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What are ESG funds?
Hey, there’s a lot of talk out there today in investments about ESG funds and the purpose of this program is to show you what they are and to tell you a little bit of something about them, okay? And most any advisor can do ESG funds if they’re wanted or non-ESG funds if they’re not wanted. And I just want to make sure that if you’re watching this video and you’re trying to find out what all the buzzword is about ESG, that you know what’s being talked about, so here we go.
What are ESG funds? Well, first of all, the E stands for environmental, the S stands for social and the G stands for governmental. Now what it really is, if you look it up on the internet, you’re going to find it. I’m not trying to be political one way or the other, that these are funds that in their investments adopt a philosophy that supports, leans toward a progressive, political mentality. In fact, I’ve heard it said, rightfully so, that if there wasn’t out there something already that was ESP, then instead of governmental, it would’ve straight up been political, because it definitely is an investment that has a progressive political leaning in mind when they put it out, okay? So that’s what it stands for; environmental, social or societal and governmental or political. So that’s what it is.
Now here’s what happened. These funds have been floating around out there for years and within the past couple of years, the regulatory body of the administration has dictated regulations on mostly your 401(k) accounts, because those are controlled, believe it or not, not by a financial arm or the Treasury. The 401(k) accounts are by and large controlled by the Department of Labor or the DOL. They’ve come out with regulations that said all 401(k)s must, if they don’t have anything else, they’ve got to have in there ESG funds. Now, some 401(k)s have gone to the extreme and everything within that company, particularly if it’s one of those companies that leans toward the ESG mentality, every one of those companies, some of those companies have just taken all of the other stuff out of their 401(k)s and they only have ESG funds within their 401(k). Other companies have added ESG funds and named them as that, just identified them as that within the 401(k)s. And then some companies are still a little bit slow to move over that way and they don’t have any designations of ESG funds, but it’s basically within four plans. 401(k)s 403Bs, 457s is where they’ve been dictated that they be a part, by the regulatory part of the administration, Department of Labor in particular.
Now along came Congress, the people we elect to pass laws, and in the past year they actually, even though it’s a split Congress between both sides and they don’t agree on very much anymore at all, they came up with a legislation and said, you can’t mandate that people be in ESG funds or that’s all they have, or that they have to include them within their 401(k). The law was passed, the law went to the presidential desk and for the first time in over two years, that law passed by Congress, over the regulatory bodies dictates, was vetoed by the president, the first veto he’s done in 26 months of being in office. So that’s what’s going on, not trying to be political, I’m just stating fact about what’s going on with the ESG.
So that’s what’s going on. Now, I want to show you, it’s more important to understand it from a financial advisor standpoint and from an investor’s standpoint, how well do these funds perform. Now, I’m going to give you definitely a non-right wing, conservative Bloomberg, and they did a study for the past six years, since 2017, of the ESG funds that were out there and the non-ESG funds that were out there. Now, we’re not including the fees, because as I’ve looked up individually, ESG funds, the fees within those funds are quite higher than they are in the run-of-the-mill normal investments that are out there. The fees are higher within the ESG, but there’s nothing scientific about that. That’s just the ones that I’ve looked up myself, as I’ve looked them up for people or I’ve looked them up just for my own sake.
But here’s what Bloomberg found. Over a five, six year lookback, ESG funds performed at 6.3% gain per year and market funds that are not in ESG performed, this is according to Bloomberg, not Tom, the market funds performed at 8.9%. That’s a 2.3% difference. Now you say, “Well, okay. It’d be good for the environment, it’d be good for society, it’d be good for my political bid”. Great, great. But you’ve got to realize what it’s doing to you from an investment standpoint, at least the way they are right now. And if you choose to say, “Okay, that’s what I know, Tom informed me of that. I still want ESG funds.”, then you go get ESG funds. If you still want market funds, you go get your own market funds. You’ll come to us and we’ll work with you to get whichever one you want. We can do whichever side you want, please understand. I’m just here to inform.
But I want you to see the difference, if you were starting out at 20 years old and you saved for 40 years within the ESG funds, and then the counter is you were starting out at 20 years old and you saved for 20 years in the regular market funds that are available. Got it? That’s the difference. So if we were… The impact of 40 years of savings, let’s say you were able to put, not the maximum of 22,500 in your 401(k), but you were able to put $10,000 a year away for 40 straight years in an ESG fund that performed as Bloomberg said, 6.3% per year over the last five years, the previous five years. You would’ve grown that $10,000 per year for 40 years, you would’ve grown that at 6.3% growth to $1.669 million. Congratulations. That’s a very healthy sum, but on the counter, and I want you…
The difference is amazing. And the difference is what Mark Twain, some of you guys remember reading Huckleberry Finn or some of those other things that he used to be known as a very famous author. Mark Twain said, “The miracle of compound interest is the eighth wonder of the world.”. The way you put the money in, you make a little bit more, you make a little bit more and this is an illustration of making 2.6% per year more, if you’re in regular market funds versus the ESG funds. Watch this. If the impact of 40 years of savings at $10,000 per year in the market at 8.9, remember versus 6.3, is 3.289 million. Now just focus right here, and I’ll go back and forth. In the market funds at 8.9, you’re… Excuse me, just a second. You’re at 3.289568. In ESG funds, you would be at 1.669. There’s a dramatic difference in investments, is all I’m trying to show you.
Now, if you’re committed to ESG funds, we can help you, but you need to know going in the ground rules and the way the game is being played. But if you are committed to non-ESG funds, we are very much able to help you as well, but we just want you to know the difference in ESG and it’s like everything else. We start with a blank piece of paper when we build your portfolio, and if you come to us and you say, “I’d love to work with just ESG funds.”, we’ve got it. And if you say, “I’d love to do my best to not work with ESG funds.”, we’ve got it and we can help you.
Now, here’s what you need to also understand. The reality is some of the companies that do have ESG funds, and I’ve had people come to me, “Well, what about X, Y, Z.”, or, “What about A B, C? I don’t want those, because they have or they don’t have ESG funds.”. You got to understand, as big as these investment companies are, and they’re a big collaboration of all kinds of different companies and all kinds of different funds, some of these huge companies have a lot of ESG funds and they have their name on a lot of non-ESG funds as well. So don’t just throw the baby out with the bath water, so to speak. But you need to understand what you’re investing within that company, if you want to lean one way or the other in this political environment of ESG versus non-ESG funds. But not all of their funds are ESG. Remember, the reality is some companies do have ESG funds, but they’re not all. So you need to work with the individual funds, if you’re that concerned about it, to make sure.
It’s like everything else. There’s a little bit of good and bad in everything, and in a huge portfolio, you’re probably going to have a few funds that lean ESG, even if you don’t like it. And if you have an ESG portfolio, you’re probably going to have a few funds that lean toward a regular market and are not ESG, even if you don’t like it. But we will do our best, if you’re working with us, to make sure and build a portfolio is what you want, because your portfolio needs to project and needs to be a picture of what you believe in and what you are doing with your investments, so I just want you to get the ground rules. And if you say, “Well, boy, that was a lot of information.”. Go back and listen to this YouTube again. You say, “I really like this YouTube.”. Well tell somebody about it. Send it to somebody. Help us spread the word, so that somebody’s giving a fair representation of these things, who represents both kind, if you in fact want both kinds.
If you need to get in touch with us, you can email us; info@mosley, that’s M-O-S-L-E-Y, wealthmanagement.com. And if you need to call us; (714) 421-4288. Again, email@example.com or (714) 421-4288. Look, we will do our best at all times to help you in every way we can, but not just to invest your money without you knowing what it’s in. But we will do our best to inform you and to educate you as to what’s going on when you start hearing all these terms, ESG, and all of these other things. So please give us a call, tell somebody about this YouTube channel, this podcast and let us get the word out about ESGs and non-ESGs and the differences. Thanks for tuning in.
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