September 26, 2023

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Good day. Becoming a millionaire is one of the most common pursuits among the financially savvy, and it's not exactly as rare as you might imagine. Can you guess what portion of U.S. adults are considered millionaires right now? a. 5%, b. 9%, c. 14%. Follow the wave 🌊 below for the answer.

Here are today's money topics:

Is ESG Investing Worthwhile?
Investments to Make in Yourself
Becoming a Retirement Account Millionaire

INVESTING

Is ESG Investing Worthwhile?

Simply put, ESG investing is a conscientious way of investing in businesses that align with your values. Investors want to measure the societal impact of the businesses they're investing in, and ensure they are sustainable too.

It stands for environmental, social, and corporate governance, and it's probably been around longer than you think. ESG investing began back in the 1960s when investors began excluding entire market segments from their portfolios such as tobacco and defense contractors.

That all sounds like a noble, worthwhile undertaking on the surface, but from an investor's point of view — is it worth it?

Let's look more closely

Overall growth: Total assets under management (AUM) by ESG-oriented ETFs increased to north of $2.5T by the end of 2022, a jump of more than 4x in the last 6 years.
Performance: ESG is a very broad categorization, and because of that, produces equally broad returns across fund offerings.
The differences between funds: Vanguard's $ESGV, for example, is a very broad fund that hoists popular tech stocks like Apple, Microsoft, and others as its top holdings and has similar yearly returns to the S&P 500. But for a more niche fund like iShares $ICLN, which focuses on clean energy, investors have lost almost 20% this year and lost over 50% since inception.
Better isn't always better: A 2019 study published in the Journal of Finance found that amongst more than 20,000 ESG funds holding more than $8T in cash, those who scored higher in sustainability did not outperform those who scored lower. Meaning? For now, ESG is mostly a moral choice, not a performance-based one.
Investment integrity: When it comes to ESG funds, one of the most important questions we can ask is this — does it actually do what it sets out to do? It's quite easy for an investor to search up "top ESG funds" and see which ones have scored well, but it's another thing entirely to actually understand the holdings, and if those companies are actually contributing to change and sustainability.

What should we take away from this?

Your overall investing goals are more important than trying to go green. We know that performance varies wildly amongst ESG funds, and at best, those with the highest returns will also be more inherently volatile — you may get paid now to rob yourself later.
Despite its flaws, gray areas, and questions, the motive behind ESG investing is generally a noble one. If you've already established a sustainable, consistent retirement investment strategy, then there's nothing wrong with picking out some ESG funds or companies that you align with and adding those to your explorative portfolio.

What is ESG Investing?

Advanced Investing

7 mins

PERSONAL FINANCE

Investments to Make in Yourself

It's hard to invest in the markets without first investing in yourself. It's almost impossible. Without first securing some income, productivity, solid routines, and hopefully good mental health, we wouldn't have the time, money, or motivation to invest.

Creating a healthy and productive life for yourself is the foundation of a healthy financial life, and one can't exist without the other.

Ways to invest in yourself

Pay yourself first: It sounds ironic, but "paying yourself" first is one of the most important moves you can make when investing in yourself. The idea here is to prioritize your saving, investing, and budgeting and set up some automatic transfers that streamline the process for you. The best investment you can make in yourself is to secure these essentials and the peace of mind that comes with them.
Eliminate bad debt: Sometimes debt can benefit you, but debt that doesn't serve you can be a major drag to your budget and get in the way of your goals. This year, make it a priority to reduce any bad debts you might have to clear up room in your expenses and eliminate as many interest payments as possible.
Get organized: A home is worthless without a good foundation, and the same could be said about life as well. Without a sustainable structure beneath it all, any progress is liable to crumble beneath us at any given time. And a solid foundation and plan precede almost all good actions because starting with the end in mind makes achieving your goals exponentially easier.
Learn and build new skills: Consider taking classes or earning a degree in a field that interests you or that will improve your career prospects. Or develop new skills through training programs, workshops, or self-study. And if you work for a company that offers education reimbursement benefits, take advantage of it as it can offer your career a nice ROI boost. Employer-sponsored learning resources not only afford you more skills but also save you potentially thousands of dollars.

MONEY MINDSET

Becoming a Retirement Account Millionaire

Being a millionaire is one thing, but reaching that same status with your retirement account alone is an even greater feat.

Retirement account millionaires have grown drastically this year too. Fidelity recently found that roughly 378,000 of their retirement savers with a 401(k) have racked up a total balance north of $1M — a 25% increase from the end of 2022. (Thanks, market rebound.)

It wasn't just 401(k) account holders, but IRAs as well, increasing similarly to about 350,000 accounts holding $1M or more and placing them in the top 2.5% of Fidelity IRA accounts.

Despite the recent spike, these numbers still fall short of their previous peaks around the end of 2021 prior to last year's bear market.

Of course, $1M isn't the perfect number or anything, but this accomplishment still serves as a benchmark that beckons for the rest of us to stay the course of our own retirement plans.

So, what are the best ways to do that?

Be a high contributor: Fidelity's study found that among their 401(k) millionaires, the average contribution rate was 17.2%, with employers kicking in another 9.3% to their account.
Be patient: These retirement account millionaires aren't just youngsters or lucky traders. No, the average age among the 401(k) group was 59 years. What does this tell us? Patience is important, and that slow and steady wins the race.
Don't compare yourself: Those high numbers can easily make many of us feel small in comparison, but let's not forget the norm. The overall average amongst all account holders in the data was $112,400 for 401(k)s and $113,800 for IRAs.

Boost Your Retirement Savings

Retirement Planning

8 mins

🌊 BY THE WAY

💰 Answer: 8.8% of U.S. adults are considered millionaires (Zippia)
🚗 "Affordable" new cars aren't a thing anymore (Axios)
👀 ICYMI. Tipping is becoming an issue (Finny)
🤖 An AI for life advice? Google is going there (CNBC)
📚 Finny lesson of the day. One of the top investments you can make in yourself is via a solid budget, but what good is a budget if it doesn't stick?

Make Your Budget Stick

Budgeting & Saving

6 mins

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