I have been introducing clients who are disenchanted with traditional ESG strategies to a values-based approach to investing. This more personal strategy allows investors to curate portfolios using their own methodology for allocating funds that accurately reflects their own worldviews and personal creeds. 

Thankfully, with the market’s ever-expanding menu of investment products and a focus on holistic wealth planning, this type of “values-based” customization is far more seamless to implement than I expected. Over the past year, I’ve helped individual investors to express their values through their portfolios in the following ways: 

• Excluding exposure to countries that have a history of poor human rights: This involves forgoing broad international market exposure and instead selecting specific ETFs that invest only in countries or regions that reflect an investor’s value. This may involve purchasing an international fund that excludes a country like China, which is known for its human rights abuses. For a more hands-on approach, the investor can purchase a collection of various country-specific ETFs with portfolio weightings that express their philosophy.

• Investing in regions of the world that promote democracy and Western values: Other investors have specifically wanted to support Israel because it is the only democracy in the Middle East and promotes equal rights for women and members of the LGBTQ community. These clients have accomplished this goal by investing in Israel-based stocks, an Israel-based ETF, or individual Israeli bonds.

• Adhering to religious values: Sometimes a values-based approach is shaped by one’s religious beliefs. When working with Muslim clients, I’ve complied with religious parameters by avoiding “haram,” or forbidden goods and services involved in the business of alcohol, tobacco, pornography, and pork products. Additionally, Muslim rules concerning interest, or “riba,” may require the investor to exclude companies with too much debt as a percentage of their assets. Excessive interest on this debt is also considered to be “haram.” This restricts investing in conventional banking and insurance sectors, unless the company earns 5% or less of interest and the dividend income derived from that interest is donated to charity. 

  Following this framework may require buying individual securities. However, similar to the ESG philosophy, there are funds that will implement this framework for you. These funds aren’t as well advertised as their ESG counterparts but are worth considering. There are also several ETFs that claim to be “Shariah compliant.” It’s worth reviewing the holdings before investing to ensure they meet your client’s standards.

• Preserving multigenerational family values: I sometimes work with several generations of one family, where we draft a family Investment Policy Statement (IPS) that reflects certain principles they wish to continue passing down. Earlier in my career, many Holocaust survivors told me explicitly not to invest their money in certain companies that collaborated with the Nazis during World War II. Many of these companies are still publicly traded decades after the Holocaust. The survivors’ children and grandchildren wish to continue adhering to the same investment parameters today. Following the guidelines of the family IPS requires an annual audit of their holdings to ensure that there is no exposure to the specified publicly traded securities. 

• Voicing disapproval through stock ownership: The default approach for many investors is to exclude companies with business practices with which they disagree. However, there are people who believe that the best way to affect change is by having a voice in those companies through ownership. Buying shares of these stocks allows them to vote on various matters, like the board of directors, and attend shareholder meetings. If the shares are owned through a mutual fund, where one’s voting rights are delegated to the fund managers, an investor can still call the fund’s investor-relations department to express his or her views on the position they want the fund to take.

Such practices not only allow investors to make an impact but also increase the likelihood they will stick with their long-term investing goals. Staying the course during market gyrations and letting compounding work its magic is the ultimate way to build wealth and achieve a client’s financial objectives.

Jonathan I. Shenkman, AIF, is the president and chief investment officer of ParkBridge Wealth Management and is based in New York. His practice addresses all aspects of a client’s retirement planning, including collaborating with clients’ other trusted advisors to help facilitate and manage various tax, estate, and financial-planning strategies to achieve the client’s goals.