Happy of New Year!

Happy of New Year!

I closed off 2017 with an SRI Investing tradition, making two donations to honor you, my clients, in appreciation of the trust and confidence you place in us. Even more importantly, you care enough to invest your assets to help create a better world. The first donation went to Heifer International (www.heifer.org), helping to create financial opportunities in underserved communities worldwide. The second donation is to purchase carbon offset credits from Native Energy in Vermont (www.nativeenergy.com), to make our professional practice carbon neutral. Native Energy was founded in 2000 (the same year I started my SRI practice) and is now a leading provider of carbon offsets, renewable energy credits, and greenhouse gas consulting. 

Equifax Quagmire

Equifax Quagmire

Protecting our identity, our data, and our assets from online hackers is becoming more important and more challenging every day.  When one of the nation’s largest credit bureaus is hacked, we’re doubly reminded of the dangers.

Just in case you haven’t seen the news in the last couple of days, Equifax has experienced a major breach that has compromised company data (Social Security numbers, names and addresses) of an estimated 143 million U.S. consumers. The company has created a web site that is supposed to tell you whether Equifax believes your personal data was part of the breach. The company is also offering free credit monitoring for one year for all Americans, regardless of whether your data has been breached or not.

Young Adults – Are They Good or Bad with Money?

Young Adults – Are They Good or Bad with Money?

Younger Americans (often called the Millennial generation) are saving their money at a higher rate than their Baby Boomer counterparts at a similar age.  Research from the Transamerica Center for Retirement Studies shows that nearly three-quarters of younger adults are saving for retirement at an earlier age than past generations.  Half are putting away 6% of their income or more—a statistic that makes this generation the best cohort of savers since the Great Depression, despite having to carry record high levels of student loan debt.  Those who participate in their workplace retirement plans are saving 7% a year, on average.

Getting a Grip

It’s been about two weeks since the election. I’m very thankful I could spend much of the first week with friends and colleagues at the annual SRI Conference in Denver. As a group, we grounded each other – enabling us each to “get a grip” on the implications of having Mr. Trump as our next President. We came away from the conference collectively believing that SRI is now more important than ever. My own reflections have me wanting to be more specific and articulate about why and how I think that is true.

In the coming weeks, I will be writing more often, focusing on three themes I believe are important as we continue our work together as SRI investors. Before I say more about that, let me comment more immediately on the markets. In the aftermath of the election, the markets have been amazingly calm, and that is a very good thing. At a moment when many investors might have reacted emotionally with their assets, as they often do when unexpected events occur, cool heads have prevailed so far. In my mind, this is only one more example of an investor maxim – we simply can’t predict how the markets will react to future events. That is true about near-term future events and longer-term future events. To say a Trump presidency portends uncertainty is an understatement, and how the markets will react in the coming years is even more uncertain. We can only predict the markets will move more in concert with the economy than with U.S. governmental action, and in this case that might also be a good thing. Fundamentally, though, nothing has changed yet to warrant investors changing their long-term investment strategies.


Back to the three themes I will be writing more about. The first is climate change, no surprise. On this issue, I agree with Paul Krugman of the New York Times, who wrote last week it is the thing that concerns (scares) him the most about a Trump presidency. Already, the President-elect has named a climate change denier to head the EPA. Time is growing short for the world to make the transition to sustainability, and the U.S. should be leading the transition. Yet all political signals right now are to the contrary. SRI investors will play an ever more crucial role in encouraging the move away from fossil fuel energy production and a faster conversion to alternative energy. And while investing directly in alternative energy companies has so far been a dicey proposition, the development and production of alternative energy has been accelerating in recent years as the costs of that development have come down dramatically. That trend, along with the advent of new investment options, will only continue despite the obstructionist policies of a Republican-dominated federal government. 

The second theme I want to focus on is community impact investing, and this for me stems directly from the election results. It is well-documented that Trump’s electoral college victory was made possible through his effective appeal to a wide swath of mostly white, blue-collar voters from the geographical heartland of the country. “Make America Great Again” implies a prior fall from greatness, and roughly 60 million U.S. voters ratified that belief with their votes. It’s also apparent these voters put aside concerns about Trump’s evident narcissism, racism, and history of abusive treatment of women because they believe he will help them improve their lives financially. As an advocate for SRI, I think it’s important we pay attention to that, for it is true that so many of the people who voted for Trump are the same people who live in communities that have not recovered economically or financially from the Great Recession of 2008-09. When we as SRI investors engage in community impact investing, we are directing capital in the U.S. specifically to these same communities, creating more opportunities for economic flourishing. This election tells me we haven’t done nearly enough on this front, and so I will be highlighting more community investment opportunities in future articles.

Finally, I believe in and am professionally committed to SRI because I believe SRI investors are helping to bring about a better world. At the unexpected dawn of a Trump presidency, many Trump opponents now feel a better world will be less attainable, if attainable at all. But do we have a clear picture of what that better world will look like? Yes, we say, it will be a more just, compassionate, and sustainable world, but can we see clearly what it will take to get us there? What are the concrete details, and the specific public and economic policies that will bring about and comprise a just and sustainable economy? I want to explore those questions more fully going forward because if SRI investors want to direct their capital to bring about a better world, it makes sense we will do so more effectively if we can more clearly envision that world.

The future beckons. SRI will continue to be an important part of it.  

Good News About Global Warming

It surely isn’t news to SRI investors that our world is in for trouble unless we make significant changes in how our global economy produces the energy it needs to function.  Indeed, investing in and for a sustainable planet overall is a primary SRI objective.  Yet, global climate reports tell us that even if we shift totally over to clean energy tomorrow (not likely), the troubling warming trend—and polar ice melts, flooding of coastal areas, and increasing droughts, hurricanes and severe winters—will continue to accelerate for the next 30-50 years. The damage has already been done.

But is it irreversible?  An ideal solution would not just reduce carbon dioxide and other greenhouse gas emissions, but remove some of what has already been pumped into the atmosphere.

There are two interesting developments along this front.  First, researchers from Columbia University’s Lamont-Doherty Earth Observatory in Iceland are perfecting a technique which would mix carbon dioxide captured from the smoke stacks of a power plant with water and hydrogen sulfide, and then inject the mixture into basalt rock—a substance which makes up about 70% of the Earth’s crust.  The result: 95% of the carbon solidifies into stone, due to a reaction between the various ingredients.  In effect, carbon dioxide has been turned to stone and stored away securely—more or less forever.  Currently, in Iceland, the local energy utility has been pumping 5,000 tons of carbon dioxide a year into underground rock formations.

Of course, that’s a small drop in a very large bucket: currently our various industrial processes release more than 30 billion tons of carbon dioxide into the atmosphere each year.  But if each power plant had its own recapture facility, that figure would come down dramatically.

Meanwhile, a company called Global Thermostat* is testing a carbon capture unit in Silicon Valley that could suck carbon dioxide directly out of the air, reducing our global carbon footprint and potentially reversing greenhouse gas concentrations in the atmosphere.

The unit, which looks like a giant dehumidifier, would be attached to a power plant or factory, and be powered by the residual heat of the facility itself.  Large pipes would bring the power plant’s emissions into the unit, while external intakes would suck in the outside air.  The carbon is captured from both sources, rendering the plants “carbon negative,” reducing carbon dioxide in the nearby atmosphere—and cranking out a pure enough form of carbon to be sold at a profit for industrial uses, including plastics, manufacturing, bio-fertilizers, biofuels and soda factories.  All but the fuels would keep the carbon sequestered and out of the atmosphere.  

The test unit can extract up to 10,000 tons of carbon per year, which means the world would need roughly 3 million of them to offset the current level of emissions, and many more if we want to start scrubbing the atmosphere and addressing those scary future projections.  The company envisions attaching these units to power plants, and also creating farms of them in remote locations to start the long, difficult process of undoing the environmental damage of our energy economy.

Developments like these, along with the fact that the cost of producing usable solar energy has come down dramatically in recent years to become truly competitive with producing fossil fuels, provide hope that our planet might recover and reasons to believe that SRI investing in sustainability will be profitable.


*Mention of specific securities should not be considered an offer to buy or sell that security.  For information on the suitability of any investment for your portfolio, please contact your investment adviser.

Adapted from a Bob Veres draft with permission.



A Market High – Yes, Let’s Celebrate

In case you hadn’t noticed, the S&P 500 index reached record territory yesterday (July 11), and the Nasdaq briefly crossed over the 5,000 level before settling back with a more modest gain.  At 2,137.6, the S&P 500 finished above the previous high of 2,130.82, set on May 21, 2015.

SRI investors want to make a positive difference with their money, but they also want to experience some positive gains financially, so it’s nice to see the markets recover.  We’ve waited more than a year for the markets to get back to where they were before the downturn this January, before Brexit, before a lot of uncertainties in the last 12 months.  But a market top can suggest a different uncertainty; after all, many investors regard market tops warily.  When stocks are more expensive than they have ever been (so goes the thinking) it might be time to sell and take your profits.  However, if you had followed this logic in the past and sold every time the market hit a new high, you’d probably have been sitting on the sidelines during most of the long ride from the S&P at 13.55 in June 1949, which was the bull market high after the index started at 10.  New highs are a normal part of the market, and it is just as likely that tomorrow will see a new one as not.  In fact, the Dow is approaching another all-time high of its own right now.  Overall, the market spends roughly 12% of its life at all-time highs.

We all know the next bear market will start with an all-time high, but we can never know which one in advance.  Market highs do not necessarily become market tops. The smart advice for SRI investors is the same whether the markets are up or down.  Save, invest your savings in potentially profitable businesses that might also improve society and the environment, and stay invested for the long term.  So yes, let yourself relax and celebrate the highs when they come.

Information about market indexes was obtained from sources we believe to be reliable, but we cannot guarantee its accuracy.  Indexes are unmanaged groups of securities and are not directly available for investment.  Past performance does not guarantee future results.


Adapted by Gary Matthews from a Bob Veres draft, with permission.




US SIF Foundation Releases Report on Impact of Sustainable Investment

US SIF Foundation Releases Report on Impact of Sustainable Investment

WASHINGTON, DC, June 29, 2016 – Sustainable, responsible and impact investors have influenced the investment industry, companies, governments and other actors to address environmental, social and governance (ESG) challenges in four major areas, according to The Impact of Sustainable and Responsible Investment, a report released today by the US SIF Foundation.  

The Brexit Moment of Truth

On Thursday, British voters shocked Europe and the world by voting not to continue to be part of the European Union. The vote is momentous for Europe as a whole, a now failed test of whether the union can hold together in the face of myriad challenges like the Syrian refugee crisis, disparities in wealth and economic health between north and south, and debt problems like those posed by Greece, Spain and Italy.  Strong anti-EU parties in Germany, the Netherlands, Greece, Spain and Italy will certainly be emboldened now that Britain has voted to secede from the EU.

British Prime Minister David Cameron was strongly in favor of staying in the EU, as was much of his Conservative government, the Labour Party, the Liberal Democrats and the Scottish National Party. Cameron has now announced his resignation.  Ironically, with “Brexit,” the Scottish people might vote to exit Britain and join the EU on their own.

On the other side, Brexit was championed by many lower-wage workers in Britain who view EU membership as an attack on British sovereignty. 

What now?  With an “exit” vote, British companies could lose access to the consolidated European market for duty-free trade and financial services.  Some analysts think that London might be unable to function as Europe’s de facto financial center if Britain were no longer a part of Europe’s union.  And U.S. companies have long seen Britain as the gateway to free trade with the 28 nations in the European Union, which explains why American corporations and Wall Street firms donated substantial sums to the “stay” campaign.  Britain could lose American investment and manufacturing jobs that might well move across the channel to mainland Europe instead.

Add it all up, and the International Monetary Fund has predicted that Brexit could reduce British economic growth by up to 5.6 percent in the next three years, partly driven by a sharp decline in the British currency.  Indeed, the British pound lost as much as 11% Thursday night into Friday morning as the voting results became known. Meanwhile, you may have noticed that the global investment markets have become noticeably choppier in the run-up to the vote (mostly on the upside, as polls and the markets had most recently been confident the vote would go the other way).  The  British “leave” vote will create still more volatility, initially on the downside, which is why Fed Chairperson Janet Yellen has already mentioned the referendum overseas as having an influence on the decision of whether or not to raise interest rates in the U.S.

The vote was expected to be close. Indeed, the odds-makers in Britain had given 73% odds on a “stay” vote. Yet it wasn’t to be. As with virtually all unexpected global political shocks with uncertain consequences, the markets are reacting negatively. Yet markets also have a habit of recovering fairly quickly when these events occur. The likely transition will be a long-term but ultimately graceful accommodation between the UK and Europe.  The formal European Union “exit clause” sets forth a two-year period of negotiations between exiting countries and the remaining union. So for the near-term future, despite what you might read elsewhere, the UK is still part of the Eurozone.

Market volatility will likely be high for some time. Investors virtually always do well to stay calm when the markets get crazy. Now is one of those times.  


Article adapted from a Bob Veres draft with permission.  


The Bear That Wasn’t: First Quarter in the Markets

The first quarter of the new year has brought us small positive returns in many of the U.S. market indices, which means that investors survived—for now, at least—the worst start to a calendar year ever for the U.S. stock market.

The Wilshire 5000 Total Market Index--the broadest measure of U.S. stocks and bonds—was up 1.17% for the first three months of 2016, which is remarkable considering that the index was down more than 10% by the second week of February.  The comparable Russell 3000 index has gained 0.97% so far this year.

Meanwhile, global markets are not off to a good start.  The broad-based EAFE index of companies in developed foreign economies lost 3.74% in dollar terms in the first quarter of the year, in part because Far Eastern stocks were down 6.06%.  In aggregate, European stocks lost 3.18%, and are now down more than 10% over the past 12 months.  Emerging markets stocks of less developed countries, as represented by the EAFE EM index, fared better, gaining 5.37% for the quarter. 

The easy call at the beginning of the year would have been to bail out when the markets were declining and sit out the widely-predicted start of a painful, protracted bear market.  Some analysts were talking openly about another 2008-9 drop in share prices.  But 10% market declines are simply a part of the market’s normal turbulence, and anyone who spooks as soon as they see a month of bearish sentiment is likely to miss out on the subsequent gains.  Since hitting their 2016 lows on February 11, both the S&P 500 index and the Nasdaq Composite have gained roughly 13% in value.

That doesn’t guarantee that there will be continuing gains going forward, however.  The Market Watch website reports that half of the S&P 500 sectors are reporting declines in earnings per share this quarter over the same period last year, and a poll by the FactSet analysts suggests that seven out of the ten sectors will end the earnings season reporting declining earnings.

Part of the wind at the backs of stocks this past six weeks has come, yet again, from the U.S. Federal Reserve Board, which had originally signaled that it planned to raise interest rates four times this year.  After its most recent meeting, the Fed is projecting just two interest rate hikes this year, and Fed Chairwoman Janet Yellen has clearly indicated that the Fed will remain cautious about disrupting the markets or the economy as it unwinds its various QE initiatives.  

Investors also seemed to take comfort that the Chinese stock market has stabilized—for now, at least.  Recently, Chinese officials reported the first rise in an important manufacturing statistic—the purchasing managers index—in eight months.

But arguably the biggest stabilizer of U.S. and global stock markets was the rise in oil—or, more precisely, the end of a long unnerving drop in the price of crude that caused anxiety to ripple through the investor community (Figure 2).  Analysts are not sure how the price of a barrel of crude oil is connected with the value of stocks; indeed, for most companies, lower energy costs are a net plus to the bottom line.  But investors generally seemed to take comfort in the fact that oil prices had stabilized.  It’s worth noting that the day the stock market hit its low for the year—February 11—was also the day when oil futures hit their low of $26.21 a barrel.  

We can’t predict where the markets will head during the remainder of the year; indeed, even the present is hard to understand.  Our mission as investors is to hang on and allow the millions of workers who get up every morning and go to work to do what they do best: incrementally, hour by hour, day by day, week by week, grow the value of the companies we own with their efforts.  Investors will spook and sometimes flee stocks, driving their prices down, but for the long-term, the returns on your investments are invisibly, inexorably driven by the underlying value that is created in the offices, cubicles and factory floors all over the world, especially of the sustainable and responsible companies we strive to include in our client portfolios.


Article adapted from a Bob Veres script, with permission.
Wilshire index data: http://www.wilshire.com/Indexes/calculator/ 
Russell index data: http://www.russell.com/indexes/data/daily_total_returns_us.asp
S&P index data: http://www.standardandpoors.com/indices/sp-500/en/us/?indexId=spusa-500-usduf--p-us-l-- 

Nasdaq index data: http://quicktake.morningstar.com/Index/IndexCharts.aspx?Symbol=COMP
International indices: http://www.mscibarra.com/products/indices/international_equity_indices/performance.html

Indexes are unmanaged groups of securities and are not directly available for investment.  This information is obtained from sources we believe to be reliable, but we cannot guarantee its accuracy.  Past performance does not guarantee future results.

What's Wrong with Oil?

In a recent article in Horsesmouth (February 3, 2016), Debra and Robert Taylor infer the recent sharp drop in oil prices is signaling the imminent demise of fossil fuels at the hands of alternative energy. It’s an enticing thesis for SRI investors, but I think it’s much more complicated than that right now, having very much to do with current global economic trends. Most likely, economic slowdowns, especially in China, are what have played havoc with oil prices for over a year now. Basic economics dictates if demand for a product or commodity decreases - or is expected to decrease - its price will also go down.

Yet, the Taylors’ thesis is certainly worth considering, and SRI investors are wise to pay attention to some interesting disturbances within the energy sector itself that could shed more light, and might reap more profits.

Disrupting Energy Technologies

The Taylors remind us that periods of change are brought on by innovation. A shortage of stones didn’t shift the Stone Age into the Bronze Age. Rather, the discovery of a superior technology (bronze) made stone tools obsolete. Similarly, the horse and buggy era didn’t come to a close due to fewer horses. The internal combustion engine made traveling by horse antiquated and inefficient.

Today, a global energy disruption could be dawning, caused by more efficient, renewable technologies exposing the increasing costliness of developing fossil fuels, as well as the damage being done to our atmosphere.

Fossil fuels are increasingly costly and time-consuming to transfer into energy. They must be mined, drilled, refined, and transported - and that’s after the actual discovery of the raw materials, which is becoming more and more difficult.

Compare that to renewable energy sources like wind and solar. The raw materials required - wind and sunshine - are all around us. Furthermore, they only need to be collected and converted into electricity. No exploration, mining, drilling, or refining is needed, and renewable energy gives off practically no pollution.

This is a game changer because the cost of the raw materials used to produce renewable energy is zero. Fossil fuels simply can’t continue to compete with that, even with crude oil being as low as $30 per barrel.

Until recently, one of the biggest limiters to the growth of renewable energy has been storage. Fossil fuels store energy in their natural state, and release it when the fuels are burned. Renewable energy must be stored once it is created so consumers can use it as needed. Without storage, renewable resources are only an intermittent source of energy. To solve this issue, companies are investing billions in the advancement of electric storage technology. Leading the pack, Tesla* has announced its new Powerwall, a home-based electricity storage system that stores the electricity produced by solar panels.

As alternative energy technologies advance and prices decline, electric vehicles will replace gasoline-powered ones. Already, the benefits of an electric car over a gasoline one are almost too overwhelming to ignore. A recent example from Consumer Reports estimated that it cost about $3,000 annually to fuel a Jeep Cherokee in 2013 (assuming roughly 12,000 miles were traveled). Comparatively, the cost of driving a Tesla Roadster the same distance is only $315 per year. That means, over a five-year period, there is a fuel savings of over $13,000. Not only are electric vehicles cheaper to drive, they are cheaper to maintain. They require less service and have fewer parts, meaning fewer things to repair over the life of the car.

Its Complicated, but…. 

The recent precipitous drop in oil prices is very likely due to a variety of complex economic factors. The price of oil has long been a leading indicator of the health of a global economy dependent on fossil fuels for its crucial energy needs, so oil’s recent price drop has the markets fearing a global recession. Yet, could the problem be about oil itself as well as the economy? 

The Saudi Arabian Oil Company (Aramco) has recently stated it is considering an initial public offering to sell off some of its assets. This could be aimed purely at diversification, but the company could also be seeking to divest itself of assets that might become obsolete in the next 20 years.

If the world's largest oil-producing country is considering diversifying part of its fossil fuel-based energy holdings, maybe it’s time individual investors contemplate doing the same. The market currently distinguishes little between fossil fuel energy prices and alternative energy prices - but if the latter is truly beginning to displace the former - SRI investors are in the right place. 

Mention of specific securities is not a recommendation to buy or sell that security.  Past performance is not indicative of future results.

Bear Sighting – Time to Panic?

The global stock markets do seem to be in panic mode right now.  In the first two weeks of 2016, the U.S. S&P 500 index was down 8% on the year, close to correction territory (a 10% decline), with some predicting a bear market (a 20% decline).  

We’ve also been hearing a widely publicized, rather alarming prediction from Royal Bank of Scotland analyst Andrew Roberts, saying that the global markets “look similar to 2008.”  Mr. Roberts is also predicting that technology and automation will wipe out half of all jobs in the developed world.  If you listen closely out the window, you can almost hear traders shouting, “Sell!  Head for the exits!”

When you’re in the middle of so much panic, when people are stampeding in all directions, it’s hard to realize there might be no actual fire in the theater.  Yes, oil prices are down around $30 a barrel, and could go lower, which is not exactly terrific news for oil companies and oil services concerns—particularly those who have invested in fracking production.  But cheaper energy IS good news for manufacturers and consumers, which is sometimes forgotten in the gloomy forecasts.  Bad news for oil could also mean some good news for alternative energy and the environment, especially given that energy demand is not likely to plummet indefinitely.  There is plenty of angst about China.  Chinese stocks and the Chinese economy are showing more signs of weakness, and this is affecting expected energy demand.

So what about the RBS analyst who is yelling “Fire!” in the crowded theater?  A closer look at Mr. Roberts’ track record shows that he has been predicting disaster, with some regularity, for the past six years—rather incorrectly, as it turns out.  In June 2010, when the markets were embarking on a remarkable five-year boom, he wrote, “We cannot stress enough how strongly we believe that a cliff-edge may be around the corner, for the global banking system (particularly in Europe) and for the global economy.  Think the unthinkable,” he added, ominously. (“The unthinkable,” whatever that meant, never happened.)

Again, in July 2012, his analyst report read, in part: “People talk about recovery, but to me we are in a much worse shape than the Great Depression.”  Wow!  Wasn’t it scary to have lived through, well, a 3.2% economic growth rate in the U.S. the following year?  What Great Depression was he talking about?  Taking his advice in the past would have put you on the sidelines for some of the nicest gains in recent stock market history.  And it’s interesting to note that one thing Mr. Roberts did NOT predict was the 2008 market meltdown.

As we stated in last week’s blog, the most simple and best explanation is that this recent drawdown is entirely normal.  Since 1950, the U.S. markets have experienced a decline of between 5% and 10% (the territory we’re in already) in 35.5% of all calendar years.  One in five years (22.6%) have experienced drawdowns of 10-15%, and 17.7% of our last 56 stock market years have seen downturns, at some point in the year, above 20%.  

Stocks periodically go on sale because people panic and sell them at just about any price they can get in their rush to the exits, and we are clearly experiencing one of those periods now.  Whether this will be one of those 5-10% years or a 20% year, only time will tell.  But in the past, every one of those drawdowns eventually ended with an even greater upturn and markets testing new record highs.  

So stay in your seats. Don’t join the panic. Enjoy the movie instead.

Beauty and the Bear

Last week, just as people were getting underway with their new year, markets around the world opened in steep decline. Although it is not officially a bear market, that burly beast is on the tip of many an investor’s tongue - and mind. 

Are we heading into a bear market? That remains to be seen. But bear markets happen periodically, and what’s most important when they do occur isn’t when they happen. Rather, it’s how you react to them.  Avoiding panic during bear markets is key to successful investing – and to building long-term wealth.

If you look at the stock market over the past century, there are several important things to note and remember. First, markets are cyclical - an endless stream of ebbs and flows, gains and losses, highs and lows. In addition, over time, they’ve gone up more than they’ve fallen – yielding consistent, steady gains over the long term. Past performance doesn’t guarantee future results, but this trend is long-standing.

Even more beautiful is that low points in the market are when there is the greatest probability of future gains. Periods of high performance begin when current performance is low.

It’s natural to consider selling when stocks are on the decline, but that is exactly what you don’t want to do. In fact, investors who succumb to fear and sell during bear markets can do significant damage to their long-term wealth. Not only are they selling when returns are at their lowest, they are selling when the odds are greatest that future returns will be high.

So, whether the next bear market is still in the future or at our doorstep right now, we invite you to stay present to the cyclical nature of the market, and see the opportunity such an environment provides. SRI investors are patient investors, having faith that in the long run their prudent investments in the companies that have the best chance of leading a sustainable economy will pay off, for them and the world. 

Stock Market Correction – It’s Here

The markets are experiencing their first market correction in about 1,000 days. Here’s what you’ll want to keep in mind as you contemplate your portfolio’s volatility right now.

First, stock market corrections happen fairly often, on average about once a year. The current market has been doing better than average by that measure. If you own stocks in your portfolio at all, it will experience the effects of these corrections periodically.

Second, corrections are unpredictable. We cannot know ahead of time when they will happen or why, and we cannot prevent them. Selling stocks in anticipation of a correction is a fool’s errand. The investor attempting this will be wrong as often as right. And even if that investor happens to guess correctly when anticipating a correction, knowing when to buy back into the market is equally difficult and fraught with error.

Here’s the good news, though. Stock market corrections are normally shorter in duration than bull markets on the upside. They might last half a year or more – some last only a few weeks. This means if you are a long-term investor with a diversified portfolio appropriate to your financial situation, a stock market correction matters very little to you. Over the long term, the stock market has averaged about an 8% positive annual return, and although historical performance is no guarantee of future results, this statistic does point in your favor.

Long-term investors with a coherent and prudent investment plan are in the best position they can be in. If you are working with me or with Amy, that plan is in place.

A Bullish Mood Remains for U.S. Stocks and SRI – 2014 Into 2015

The U.S. economy picked up steam throughout 2014, and the S&P 500 Index racked up another double-digit gain following 2013’s 30% advance. The economic forecast was reasonable. Though a call for another double-digit advance might have seemed a bit of a stretch, solid market fundamentals remained in place throughout the year.

We also received exciting news about SRI in 2014. Sustainable, responsible, impact investing (SRI) assets have expanded 76 percent in two years: from $3.74 trillion at the start of 2012 to $6.57 trillion at the start of 2014, according to the US SIF Foundation’s latest biennial survey, the Report on US Sustainable, Responsible and Impact Investing Trends 2014. 

As a result, assets managed with SRI strategies now account for more than one out of every six dollars under professional management in the United States!

The fossil free investment campaign also picked up steam in 2014, with more and more investors electing to divest their portfolios from investments in fossil fuel companies. While one of the rationales for the movement has been that climate change imperatives will make oil a much less profitable investment in the future, few could have predicted the outright collapse in oil prices during the year. We began the year near $100 per barrel and ended just north of $50 per barrel. When and where oil will stabilize is anyone’s guess, but the decline in crude is responsible for the 10% drop in the S&P Energy sector. It was the worst performing of the 10 industry groups that make up the S&P 500 Index.

Although the S&P 500 as a whole and the NASDAQ mirrored the continued improvement in the U.S. economy, other market sectors, particularly those outside the U.S., faired much less well, as the chart indicates:

Galloping Bull?

There were times this past year when we hit a patch of volatility. But the fundamentals quickly re-asserted themselves, driving stocks to new highs. These included:

  • Acceleration in domestic economic activity, which led a pickup in earnings growth. S&P 500 earnings improved from a modest increase of 5.6% in Q1 to a solid 10.3% by Q3, according to Thomson Reuters.
  • A pledge by the Fed to keep short-term interest rates at rock bottom levels for a “considerable time.” Low interest rates improve the competitive advantage for stocks.
  • Stock buybacks by corporations continue to rise. According to S&P Dow Jones Indices, combined dividend and buyback expenditures set a new record of $892.66 billion for the 12 months ended September 30, with stock repurchases representing 62% of the total. Stock buybacks reflect confidence as well as real demand for shares.

Jeremy Siegel, Professor of Finance at the highly respected Wharton School of Business and well-known market commentator, projected this time last year the Dow Jones industrials would hit 18,000 by the end of 2014; the index cracked that milestone on December 23. But although his recent analysis has seemed spot on, it’s fair to point out that Siegel was relatively bullish on stocks as part of a panel discussion that was published by Business Week in May 2000.

This highlights why First Affirmative always preaches diversification between and among asset classes. No one has a crystal ball. This has already been a historically long bull market, and one can never accurately foresee the unexpected events that may derail the most thoughtful forecasts.

A sneak peek at 2015

The fundamentals that have fueled equity gains in recent years remain in place. Even as the Fed ended its controversial bond-buying program last October, the fed funds rate is expected to remain at historically low levels through at least the end of 2015 and possibly beyond.

Moreover, the European Central Bank continues to hint that a more ambitious plan is in the works, as it battles a severe disinflationary environment. Central bank generosity has historically been a tailwind for stocks.

Yet caution is also in order. While strong fundamentals remain in place, risks never disappear, even in a diversified portfolio. We can manage but not eliminate risk – leading to the next question – what might be some of the events that could create volatility in 2015.

The year ended with oil near $50 per barrel. A recent story in Reuters noted $150 billion in energy projects around the globe face the axe. That means there will be winners and losers at current prices, though the net gain to the economy should be positive.

Lest we get too excited about alternative energy investments in the near future, however, we should remember that cheap oil at the consumer level means less immediate incentive for the use of alternative energy – and a depressed energy sector in stocks tends to include the alternative energy sector as well. Yet the outlook for the slightly longer term is improving steadily as rapid advances in recent alternative energy development are changing the economics of energy in its favor. We continue to watch these developments closely.

Slowing growth in China could dampen growth at home – yet the odds are fairly low as the U.S. simply isn’t dependent on overseas demand to drive its economy. So far, U.S. growth has accelerated in the face of global jitters.

Will we get volatility if and when the Fed hikes interest rates for the first time in nearly a decade? There are no guarantees when it comes to Fed policy, but if U.S. employment and economic growth continues at the current pace, the Fed has signaled rates will start rising in 2015. Although it is doing its best to telegraph its intentions, markets could get jittery in the interim.

Cyber-attacks. North Korea’s alleged attack on Sony quickly comes to mind. It’s impossible to forecast, but the outside chance of a big event can’t be completely discounted.

Geopolitical fears. War or geopolitical instability has historically caused short-term losses. Whether the Arab spring, Russia’s incursion into Ukraine, or the rise of ISIS in Iraq, heightened uncertainty is not a friend of investors.

Bottom line

We always stress the importance of being comfortable with your portfolio. While a fundamental tenant of our investment strategy is to mitigate investment risk as much as possible, you must be comfortable with the level of risk you’re taking as we set out to meet your objectives. If you are not, let’s talk and recalibrate.

Stick to the plan. Markets rise and markets fall, but unless there have been changes in your circumstances or you’ve hit milestones in your life (such as retirement), stay with the plan. By itself, a record high in stocks isn’t a good reason to bail out of stocks. Rebalance. Last year’s rise in equities might have knocked you out of alignment with your target stock and bond allocations. Know that we are monitoring your portfolio and will rebalance periodically as appropriate.

Finally, be proud of your SRI portfolio. As more and more investors incorporate their values into their investments and adopt SRI strategies, they are collectively becoming more influential. You are contributing to, and investing in, the kind of future in the kind of world we hope to live in and leave to our children and grandchildren. For our part, we’re proud to be your financial advisors!

If you have any questions about what you’ve read here, or about your portfolio, please let me know.

Note: Past performance is not indicative of future results. Indices are unmanaged groups of securities and are not directly available for investment.

Clean Power Plan is right for New York

The Global Commission on the Economy and Climate recently released a report indicating that clean energy policy and investments to halt climate change may pay for themselves. We don't have to choose between economic growth and tackling climate change. Investments in renewable energy and energy efficiency can help us achieve both goals.

As a professional advisory practice specializing in sustainable, responsible, impact investing, we've been benefiting from this insight for years. We are able to help our clients prosper and grow their wealth while contributing to a more sustainable planet. That's why we support the Environmental Protection Agency's Clean Power Plan — the first national effort to address greenhouse gas emissions from our nation's power plants. We're not alone in our support. Nearly 50 investors who manage over $800 billion in assets also agree. The Clean Power Plan will limit carbon pollution and help catalyze new investments and economic growth in a clean energy economy.

Opponents of the new standards express concerns about increased electricity prices and the reliability of our electric power system. But the electric power sector has a long history of innovating to meet clean air requirements while keeping our lights on and rates affordable.

Republican Rep. Chris Gibson has stood in the face of political pressure and voted against efforts to curb the EPA's ability to set carbon emission limits for power plants. We need more leadership from policymakers to do what's right for the environment and the bottom-line.

Climate change creates additional risks for businesses and investors. Extreme weather events, sea level rise, droughts, and changes in weather patterns all pose a threat to business, jobs, and security. The Clean Power Plan will help states reduce these risks on a comprehensive basis by cutting carbon emissions and providing long-term policy signals for investors — giving businesses the certainty they need to transition to a clean energy economy.

A new report from Ceres, a nonprofit sustainability group, found that nearly half of Fortune 500 companies have targets for greenhouse gas reduction, energy efficiency, or renewable energy. Companies have put a priority on clean energy and are investing in renewable energy and energy efficiency to meet their goals. The ability to source electricity from renewable sources has become a major factor when companies decide to locate facilities.

New York has a history of working to reduce emissions and grow the economy. Our state is a founding member of the Regional Greenhouse Gas Initiative (RGGI), a market-based program aimed at reducing greenhouse gas emissions across the Northeast and Mid-Atlantic. As of 2013, New York collected over $583 million in proceeds from RGGI and has since used the funds for energy audits, energy efficiency measures and cleaner energy sources for residential, commercial and industrial buildings.The benefits of transitioning to renewable energy sources extend beyond good economics. Reducing carbon emissions will improve the health and quality of life for future generations.

The Clean Power Plan will help pave the way for new investment in clean energy throughout the state of New York. Companies and investors are already working to build a more sustainable economy and the Clean Power Plan is another step in the right direction.

Socially Responsible Investing – What's Jeter Got To Do With It?

Last week, I watched on TV as Derek Jeter played the last professional baseball game of his fabulous career at Yankee Stadium.  If you didn't see it yourself, you might have heard about it anyway by now, even if you're not a Yankee fan, or even a baseball fan.

I retired from baseball myself at age 11, still in the minor league (that’s right, I didn't even make it into Little League), so I'm not sure why I eventually became a baseball fan.  It helped, of course, that I grew up in the Hudson Valley of New York watching Mickey Mantle and Yogi Berra play.  It also helps that baseball can be so dramatic – innings go by one by one with nothing special happening, and suddenly there is the hoped for hit, the fantastic catch, or the unbelievable error, and the whole game changes in a heartbeat.

In his twenty seasons as the shortstop of the New York Yankees, perhaps no one has had more flair for the dramatic than Derek Jeter.  Last night was no exception.  The Baltimore Orioles led off the top of the first with back-to-back home runs to take a 2-0 lead.  With one man on base, Jeter hit a double in the bottom of the first to get the Yankees’ first run, and then crossed home plate later in the inning to tie the score.  Later in the game, with the score still tied, Jeter hit a ball straight to the Orioles’ shortstop, who promptly threw the ball away scoring two more Yankee runs.  The Orioles, first place in their division this year, weren't ready to cave in.  In the top of the ninth inning, they hit two more home runs to tie the score at 5-5, setting the stage for another dramatic finish for Jeter.  With a man on base, he came up in the bottom of the ninth and smashed a single into right field (his signature hit) scoring the winning run.  In all, Derek Jeter factored into 5 of the Yankees’ 6 runs, in his last game at the Stadium, capping off one of the most successful careers in baseball history.

Sorry, I get carried away.  You might not even be a baseball fan.  And I'm not even writing this because Derek Jeter is a great baseball player.  I'm writing this because of the way he has played.  This has been Jeter’s final season, and everywhere he has been, the fans (all the fans, of all the teams) have cheered and showered him with praise.  Derek Jeter, in his 20 seasons as a Yankee, has not only been the face of his own team, but the iconic and admired hero of baseball and all of sports.  

What moves me is that Derek Jeter is just a human being like the rest of us.  It is well known he didn't become one of the best and most admired baseball players of all time because he had more natural talent than anyone else.  He has been very successful, yes.  But he is uniformly admired and loved because he has played the game and lived his life with integrity, grit, dedication, humility and compassion.  And because he has done that, he has influenced millions to live their lives in like manner.  He has contributed mightily to a better world for all of us.

I’m not Derek Jeter.  I retired from baseball at age 11.  I'm a professional financial advisor who specializes in socially responsible investing (SRI), and I do that because I believe it will help create a more compassionate and sustainable economy, one that works for everyone.  In short, I also want to contribute to a better world for all of us.  Every day, I work with clients who invest their money in ways that express their integrity, their compassion, and their commitment to a better world.  Even without a lot of natural talent (OK, I'm speaking for myself), we all make a difference.  SRI investors are making a positive difference in the world every day, and I'm proud of that.

GRI Grows to Become Leading CSR Framework

By Tyler Collins

The Global Reporting Initiative Sustainability Reporting Guidelines ranks among the top corporate social responsibility (CSR) instruments among large European companies, according to recent research from the European Commission.

The Global Reporting Initiative (GRI) is a non-profit organization that promotes corporate sustainability reporting. It was created in 1997 by Ceres, a national network of investors, environmental groups, and other public interest organizations.

Thousands of organizations now use the GRI’s Sustainability Reporting Framework, the organization’s family of reporting guidelines, in order to understand and communicate their environmental, economic, and social sustainability performance.

Since releasing its first Reporting Guidelines in 2000, its global network has grown to more than 600 organizational stakeholders and over 30,000 people representing different sectors and constituencies. GRI has also developed key strategic partnerships with the United Nations Environment Programme, the UN Global Compact, the Organization for Economic Cooperation and Development, and the International Organization for Standardization.

GRI’s Deputy Chief Executive Teresa Fogelberg said, “If we are to truly achieve the transition to a sustainable global economy, there is an urgent need for all companies to embrace sustainability disclosure. The question to answer is no longer ‘Why report?’ but ‘Why are you not reporting?’”

Despite its staggering success, there is still room for improvement. While 95% of the world’s largest companies produce sustainability reports, overall less than 10% of publicly traded and trans-national companies report on their sustainability practices.

A proud supporter of the GRI, First Affirmative has been a member of the Ceres network of companies since it was first founded in 1989 with the creation of the Valdez Principles—now the Ceres Principles—in response to the catastrophic Exxon Valdez oil spill. Only 20 years later, Ceres has a growing network of over 80 companies, 130 NGOs, and $7 trillion of investor assets.

More information about Ceres and the Ceres 20Ÿ20 vision.

Posted: April 18, 2013

Create a World Where Every Child Is Safe, Secure and Lives Without Fear

By George Gay

Each year the professionals of First Affirmative gather together for an evening of recognition, networking and fellowship.  Each year, several people are asked to present a talk that we call "Why We Do What We Do."  We have found that, without fail, each person reveals things that we did not know, and shares their path of service and values.  The evening is, every year, a high point of the gathering and inspires each of us.

Inspired by Simon Sinek’s "Start With Why: How Great Leaders Inspire Action" we believe that we should share WHY First Affirmative does what it does.  We work to make life better for everyone, as defined by looking through the eyes of a child.  We help people use their money and resources to provide a better future for themselves, while building a better world for all.

Taking a page from the Hippocratic Oath, we start with the concept "First, do no harm."

Screening out investments in companies that make products or support markets that are violent, or dangerous or unhealthy seems to us to be an obvious choice.  Why would we wish to use our money to harm other people, simply to benefit ourselves?

We believe that making investments that improve the human condition around the world will create a "virtuous cycle" of inter-related benefits which will lead to investment success over time.

We search for investments that provide or support:

  • Clean and Sustainable Energy
  • Fresh and Clean Water
  • Adequate Supplies of Healthy Food
  • A Livable Climate
  • Waste Minimization
  • An End to Impoverishment
  • Justice, Fairness and Equal Opportunity
  • Peace and Security
  • Health and an Acceptable Quality of Life.

These nine areas are inextricably inter-related.  The absence of one reduces the potential for all of the rest.  The presence of all creates a peaceful, just and sustainable society.

This is Why WE Do What We Do.  We hope that you will join us.

Tax Relief for Disaster Victims

The IRS has announced that victims of Hurricane Sandy (and other disasters) in 2012 have additional time to file returns and pay estimated taxes. Details are available on the IRS website.

Who Qualifies

Only taxpayers considered to be affected taxpayers are eligible for the postponement of time to file returns, pay taxes and perform other time-sensitive acts. They include:

Any individual whose principal residence, and any business entity whose principal place of business, is located in the counties designated as disaster areas; Any individual who is a relief worker assisting in a covered disaster area, regardless of whether he is affiliated with recognized government or charitable organizations; Any individual whose principal residence, and any business entity whose principal place of business, is not located in a covered disaster area, but whose records necessary to meet a filing or payment deadline are maintained in a covered disaster area; Any estate or trust that has tax records necessary to meet a filing or payment deadline in a covered disaster area; and Any spouse of an affected taxpayer, solely with regard to a joint return of the husband and wife.

Relief Available

Affected taxpayers are given extended due dates for filing many tax returns (including individual, estate, trust, partnership, C corporation, and S corporation tax returns and others) or to make related estimated tax payments that have original or extended due dates falling on or after the onset date of the disaster but on or before the extended due date. Disaster onset dates are specified by state and county. See a partial list below.


Federally-declared disaster areas from Hurricane Sandy are: Fairfield, Middlesex, New haven, New London counties, and the Mashantucket Pequot and Mohegan Tribal Nations). For these places, the onset date was October 27, 2012 and the extended date is February 1, 2013 (mostly affecting 4th quarter estimated tax payments otherwise due on January 15, 2013).

New Jersey

Federally-declared disaster areas from Hurricane Sandy are: Atlantic, Bergen, Burlington, Camden, Cape May, Cumberland, Essex, Gloucester, Hudson, Hunterdon, Mercer, Middlesex, Monmouth, Morris, Ocean, Passaic, Salem, Somerset, Sussex, Union and Warren counties. For these places, the onset date was October 26, 2012 and the extended date is February 1, 2013 (mostly affecting 4th quarter estimated tax payments otherwise due on January 15, 2013).

New York

Federally-declared disaster areas from Hurricane Sandy are: Bronx, Kings, Nassau, New York, Queens, Richmond, Rockland, Suffolk and Westchester counties. For these places, the onset date was October 27, 2012 and the extended date is February 1, 2013 (mostly affecting 4th quarter estimated tax payments otherwise due on January 15, 2013).

SRI survey reveals desire for investments with greater impact...


Released One Month Ahead of Major Industry Event, The 2012 SRI Conference Survey Finds Impact Investing Likely to Fuel SRI Growth Over Next 12 Months; More Institutions Seen Warming to SRI/ESG Focus with Impact Investing in Forefront.

COLORADO SPRINGS, Colo. – September 5, 2012 – If you think that SRI is only about investing in socially screened mutual funds, you haven't been paying enough attention.  The rapid rise of "impact investing" is going to have a big impact on the world of sustainable, responsible, impact (SRI) investing in the coming year, according to The 2012 SRI Conference Survey of more than 200 SRI professionals.

The first annual survey conducted by First Affirmative Financial Network is being released today, one month ahead of The 2012 SRI Conference (formerly known as SRI in the Rockies), the largest annual gathering of responsible investors and investment professionals in North America.  Set for October 2-4, 2012 in Connecticut, the 23rd annual SRI Conference is on the East Coast for the first time, in close proximity to New York City, Boston, and Washington, D.C.  For registration and other information, go to http://www.SRIconference.com.  

The term "impact investing" encompasses a range of approaches—including microfinance and private equity in developing markets—that allow institutions and individual investors to get involved in solving specific social and environmental problems while also generating a return.  In some cases, impact investing is designed to achieve market returns; in other cases, a portion of the returns is devoted to achieving a greater social impact.  

The August 2012 online survey of 218 SRI/ESG professionals includes the following key findings:  

  • The #1 growth area for SRI in the next 12 months identified by the largest number of respondents is "impact investing" (35 percent), while another 29 percent see the biggest growth taking place in "screened investing/ESG integration."
  • More than three out of five respondents (62 percent) expect "institutional investor acceptance ofSRI/ESG to improve in the next 12 months."
  • What will it take to get wider institutional acceptance of SRI?  The top three responses are: "increased emphasis on impact investing for institutions that have 'making a difference' as part of their mission" (47 percent); improved performance (43 percent); and "increased emphasis on community investing" (35 percent).
  • More than three out of four respondents (78 percent) say "SRI is growing and will continue to do so."  Only 8 percent say SRI is "headed for a leveling off or a slowdown."

First Affirmative President, Steve Schueth, producer of The SRI Conference, said:  "After the recent financial crisis, more and more investors have hungered for a way to have a more direct connection between their money and the impact it is having in the world.  This survey shows that the sustainable, responsible, impact investment industry is innovative and vibrant—as vital for institutions and individual investors today as it was decades ago during the fight against Apartheid. Impact investing is the latest way that investment professionals who work with socially conscious investors are helping to deliver positive returns as well as positive change—for the common good."   

Other key 2012 SRI Conference Survey findings include the following:   

  • SRI investment performance is expected to "do about as well as the overall market" (46 percent) and nearly a quarter of respondents (23 percent) expect it will do "slightly better than the overall market."  
  • What are the three biggest roadblocks to wider individual acceptance of SRI?  The top three responses are:  "perceptions about performance" (74 percent); "investor confusion over the growing number of terms used to describe SRI (e.g. 'impact investing,' 'sustainable investing,' 'socially conscious investing,' 'green investing') (39 percent); and "the slow economy" (34 percent).
  • The most prevalent areas of SRI career focus are: screened investing/ESG integration (69 percent); shareowner advocacy (36 percent); community investing (44 percent); and impact investing (26 percent).
  • Nearly half (46 percent) of the respondents have been in the SRI/ESG field for a decade or longer, with 36 percent logging 10-25 years of service, and another 10 percent active more than 25 years. Another 31 percent have been in the field for three-10 years.  Nearly three-quarters of those responding (71 percent) would "advise a new financial professional to enter the (SRI) field," and almost exactly the same portion of respondents would "make the same career decision if they could do it all over again."  

About the SRI Conference The SRI Conference (http://www.SRIconference.com) is the leading forum for the sustainable, responsible, impact (SRI) investment industry in North America.  For more information about the agenda, speaking, or sponsorship, please contact Krystala Kalil, at 888-774-2663 or [email protected].  Register at http://www.sriconference.com/register.jsp.