Sustainable Investing, Retiring on Index Funds, and Fee Location (EP.82)

Welcome to this week’s episode of the Rational Reminder! Today, we get stuck into a commonly asked about investment topic – socially responsible or sustainable investing. The show kicks off with Cameron sharing some fantastic insights he gained from a book he recently finished, The Undoing Project. We then delve into the CalPERS story that was in the spotlight at the end of 2019. After that, we move the planning portion of our show, where we tackle the topic of sustainable investing. Many prominent Canadian pension funds have said that sustainability will be a core part of their investing going forward. We explore why sustainable investing has to mean lower returns, how this kind of investing effects social change, and what the amount you need to give up to feel good about your investments is. We also look at the subjectivity of ESG ratings and how this relates to your values. Ultimately, sustainable investing is about balancing the continuum of views and values, how closely they can be matched, and how you can do that in a diversified way. The sustainable label may not meet your expectations of sustainability which is why finding the balance can prove to be challenging. We round off the show by sharing our thoughts on how to restructure your portfolio when it comes time to live off of it. You don’t want to miss out on this interesting show, so tune in today!

Key Points From This Episode:

• A book Cameron recently finished and how he applies these lessons to his work. [0:01:08.0]
• More about the CalPERS story that broke in December 2019. [0:05:50.0]
• Insights into active managers and actively managed funds. [0:07:40.0]
• Vanguard is the first asset manager to surpass the six trillion-dollar mark and other stats. [0:10:30.0]
• Portfolio topic: The growth of socially responsible investing in North America. [0:12:10.0]
• The main considerations to account for when looking at socially responsible investing. [0:14:09.0]
• Two main sustainable investing strategies: negative screening and ESG integration. [0:15:01.0]
• The relationship between ESG and expected returns when controlling for common risk factors. [0:17:13.0]
• The importance of ESG risk factor – where does the negative premium come from? [0:19:45.0]
• Differences between exclusion and investor tastes and their influence on expected returns. [0:21:40.0]
• Why the dispersion of preferences in the ESG industry is so important. [0:25:14.0]
• Does sustainable investing lead to positive social returns? [0:27:05.0]
• Two ways the lack of diversification of ESG investing hurts investors. [0:30:25.0]
• Understanding the trade-off between values: do all companies use the same ESG filters? [0:31:42.0]
• The two major problems of not having consistent ESG rating metrics. [0:33:54.0]
• Two things to consider when the time comes to live off of your portfolio. [0:36:47.0]
• Deciding how to change your asset allocation and figuring your safe spending rate. [0:39:05.0]
• Why selling shares rather than receiving dividends does not make you worse off. [0:42:23.0]
• Final thoughts on spending income and dividends. [0:45:06.0]
• ‘Bad advice of the week’. [0:46:03.0]