Values based investing is the idea that your portfolio can reflect what matters to you, not just your return goals. For some people that means avoiding certain industries. For others it means favoring companies working on issues they care about, or using their role as shareholders to encourage change.
There is no single definition, and that is part of what makes this area confusing. This guide explains the common approaches, the tradeoffs to consider, and how to bring your values into a plan in a practical way.
What Is Values-Based Investing?
Values-based investing, sometimes called values-aligned investing, is an approach that considers personal, ethical, religious, or social priorities when selecting investments.
You may also see related terms such as:
Socially responsible investing (SRI): Often focused on excluding certain industries or practices.
ESG investing: Considering environmental, social, and governance factors in investment analysis.
Impact investing: Seeking measurable social or environmental outcomes alongside a financial return.
Faith-based investing: Aligning investments with the principles of a particular faith tradition.
These labels overlap, and different firms use them in different ways. What matters most is understanding what a specific strategy actually does.
Common Approaches to Values-Aligned Investing
Exclusionary screening
This is the most familiar approach. Investors avoid companies or industries that conflict with their values. Screens can be broad or very specific.
Positive or best-in-class screening
Rather than only excluding, this approach looks for companies that score better on certain criteria compared to peers in the same industry.
Thematic investing
Some investors focus on themes, such as clean energy, water, or healthcare innovation. Thematic strategies can be more concentrated and may carry more risk.
Shareholder engagement
Owning shares can come with a voice. Some strategies use proxy voting and engagement with company management to encourage changes in practices.
Impact investing
Impact investments aim to produce a specific, measurable outcome. These may be less liquid and are not suitable for every investor.
Tradeoffs to Weigh Before You Start
Values-based investing can be meaningful, but it is not without considerations.
Diversification: Excluding sectors may make your portfolio less diversified, which can affect risk.
Costs: Some values-focused strategies may have higher expenses than broad alternatives.
Definitions vary: Two funds with similar labels may hold very different investments. Review holdings and methodology, not just the name.
Data limits: ESG ratings rely on data and judgment, and different rating providers can reach different conclusions about the same company.
Performance is not assured: Like any investment approach, values-based strategies can underperform or outperform depending on markets. All investing involves risk.
How to Bring Your Values Into Your Financial Plan
Step 1: Define what matters most
Start by writing down the issues you care about. Be specific. "Environment" can mean many things, from emissions to land use to water. Ranking your priorities helps narrow choices.
Step 2: Decide how strict you want to be
Some investors want to avoid any exposure to a particular industry. Others are comfortable with a more flexible approach that reduces exposure without eliminating it entirely.
Step 3: Consider your whole picture
Values can apply beyond your investment portfolio. Charitable giving, donor-advised funds, and estate planning are other ways families express what matters to them.
Step 4: Review regularly
Your priorities may change over time, and so can the strategies available. Revisit your approach during regular plan reviews.
Values-Based Investing Across Generations
Many families find that values become part of the conversation when wealth passes from one generation to the next. Younger family members may have different priorities than their parents or grandparents, and talking openly can help a family plan together.
To read more about this trend, see our article on how values-based investing is shaping the next generation of wealth planning.
How VestGen Can Help
At VestGen, Investment Management means crafting a strategy designed around your situation. Our advisors offer a comprehensive suite of services designed to meet your needs at every stage of life, and conversations about values fit naturally into the Discovery step of our Vision Path Planning™ process. Learn more on our Services page.
Who VestGen Serves and Where
Every financial journey is distinct, and so is our approach. VestGen Wealth Partners offers bespoke wealth management solutions crafted to align with your individual goals and aspirations. We go beyond traditional financial planning to deliver solutions that are as unique as our clients' ambitions.
VestGen serves clients across the nation through many office locations, including Chicago, Glen Ellyn, Schaumburg, Naperville, Oak Brook, South Barrington, St. Charles, and Downers Grove in Illinois, Kirkwood and Kansas City in Missouri, and locations in Texas, New Jersey, Florida, and North Carolina. You can find an advisor near you or learn more about why VestGen.
Ready to Start Your Journey?
Your investments can be one more way to express what matters to you. If you would like to talk through how your values may fit into your plan, contact VestGen Wealth Partners to schedule a consultation with one of our advisors. Together, we can chart a course toward your financial future.
Frequently Asked Questions
What is values based investing?
Values-based investing is an approach that considers your personal, ethical, religious, or social priorities when choosing investments. It can include excluding certain industries, favoring certain companies, or using shareholder engagement.
What is the difference between ESG and values-based investing?
ESG investing typically refers to analyzing environmental, social, and governance factors. Values-based investing is broader and centers on your own priorities, which may or may not match a particular ESG framework.
Does values-based investing mean lower returns?
Not necessarily, but results can differ from broader markets. Excluding sectors can affect diversification and risk. No investment approach can guarantee results, and all investing involves risk.
How do I start values aligned investing?
Begin by defining the issues that matter most to you and how strict you want to be. Then review strategies by their actual holdings and methodology, and consider how they fit with your overall plan.
Can I use values-based investing in my 401(k)?
It depends on the options in your plan. Some employer plans offer funds with a values or ESG focus, while others do not. Review your plan's investment menu and fund documents.
Is socially responsible investing the same as impact investing?
Not exactly. Socially responsible investing often focuses on screening, while impact investing aims to produce specific, measurable outcomes alongside a financial return.
This article is for informational and educational purposes only and does not constitute financial, legal, or tax advice. Advisory products and services offered through VestGen Advisors, LLC, a Registered Investment Advisor. Securities offered by Registered Representatives through Private Client Services, Member FINRA/SIPC. Private Client Services and VestGen Advisors, LLC are unaffiliated entities. VestGen Advisors and Private Client Services do not offer legal or tax advice, and information here should not be construed as such. Always consult a legal or tax professional regarding your specific situation. VestGen financial advisors may only conduct business with residents of the states and/or jurisdictions for which they are properly registered. Not all of the investments and services mentioned herein are available in every state. All investing involves risk, including the possible loss of principal. Past performance is not a guarantee of future results, and no strategy can guarantee a particular outcome. Please review VestGen's Form CRS and Form ADV Part 2A for more information.