Become a sustainable investor in 3 steps

This article condenses the complex world of sustainable finance into three simple steps. Focus on what matters and follow this guide to become a sustainable investor.

1. Step: Set your scope

Start your jouney by setting your scope. Your personal scope will ultimately determine your investment strategy. The strategy consists of three aspects: time horizon, risk profile and the level of personal active involvement. In general, one can say: short-term investing is everything less than a year. Long term investment is everything above a year but can commonly last several decades. Short term investors aim to make money from short term volatilities (ups and downs) on a regular basis. Higher volatility equals higher risk. Also, short term investment requires a higher level of personal involvement, due to more activities within a certain time frame. Long term investors aim to make money from returns over time and can trade less often. Usually, these returns are less volatile but more predictable over a long term due to a higher level of diversification. If you have the goal to use your money more immediately (e.g. a purchase within the next year), short term investing would be a viable strategy). If your goals lie in the far future (e.g. retirement) long term investing can easily be applied.

Summary – Rule of thumb:
Short-term Investment: higher willingness to take risk, higher willingness of personal involvement, lower diversification required
Long-term investment: lower need to take risk, lower need for personal involvement, higher diversification useful.

2. Step: Get Access

To be active in the (sustainable) financial market, you need access to it. There are at least three ways to get access.
One way are online brokers, which are plattforms that let you invest in a diversity of financial products. Usually, the more active you are on the platform, the more personal involvement will be required. However, you can make use of saving plans or other automations for long term investments. However, you still need to decide on your own which investments to make. Online bokers have a very low costs compared to other modes of access.

A robo advisors is an investment platform where an automation based on your personal preferences does the investing for you. Usually, you will only get involved at the beginning to set your strategy and let the robo do the activities afterwards. Robo advisors come at a higher costs than online brokers.

You can also get access via a professional financial advisor (e.g. bank or insurance). In general, a financial advisor allows for the lowest level of personal involvement as all decisions can be fully handed over. However, it also comes at the highest costs of all three.

3. Step: Informed Investing

It is important to be well informed if you want to be actively involved in the decision making process. For information on sustainable investment, there are a bunch of sources. At a minimum it would be good to be well informed on stocks and funds. You can use these two asset classes for any of the above strategies.

Good sources for info on stocks:
https://www.msci.com/our-solutions/esg-investing/esg-ratings/esg-ratings-corporate-search-tool/issuer/


Good sources for info on funds:
https://www.msci.com/our-solutions/esg-investing/esg-fund-ratings/funds/ishares-global-clean-energy-ucits-etf-ger-/65149723

https://www.fairfinanceguide.de/ (German only)
www.towardssustainablefinance.com (obviously)

Resources

https://www.thestreet.com/investing/short-term-investing-vs-long-term-investing

Disclaimer

This article is for information purposes only and does not contain any investment advice. We are no investment advisors. Click the following link to read the full disclaimer.