Transparent investing

[originally posted here at denuology.com]
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There aren’t a ton of things I agree with Craig Newmark about (which may be why I was once hustled on Craigslist), but one of them is that people are inherently good. So, I’ll have to disclaim that point of potential naiveté before I pitch you all the following idea. Especially because it involves people staying “good” as they make decisions about personal profit.

 

We live in a time where people are more socially aware than ever before. Coupled with the tendency for Millennials to talk about things with unprecedented transparency, there’s a unique environment for change available to the financial sector.

I’m referring to solving a major, fairly neglected issue: as socially conscious as Millennials are, this is still a generation of individuals that unknowingly invest a tremendous amount of money in companies whose views they drastically oppose. The same guy who’s updating his Facebook status to drive awareness of an environmental cause is “responsibly” putting 5% of his gross salary into a 401k; unfortunately, this fund is likely investing in companies whose practices he’s raising awareness to stop.

Frankly, it’s not his fault. Employers have done a great job making saving for retirement easy for young employees, but this convenience generally comes at a cost: investment distance. In other words, a generation that does a lot to support various causes is inadvertently undercutting its own behavior through investments of much greater aggregate quantity.

So, I got to thinking: what would it take for people to give their most valuable resource (their attention) to something that’s painfully uninteresting? The solution that came to mind was “transparent investing.” Now, this means something completely different right now, referring to what brokers should be transparent about. But, it’s interesting when one applies the term to the investor herself. What if she were as transparent about where (not how much) she’s putting her money as she is about everything else?

I know this sounds insane to American audiences. It’s inappropriate in our culture to explicitly discuss such matters. However, this behavior isn’t frowned upon in numerous Eastern cultures (China being a prime example). If we were to apply it in North America, specifically in social media environments, it’s not unreasonable to think that where we put our money would be as relevant a statement about ourselves as our favorite movies or our Facebook group memberships. In fact, it could be treated like religion or political views currently are in that environment; some choose to label themselves, while others don’t.

As this type of behavior generates awareness about the discrepancy between beliefs and investments, demand would grow for services to close the gap. Socially responsible investment (SRI) opportunities exist and are growing in popularity, but until they’re as easy to engage as company 401Ks, they’ll never be mainstream. What if certain employers could actually use such offerings to entice young, digitally savvy talent? It certainly couldn’t hurt. I can’t imagine a better way to get companies to evolve their investment offerings than to tie them directly to talent recruitment.

Of course, all of this requires a series of 3rd-parties to evaluate a fund’s “causes,” but this is the easy part. Behavior like this isn’t unprecedented (check out covestor.com where real investors let you follow their trades). An organization of individuals could keep the entire system honest. Or the employer itself could take on the responsibility of evaluating its investment offering.

This isn’t about imposing political or social views; it’s about giving people the context to align their own views with their financial prowess. The tools are there, and I think the desire is there.

It just needs a push.

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