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Making it a Win-Win: Here's how I helped a client align his values with his money

Saving and investing can be financially rewarding, but is it fulfilling? 

 I had a long-time client call me to say he wanted to do more with his investment account, beyond stocks and bonds, he wanted to make a difference. He is 52 and giving to charity but only small checks here and there. He plans on leaving some money to his local library in his Will, but he is young still and that seems far off. Instead, he wanted to find a way to use his modest nest egg to help promote positive change in the world. After our conversation I came back to him with three solutions to ensure he left a lasting legacy to his church, his school, and his other favorite causes. 

Step 1: Socially Conscious Investing

Investing in companies who promote positive change in the world is known as "socially conscious investing." For example, buying companies because they support diversity in the workplace or companies who support a greener environment. While this is not new, the way to invest in them has changed dramatically. In the past there were only a few pioneers in the field of socially conscious investing. Today, there are dozens of such mutual funds and exchange-traded mutual funds. My client liked the idea of investing in companies who met a certain ESG criteria - Environmental, Social, and Positive Corporate Governance. We selected an individual stock manager based on their screening process for ESG companies, track record, performance, and fees. We did this for only a portion of his portfolio, since ESG investing may not be as diversified, we didn't want to do it with all of his money. 

Step 2: Donating the Profits 

At the end of this year, like a lot of other stock investors, this client's ESG portfolio did well and the stocks were up. I asked him if he wanted to donate some of the profits to his church and alma mater? I suggested he open a Charitable Gift Fund to help. He gifted some of the shares of the ESG portfolio to the Gift Fund, realized an immediate tax deduction in this year, and plans on slowly dolling out the money next year and the year after to his church and college. All in all, he was happy he invested in companies who shared his values and was even more happy to use the profits to help his local charities, it was truly a win-win. 

Step 3: Taking it up a notch

Though my client felt better after we put Steps 1 and 2 in place, I suggested, in time, he could do more. He's a little young for more advanced charitable planning, but in time - perhaps in retirement - I mentioned he could create a retirement income stream by gifting some of his company stock to a Charitable Trust. He would receive a partial income tax deduction on the annual withdraws from the Charitable Trust. After he passes, what is left in the trust goes to the charity.  But wait he said, "what about my kids?" 

Good question, after he passes the kids do lose the asset to the charity, but there is a solution -- he can purchase a whole life or universal life insurance policy for the benefit of the kids. He can even use the income from the Charitable Trust to pay the insurance premium. The life insurance death benefit "replaces" the asset gifted to the charity. Life insurance death benefits are not income taxable and if the policy is held in a certain type of trust are excluded from Estate taxes, making it an ideal asset to pass to the next generation. 

Charitable planning can create powerful win-win opportunities for investors, and it doesn't have to be for the super-rich. There are several ways to invest in companies who advocate for positive change in the world, whether it be through a mutual fund, an exchange traded fund or an individual stock manager who specializes in ESG. The point is, you can start small and as your income and net worth grow, the tools available for charitable giving evolve too. Donor Advised Funds and Charitable Trusts are two examples. Ultimately, it's about having a plan. Giving to or investing in the causes which are important to us can help take saving and investing from the mundane to the fulfilling, from success to significance. That is the ultimate reward. 

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