How to spark your children’s interest in investing
Gen Zers are passionate about having an impact. Sustainable investing can help them make a difference—and learn to manage wealth.
Parents often use philanthropy to introduce their children to wealth management ideas, and to highlight the family’s core values. It’s proven far harder, however, to engage the next generation in the family’s investment activities.
Sustainable investing can help change this dynamic.
Showing younger generations how financial assets can be used responsibly to make a profit and tackle social or environmental issues can be a gateway to a lifelong interest in investing for a generation that wants to save the world.
The silver lining: Parents don’t have to concede investment returns to meet their children “where they are,” as once was widely assumed about sustainable investing.
In fact, that myth has been debunked: Sustainable investing is an investment strategy that has matched traditional benchmarks.
Sustainable investing has historically provided returns in line with their respective benchmarks
Source: Bloomberg Finance L.P.. Performance of MSCI KLD 400 Social Index and S&P 500 TR Index is from 5/1/1990 to 4/30/2018.
Source: Bloomberg Finance L.P. Past performance is not a reliable indicator of future results.
* Performance of MSCI KLD 400 Social Index and S&P 500 TR Index is from 5/1/1990 to 12/31/2018.
** Performance of MSCI EAFE ESG Leaders Index and MSCI EAFE Index is from 9/1/2010 to 12/31/2018. (This international index represents 21 major MSCI indices from Europe, Australasia, and the Middle East.)
*** Performance of MSCI ACWI ESG Leaders Index and MSCI ACWI Index is from 10/1/2007 to 12/31/2018. (This world index is comprised of stocks of about 3,000 companies from 23 developed countries and 26 emerging markets)
Where impact and investments meet
Young adults today generally view impact more broadly than just making donations, and consciously aim to improve the world in choices they make day to day, including—how they vote, travel, spend their money…and invest.
Introducing children aged 14 to 25 to sustainable investing, an umbrella term used to describe investment approaches that incorporate financial as well as social and environmental objectives, can help:
- Spark their interest in financial markets through a lens of causes and issues they care about, such as diversity, climate solutions, financial inclusion and education1
- Deepen their understanding of how the asset management ecosystem works, from the role of individual investors to the impact of institutional capital
- Translate your family’s core values into action
There are many ways your J.P. Morgan team can help you deepen your children’s knowledge:
- Learning sessions—Explore whether products or companies that are popular in the marketplace are also good investments.
- Goal setting—Each child’s long-term goal (launch a record label, travel the world, start a family) will have a time horizon. We can show them how to invest appropriately for their unique future.
- Online resources—As a starting point, introduce your children to J.P. Morgan’s Tomorrow’s Investor Series, specialist-written guidance on a wide range of personal finance topics.
- Passion projects—Learn more about how investing can have an impact that aligns with your children’s passions and the causes they care about. Some United Nation’s Sustainable Development Goals can be targeted through investments, for example.
- Research tools—Your family can start learning more about sustainable investing here.
Engaging the next generation: How one family got started
For one family, the process of preparing their four children to handle the family’s wealth began with a conversation with their J.P. Morgan team—who encouraged the parents to first ask themselves:
- How do you want your family to use its wealth? Over how many generations?
- Are there things you hope the family will never do with its wealth?
- What investment knowledge will your children need to manage their resources wisely?
In the family meeting they then scheduled, the parents shared their answers with their children—and posed three new questions to the entire family, which also were suggested by their J.P. Morgan team:
- In addition to financial returns, what would you like our investments to achieve?
- What current events or news items do you follow?
- What financial or investment topics would you like to know more about?
Wealth amounts weren’t discussed in this initial meeting. But the answers were very telling.
It became clear that the children were very interested in environmental issues; specifically, in clean transportation, biodiversity and alternatives to plastic. One child also expressed interest in investing in companies with diverse leadership.
Ready to move ahead, each child was allocated a separate pool of assets for sustainable investing. These funds, within a larger trust, were earmarked for long-term growth. The children worked with the same J.P. Morgan team to evaluate a variety of investments targeting sustainable agriculture, clean energy and a circular economy.2
Both parents had been concerned that sustainable investing meant they were abandoning the competitive returns their portfolio targeted. But, in fact, it turned out that integrating sustainable objectives appears to have the helped position their portfolio for areas we believe are poised for growth while meeting their target objectives. It also started their children on the path to becoming informed investors.
A way to diversify portfolio performance
Sustainable investing is a durable trend for the return-oriented—not a fad or a concession to your children’s interests. Indeed, adding sustainable investments to your portfolio may help you:
- Strengthen portfolio returns and lower risk—Sustainable investing does not require a performance tradeoff. If we look at environmental, social and governance (ESG) integration as an example, research shows that it may enhance a portfolio’s returns by reducing volatility and providing protection in bear markets
- Access growth—Sustainable investing can present opportunities to invest in megatrends, such as electric vehicles or clean energy, which have garnered support from a confluence of stakeholders—governments, consumers, asset managers and corporations—and provide growth opportunities
- Enhance your strategy—Weave sustainable investing into an existing portfolio without changing the portfolio’s risk-and-return profile. Sustainable investing is an investment strategy that includes all asset classes
- Make a positive impact—Select from a broad range of environmental and social factors, including clean energy, racial equity, and health and wellness, to name a few
Also keep in mind: sustainable investing is accessible. Today, there are many low-cost mutual funds and exchange-traded funds (ETFs) that are sustainability-focused, from broad ESG mandates to targeted thematic strategies.3
There are many opportunities to invest sustainably
Source: Morningstar Direct. Data as of 12/31/2020. Note: Includes funds that have been liquidated during this period.
Many ways to invest
Sustainable investing encompasses a variety of investment approaches and trends:
- Exclusionary screening—Use a set of filters (according to your preferences, values and ethics, for example) to determine which companies, sectors or activities are eligible or ineligible to be included in a portfolio
- ESG integration—As part of your family’s due diligence, assess a company’s behavior and policies on Environmental performance, Social impact and Governance issues
- Thematic investing—Target specific social and environmental issues
- Impact investing—Pinpoint companies, organizations and funds that generate positive, measurable social and/or environmental impact alongside generating financial returns
We can help you and your family get started
Sustainable investing is not just for millennials: corporations, consumers, governments, asset managers and owners are all involved. Your J.P. Morgan team can help you and your children gain a deeper understanding of sustainable investing.
We also stand ready to help your family members develop the financial management skills they need, to realize your vision for your family’s long-term success.
Learn more about how we partner with you by speaking with your J.P. Morgan team.