At a time when the market is incredibly volatile, it’s time to step back and discuss overall investment objectives with your clients. Now, I know most of you are telling your clients to “invest for the long term” and to wait for the market volatility to settle. Good advice for all. But have you ever asked your clients if they seek something other than return from their investments? Or are there certain types of investments they want to avoid no matter what the opportunity may be?
In recent research on Portfolio Decision Making, Spectrem asked investors how important Principles or Morals are when they are making their investment choices. On a scale of 0 to 100, in which 0 represented Profits and 100 represents Principals/Morals, they rated themselves at 39.67. Republicans leaned slightly more towards Profits scoring a 36.21 while Democrats rated themselves at a 44.91. Independents were in-between at 38.74.
Age also had an impact with Millennials scoring a 42.64 and the WWII generation scoring 37.41. Baby Boomers and GenXers fell in between.
One of the dilemmas advisors face is defining what types of investments an investor may find socially objectionable. For example, a Democrat may not want to invest in a company that supports Donald Trump. Or many investors may not want to invest in companies that make or sell guns. Traditionally, some investors did not want to invest in the “sin” stocks – companies that sold cigarettes or alcohol.
Age may be a great predictor of what an investor might find objectionable or not. Younger investors, from our research, are more likely to want to invest in companies that are environmentally conscious.
But as you can see above, many investors still invest with their pocketbook in mind rather than their conscience. I confess to being one of those investors. I personally object to the trend of making marijuana legal in every state…..and I know that makes me nerdy and uncool. There are many in my generations that support the legalization of marijuana. At the same time, I acknowledge that marijuana will probably become legal across the nation in due time, so I have invested a small amount in marijuana ETFs. So far my return has been mediocre.
I’m not alone in this. Spectrem asked investors if they approved of the legalization of recreational marijuana and 52% said “yes”. Almost three-quarters of investors, however, are willing to invest in companies that produce marijuana products although only 9 percent have done so at this point. A smaller percentage (53%) are interested in investing in CBD products. These are products made from Cannabidiol, a chemical compound in marijuana that is not psychoactive but does provide relief from pain, anxiety and inflammation. (CBD products are sold in pain-relieving lotions and even in dog treats!). BUT ONLY 6% OF INVESTORS INDICATE THEIR ADVISOR HAS EVEN BROACHED THE SUBJECT OF MARIJUANA-BASED INVESTMENTS WITH THEM.
I’m definitely not promoting marijuana as an investment. I am promoting, however, the importance of having a discussion with your clients about any moral objections they may have regarding various types of investments. While most of your clients (based on the information above) may not have any objections to specific types of stocks, it may provide for a lively discussion that will result in greater loyalty with your clients.