$51,345.01 | ESG investing is the future

I read an article on CNBC recently about Millennial wealth that got me thinking about my long-term personal investment strategy. The article talked about Millennial wealth, how my generation is behind the baby-boomer wealth-building curve and how Millennials have paved the way for focus on sustainable investing.

The chart they displayed in the article illustrates the proportion of the wealth shared amongst the Silent Generation, Baby Boomers, Gen X and Millennials. Even for somebody who considers themselves savvy with money, I found the distribution of wealth surprising.

Chart courtesy of CNBC

The Millennial share of the wealth in comparison to the other generation seems pathetic, it barely even shows up on the graph. By comparison, Baby Boomers have over 10x the amount of wealth that Millennials do, and the Silent generation has about 5x the wealth of Millennials, despite having 1/4th of the population. However, this type of wealth difference should be expected, because wealth compounds more heavily the longer your investments have been in the market. In 30-40 years, Millennials will be at the top of this graph, with other generations trying to catch up.

Then the thought boomed on me (pun). If you look at the data, Millennial wealth and the wealth of younger investors is due to compound and expand many times over in the long-term. This means that the power of our money in the market barely has a voice right now, but will be deafening in 20-30 years.

So what? What does this information mean for how we should invest for optimal returns in the future? I think one trend that is getting underestimated is ESG (Environmental, Social and Governance) investing.

According to the CNBC article that originally sent me down this path:

“About one-third of millennials often or exclusively use investments that take ESG factors into account, compared with 19% of Gen Z, 16% of Gen X and 2% of baby boomers, according to the poll.”

To use my significant other as a real-world example – she tells me “put all of my investment into socially responsible companies, I don’t care as much about the return but I want to support the environment with my money.” So that’s what we do for her.

I suspect many younger folks think this way and this kind of thematic shift is something that I am going to keep in my playbook as I think about where to put my money in the future. Spoiler alert, yes, I do care about these causes as well. ESG investing can be synonymous with poor investment performance, and my theory is the amount of money that will be flowing into this space over the next 20-30 years will make this not the case.

ESG investing will continue to become more prevalent and more powerful of an investment force as the people driving this kind of investment become a larger and larger share of the stakeholder

As I try to construct my Roth IRA portfolio in future years, I want to keep this idea of compounded returns on ESG names in mind. I just have to wait until January of next year to pick a new portfolio of stocks (ugh discipline sucks 😉

Oh, and here’s a quick update on my portfolio returns. I am positioned a bit overweight in financials, so I’ve been a bit behind vs. the market this week. But I’m confident I can outperform by the end of the year. Ironically, I’m essentially exactly even on this week’s check-in.

  • S&P 500 from January 4th – June 20th: +12.92% ((382.82 – 339.03) / 339.03) x 100
  • My portfolio from January 4th – June 20th: +12.93% ((51,345.01 – 6,000 – 577.92) – 39,641.18) / 39,641.18 x 100

If you liked today’s post and found it valuable, please consider sharing, telling a friend, or checking out some of my other posts on this site. I love this stuff, and would love to keep sharing things that you find valuable and interesting.

Until next time, happy investing!

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