selection and asset allocation skills, the ability and agility to identify drivers of returns and manage risks, and the foresight to look beyond the traditional and the long-term investment view.