Investing today goes beyond account balances; it’s about making your money work in ways that matter to you. Values-based investing allows you to grow wealth while supporting the causes you care about.

Can values-based investing deliver competitive returns while staying true to my principles?

Financial Professionals around the country are experiencing more investors, from young professionals to current retirees, asking how values-based investing might shape their financial futures. In this article, we’ll look at frequently searched questions related to values-based investing and the potential trade-offs to be aware of when deciding if it’s right for you and your family:

1. Why should I consider values-based strategies?
2. What is direct indexing, and how does it enable value-based investing?
3. Are there risks in excluding specific market segments?
4. How can a financial advisor in Boston guide me to invest based on my values?

Why People Choose Values-Based Strategies

Whether sustainability, corporate ethics, faith-based, or social justice, values-based investing helps you feel good about how your assets are invested. And it’s not just a matter of feelings: studies show that some socially screened portfolios can outperform conventional ones by several percentage points per year.

More investors, especially younger ones, prioritize values-aligned portfolios alongside returns. Engaging with your investments in this way also helps reinforce long-term commitment to your plan, boosting performance through compounding over more extended periods.

Direct Indexing Strategies

Rather than investing in generic funds, direct indexing lets you own the individual stocks in an index (like the S&P 500) and customize your holdings. You can exclude or overweight sectors or companies based on your values. This gives you far greater control in a personalized portfolio. However, it’s not a perfect fit for everyone. Complexity can be a hurdle, and the tax consequences may require an additional layer of tax advice.

Possible Benefits of direct indexing include:

• Align holdings with your beliefs, not a fund’s predetermined screens.
• Use tax‑loss harvesting to offset gains by selling underperformers.
• If you already hold a prominent position in a company, direct indexing prevents overlap.

Risks of Missing Market Segments

One common trade-off with values-based investing is the potential reduction in diversification. Screening out specific sectors, like energy or defense, might reduce exposure to parts of the economy that you’d miss out on. Less diversification can mean more volatility or missed returns.

Another risk is relying on poorly screened investments. Some ESG funds appear socially conscious, but their portfolios might still hold companies that clash with your values. Watch out for foreign subsidiaries of domestic companies.

Strategies You Can Deploy Today

• Start by pinpointing what matters most, such as a faith-based focus, climate, human rights, board diversity, or another priority. Defining these specifics moves beyond broad labels like “ethical investing” and creates better alignment between your values and portfolio strategy.

• Have you unwittingly invested in companies that conflict with your values? Do your research and identify your holdings and highlight areas that require changes to your portfolio.

• You don’t have to go full direct indexing right away. Start with screened ETFs or mutual funds that align with your values, then gradually transition into more customized strategies based on your initial experience.

• Direct indexing may make more sense if you have at least mid-six figures in investable assets. It offers customization and tax benefits but requires professional oversight to manage the complexity of the portfolios.

• Values and markets change over time. Establish a rebalancing schedule that periodically checks performance and values alignment so your portfolio stays on track based on your performance requirements and ethics.