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Socially Responsible Investing in 2020

Dan Egan, Managing Director of Behavioral Finance at Betterment, joins Yahoo Finance’s Zack Guzman to discuss how investors can benefit from socially concious investment offerings.

Video Transcript

ZACK GUZMAN: There's been a big push in terms of focusing in on how investors might be able to put their money behind environmental or social impact goals here, not just to make money themselves but also support some interesting new endeavors out there. Now Betterment, a digital and smart money manager, is also trying to help in that case here by announcing new socially responsible investment offerings out there for customers.

And joining us now for more on that is Dan Egan, managing director of behavioral finance at Betterment. And, Dan, appreciate you coming on to talk about this. I mean, we know that this is a very important area for millennial investors specifically. But what are you guys rolling out to maybe help on that front?

DAN EGAN: Yeah, I would actually call out that it's important to more people than just millennials too. We are seeing across the age range of our client base, also across genders, we're seeing widespread uptake of it. So let's roll back.

So generally when people invest, they're looking to make money, obviously make some returns from it. Socially responsible investing, depending upon exactly what your values are, allow you to layer them in as well. And in this day and age where we have low-cost funds that allow you to not only track, you know, a company's financials but also how they're being governed and how they're acting as a good corporate citizen.

It's pretty inexpensive for investors to gain access to those sorts of overlays. We started in 2017 with our initial foray into socially responsible investing. It was a very broad impact portfolio that looked across a wide array of factors-- social, environmental, the governance of the company-- to say can we choose to invest only with companies that were better corporate citizens.

One of the things that we were hearing from our own clients was that people often had a more focused set of issues that they wanted to put their money behind. In some cases that was going to be climate or environmental causes. In other cases it was going to be social. And those opinions, those values, are strongly held.

So we went out into the marketplace to see are there funds or ability to access those more focused value systems and get them in efficient, tax-efficient, low-cost way that we could manage for our clients. And we were actually able to say yes we can. There is a much greater set of offerings in the market today. We worked with fund issuers both in terms of the climate-change portfolio, the environmental-impact one, as well as the socially responsible one to drive down the cost of those funds while allowing them to be available to a much wider array of investors.

ZACK GUZMAN: Yeah, and I mean, a lot of people might say, all right, what's the trade here? Maybe if you're going to put your money in to some of these social causes, does that mean my returns are going to be lower? Studies looking at that seem to differ in terms of what happens there. So how big of a piece is that to the people you are seeing putting that money to work?

DAN EGAN: So the way I think about it is that there's a predictable and an unpredictable component about that. I personally have no idea which companies are going to get better in the future, if it's the good companies or the bad companies. The one thing that is consistent and predictable is how much you pay for that fund to manage your investments for you. And in that case, historically ESG or SRI funds have been more expensive, and that's a headway-- it's a headwind against you earning the same amount.

But over the most-- the sort of past 10 years, those costs have come down dramatically to the point where they're roughly equivalent with other funds. So I would say I don't know that they'll necessarily perform better or worse just like any other sort of concentrated portfolio, but they don't have that cost headwind holding them back.

ZACK GUZMAN: Yeah, and there is an option now out there for people looking for them. Dan Egan, managing director of behavioral finance at Betterment, appreciate you taking the time to bring us that.

DAN EGAN: Absolutely.