By: Chris Fuksman, CFP®
For decades, investing has been measured primarily by one question: What return can I expect? Today, many investors are asking a second question: What am I investing in?
Whether it's environmental sustainability, medical advancement, corporate governance, or support for specific industries, more people want their portfolios to reflect what matters most to them. This method permits investors to match their financial capital with their personal convictions while maintaining a disciplined, long-term investment strategy.
At HIGHLAND Financial Advisors, we believe investment decisions should always begin with your financial plan. Once your goals, risk tolerance, and long-term goals are established, your portfolio can often be customized to reflect the values that are important to you without abandoning sound investment principles.
What Is Values-Based Investing?
Values-based investing combines an investor’s personal beliefs, priorities, or objectives into the investment selection process.
Traditional investment analysis typically focuses on expected return, diversification, risk, cost, and tax efficiency. Values-based investing adds another consideration: Does this investment align with what matters most to me?
Every investor may answer that question differently. Personal priorities could include:
Environmental sustainability or corporate governance
Healthcare innovation and social impact
Avoiding certain industries entirely
The idea is to create an investment strategy that aligns your financial goals and personal priorities.
Planning-First Philosophy
One common misconception is that personal values should drive investment decisions from the very beginning. In practice, however, sound portfolio construction should always begin with comprehensive financial planning.
This is consistent with the fact that investment decisions are most effective when coordinated with cash flow, tax planning, retirement planning, estate planning, and long-term family objectives, rather than viewed in isolation.
Values-Based Investing Is Highly Personal
Values-based investing means different things to different people. As such, there is no universal values-based portfolio. One investor may prioritize renewable energy. Another may focus on companies working in medical research. Some investors simply want greater transparency around the companies and industries represented in their portfolios.
Even investors who share similar priorities may define those priorities differently. For example, one investor may want to completely exclude a particular industry, while another may prefer to invest in companies within that industry that demonstrate strong environmental practices.
Successful implementation calls for understanding both the investor’s financial objectives and the specific values they want their portfolio to reflect.
Values-Based Investing Is Broader Than ESG
Values-based investing is often associated with environmental, social, and governance (ESG) investing. However, values-based investing can be much broader.
An investor’s preferences may involve environmental concerns, but they could also focus on healthcare, community development, corporate behavior, and more.
Values-based strategies may be implemented through several approaches, such as:
Excluding specific companies or industries
Expanding exposure to selected investment themes
Using mutual funds or exchange-traded funds with defined screening criteria
Using separately managed accounts with individual security restrictions
Incorporating charitable or impact-oriented investments
The appropriate approach depends on the investor’s goals, portfolio size, tax situation, investment preferences, and desired level of customization.
Maintaining Diversification
Many investors wonder whether aligning investments with personal values sacrifices diversification. Luckily, today’s investment environment provides unique flexibility to be able to incorporate investment preferences and still maintain exposure across multiple asset classes, industries, sectors, and company sizes, including:
Domestic & Foreign Equities
Domestic & Foreign Bonds
Private Market investments, when appropriate
However, every investment restriction creates potential tradeoffs. The more narrowly an investor limits the available investment universe, the fewer diversification opportunities may remain. Excluding an entire industry, country, or group of companies can result in a portfolio that behaves differently from the general market.
The goal is to strike the right balance between diversification and personal values.
Will Values-Based Investing Affect Performance?
One of the most common questions investors ask is whether aligning investments with personal values will affect long-term returns. The answer depends on how those preferences are ultimately incorporated.
Investors should be wary that reducing the available investment universe can affect diversification and, ultimately, returns. For example, excluding a sector that is performing well could cause a portfolio to underperform a broad-market benchmark during a particular period.
Rather than assuming values-based investing is worse than traditional investing, investors should evaluate whether their customized portfolio remains aligned with their financial plan and overall risk tolerance.
Your Values May Change Over Time
Financial plans evolve throughout life, and personal priorities usually evolve with them. An investor’s views may also change as industries, technologies, and companies evolve.
For that reason, values-based portfolios should be reviewed periodically. The review should consider whether the strategy continues to reflect:
Current financial goals
Risk tolerance
Tax circumstances
Income and liquidity needs
Estate planning objectives
Personal values and priorities
Portfolio reviews are valuable not simply because markets change, but because people do.
Investing Should Support Your Life
At HIGHLAND Financial Advisors, we believe investing is only one element of comprehensive financial planning. A portfolio exists to bolster broader life goals, not become the goal itself.
For many investors, that can mean creating financial flexibility in retirement, supporting children or grandchildren, funding charitable priorities, preserving family wealth, or building a legacy. On the other hand, it may also mean knowing that your capital is being invested in a way consistent with your beliefs.
The Priority
A thoughtfully constructed portfolio should balance sound investment principles with the priorities that matter most to you.
While every investor’s definition of values will be different, our planning process is consistent:
We start by identifying your financial challenges and financial goals.
We design an easy-to-understand financial plan to reach your goals.
We build an investment portfolio that fits your financial plan.
We repeat the process.
At HIGHLAND Financial Advisors, we believe successful investing begins with understanding the person behind the portfolio. When an investment strategy embodies both financial objectives and personal priorities, the portfolio becomes another tool for supporting the life an investor wants to build.
Chris Fuksman is a CERTIFIED FINANCIAL PLANNER® at HIGHLAND Financial Advisors, a Fee-Only fiduciary wealth advisory firm that offers comprehensive financial planning, retirement planning, and investment management. Chris graduated from Providence College with a degree in Business Economics in 2019 and successfully passed the CFP® national exam in 2024. As a Senior Analyst at HIGHLAND Financial Advisors, Chris works on client trading and assists with financial planning research, preparation, and analysis. Chris enjoys volunteering at his local animal rescue, traveling, and watching European soccer in his free time.
The foregoing content reflects the opinions of Highland Financial Advisors, LLC, and is subject to change at any time without notice. Content provided herein is for informational purposes only and should not be used or construed as investment advice or a recommendation regarding the purchase or sale of any security. There is no guarantee that the statements, opinions, or forecasts provided herein will prove to be correct.
Past performance may not be indicative of future results. Indices are not available for direct investment. Any investor who attempts to mimic the performance of an index would incur fees and expenses, which would reduce returns.
Securities investing involves risk, including the potential for loss of principal. There is no assurance that any investment plan or strategy will be successful or that markets will act as they have in the past.
The above article was written with the assistance of artificial intelligence (AI).