Sustainable Investing: TIAA-CREF Social Choice
The idea of sustainable investing is inevitably a distorted and contradictory compromise in a mixed-up world. I attempt sustainable investing in the hopes that it is better than nothing, while aware that I probably should do something more or different. This post is part one, an initial sustainable investment step for those who have savings in TIAA-CREF. I’ve put what money I have in TIAA-CREF into their CREF Social Choice. It’s a very simple and moderate tactic for sustainable investing.
As an educator, my primary savings vehicle is through TIAA-CREF, “dedicated to serving the lifelong financial needs of those in the academic, medical, cultural, governmental and research fields.” TIAA-CREF already claims to be a leader in Socially Responsible Investing, but the only option specifically available to me for sustainable investing is CREF Social Choice:
The account is balanced with assets divided between domestic and foreign stocks (about 60%) and bonds and other fixed-income securities, including money market instruments (about 40%). The account invests only in companies that are suitable from a financial perspective and whose activities are consistent with the account’s social criteria. Using specific environmental, social and governance criteria, the evaluation process favors companies that are: strong stewards of the environment; committed to serving local communities where they operate and to human rights and philanthropy; devoted to higher labor standards; and those managed in an exemplary and ethical manner.
I’m hoping to do a tiny part to address concerns about resource use, climate change, and the need for local economy and employment (see the Local Economy Manifesto). I am also hoping the CREF Social Choice investments do not contribute to the gun industry, while supporting initiatives to Tell TIAA-CREF: Stop Investing in Assault Weapons. But at the same time I would like to save money for emergencies, perhaps eventually retire, and let the kids go to college.
This modest sustainable investing tactic responds to several investment ideas:
Sustainable Investing and Portfolio Allocation
Prior to this move, I basically attempted the MarketRiders approach emphasizing portfolio allocation and low-cost index funds. I attempted to have the right balance of domestic and international stocks, value and growth, mid-caps, commodities. One of the things I like about re-allocating to CREF Social Choice is how simple it is. The idea is that I may not maximize the rate of return by a few percentage points–but hey, what’s a percentage point or two if we don’t have enough water?
In my TIAA-CREF account I had the option of sustainable investing in the TIAA-CREF Social Choice Equity Fund Retirement Class. This fund has the same social screens as CREF Social Choice, but it is almost 100% U.S. equities, or an almost 100% pure U.S. stock play. If I were younger, I might use some of this fund to get a higher equity percentage in my portfolio. However, for me the 60% equity stake in CREF Social Choice seems about right over the long term. The Social Choice Equity Fund has had better returns for the previous 1-year and 3-year periods, but the CREF Social Choice balanced fund does better over the 5-year period. While the the Social Choice pure equity fund also did better over the 10-year period, it seems reasonable to expect more market volatility, and this fund seems over-exposed to large U.S. companies. With CREF Soical Choice there is already a balanced approach with a small amount of international investment as well.
Sustainable Investing and the Economic Growth Problem
This is a blog tennis response to my Hartwick College economist colleague Karl Seeley and his completely unintuitive blog-title From TIPS to BAGS, or BANGS. We’ve agreed on the need to invest in infrastructure projects to reduce resource use, but Karl argues these projects are difficult to fund using traditional expectations of economic growth. In some ways we want to intelligently shrink into a livable economy, but how do you do that through borrowing? In a complicated post, Karl wants to sell BANGS, Bonds Assuring a Nominal GDP Share: “if we can address the problems of high unemployment, increasing poverty, and crushing government debts in a shrinking economy, there’s actually a lot to be said for a GDP that’s going down, not up. If BANGS are actually a solution to the debt problem, then we only have two out of three left to solve.”
In a subsequent e-mail, I joked that I was putting all my money into BANGS (Karl, probably thinking I hadn’t really read his post, pointed out that BANGS do not exist). For me, putting money into CREF Social Choice is a bit like BANGS, in the sense that it is a choice to possibly receive a slightly deflated individual payback in return for trying to at least modestly address the social issues.
Sustainable Investing and The Black Swan
My final consideration is from a reading of a book my brother loaned me when our holiday talks turned to investment strategies: Nassim Nicholas Taleb’s Black Swan: The Impact of the Highly Improbable. Taleb had already made money on risk-related bets before writing the book, and then went on to make a lot more money during the financial crisis (see This Is Not a Profile of Nassim Taleb). Taleb’s advice:
If you know that you are vulnerable to prediction errors, and if you accept that most “risk measures” are flawed, because of the Black Swan, then your strategy is to be as hyperconservative and hyperaggressive as you can be instead of being mildly aggressive or conservative. Instead of putting your money in “medium risk” investments, you need to put a portion, say 85 to 90 percent, in extremely safe instruments, like Treasury bills–as safe a class of instruments as you can manage to find on this planet. The remaining 10 to 15 percent you put in extremely speculative bets, as leveraged as possible (like options), preferably venture capital-style portfolios. (2007:205)
To try and follow this logic, we would have to make TIAA-CREF the hyperconservative part of the portfolio, as there are (to my knowledge) no hyperaggressive options. In fact, TIAA-CREF is probably full of those mocked “medium risk” investments. We could go with the CREF Inflation-Linked Bond Account as a hyperconservative investment in Treasuries, TIPS to be exact.
However, I would argue that an 85-90% investment in Treasuries creates a Black Swan vulnerability to the highly improbable–yet not impossible–idea of some kind of U.S. government collapse. So in this sense, the CREF Social Choice is about as hyperconservative as one could be, especially considering the paramount importance of being hyperconservative-hyperaggressive with regard to the planet we share.
Update 14 January 2013: See Anthropology Beyond Capitalism at Anthropology Report for a round-up on related themes and also Can’t Save? Here’s Why by Helaine Olen which dismantles the myths from the personal finance industry.