Invest Financial Planning

HerMoney Podcast Episode 226: How Your Investments Can Impact Change

Kathryn Tuggle  |  August 12, 2020

Giving back while investing in the stock market? Yup, it’s possible, thanks to ESG funds. Here's how you can get involved. 

Over the last few months, we’ve heard from so many of our listeners that you are looking for more ways to put your money where your mouth is — in other words, you’re tired of just talking about doing good, or Tweeting about doing good… you’re ready to take real action steps on the path toward making a difference. 

Our regular listeners are already familiar with the term “ESG Investing,” ESG stands for environmental, social, and governance, and although that may be a mouthful, the concept is simple: When you invest, you do it in a way that makes a positive impact for the causes you care most about. You invest with companies that are operating in a way that helps reduce pollution, or promote women, or advance social causes. And when you do this, you know your money is making a difference  — quite literally — while you sleep. In other words, ESG investing is an easy way to back the change you want to see in the world. And best of all, it’s also profitable — according to research from mutual fund tracker EPFR, funds with ESG mandates brought in $61.6 billion from January to June of 2020. And many of the bigger ESG funds are up 10% year over year, far outperforming the DOW and the S&P 500 over the same time period. Also, according to a new report from the Wharton School at the University of Pennsylvania, the number of funds that aim to deliver a positive impact on women grew by 59% last year, and Wall Street investors put $4.8 billion into “gender lens-related” funds in 2019, more than double the $2.2 billion invested in 2018.  

On this week’s episode we’re joined by  Eliza Badeau, Vice President of Workplace Thought Leadership for Fidelity Investments, and Nicole Connolly, Head of ESG Investing and a Portfolio Manager in the Equity Division at Fidelity. (You may remember Nicole from HerMoney episode 175: Investing For Good!) 

Listen in as Jean, Eliza and Nicole dive into how the ESG landscape has changed, and the concrete steps we can all take to get involved today.  Both women break down the growing interest in investing with purpose, and what ESG investing means to the broader investing world. They also share some real-life examples of what ESG looks like in action, and how current events are having an impact on ESG investing. 

“We’ve done a fair amount of research on ESG and performance, and believe that at the very least you don’t have to sacrifice returns to invest with impact — to invest with purpose,” Nicole explains. “If you think about the history of ESG, it really started with something called “socially responsible funds,” which had its roots in exclusionary investing, whereby those funds would avoid companies that manufactured guns or sold alcohol or sold tobacco. And the industry has  evolved to more inclusionary ESG investing, which means that, instead of excluding companies, we’re now focusing on companies that have embraced these ESG principles of trying to limit the impact they’re having on the environment, doing right by all their stakeholders, having good governance. And I believe that that approach can really help you find companies that are built to last, and built to outperform over time.” 

Nicole also discusses Fidelity’s Women’s Leadership Fund, which launched just 14 months ago, but is already outperforming the market indices that it runs against.The fund itself if comprised of about 120 companies that span every sector in the market, that are truly committed to gender diversity. 

“Increasingly ,I’m looking for companies that are committed to diversity more broadly. So I’ve been weaving in more research as it becomes available, around how companies are helping all underrepresented populations thrive in their organization. So we’re looking for companies that have initiatives and policies and philosophies in place like equal pay for equal work, strong parental leave policies, a flexible work environment, unconscious bias training, and looking to see that these initiatives are in place,” she says. 

Eliza breaks down how Fidelity has been focused on creating an inclusive experience for customers, and addressing the inequalities that different underrepresented communities face — essentially, how she’s looking at financial wellness through an inclusive lens. “Not all groups place value on the same aspects of finances, or go about achieving financial wellness in the same way,” she says. “For example, Latin-X or Black communities are very culturally diverse in a way that the core is family and community. So they want to see their money going towards supporting those communities and their families. So, financial wellness to them comes with a very big family lens on it.” 

The trio also dive into how investors who are just dipping their toes into these waters can get started. “One approach, is to go to Fidelity.com and in the search bar type in “ESG investing,” which will bring you to a page that tells you all about ESG, the different funds that Fidelity offers, the different funds that our competitors offer in terms of ESG,” Nicole says. “It’ll tell you about the different types of funds like Women’s Leadership, or Clean Water, or Environmental Funds.” 

Then, Eliza breaks down how the social changes that we’re going through as a nation — and as a world — are impacting the investing landscape, particularly for Millennial investors. 

“We’re seeing that they view the importance of diversity in a way that we haven’t seen other generations. So that means through not just the obvious ways of viewing diversity, but also looking at ways that people have lived their lives, different experiences, and backgrounds,” Eliza says. “There’s a lot of intersectionality across the board that happens here, intersection of identity. So you can have a Millennial, but they may also be part of another underrepresented group. They could be a female who is a Black female in the community as well, which is also very important for them to give back to their communities that they come from.” 

In Mailbag, Jean and Kathryn tackle listener questions on investing vs. paying down a mortgage, transferring a 529 plan to a different state, doing a ROTH IRA conversion, and getting a prenup even when there are no immediate plans for a wedding. Lastly, in thrive, Jean breaks down some of the most important steps to go through when doing a mid-year financial check-up. (Which we all need!) 

This podcast is proudly supported by Fidelity Investments. Making smarter, more informed financial decisions can help you meet your goals. Look to Fidelity for tools, resources, and investment advice that can help. Learn more at Fidelity.com/HerMoney. Fidelity Brokerage Services LLC Member NYSE, SIPC.

Editor’s note: We maintain a strict editorial policy and a judgment-free zone for our community, and we also strive to remain transparent in everything we do. Posts may contain references and links to products from our partners. Learn more about how we make money.

Transcript

Nicole Connolly: (00:01)
We’ve done a fair amount of research on ESG and performance and believe that at the very least, you don’t have to sacrifice returns to invest with impact, to invest with purpose. If you think about maybe the history of ESG really started at something called kind of socially responsible funds, which, had its roots in exclusionary investing whereby those funds would avoid companies that manufactured guns or sold alcohol or sold tobacco. And the industry has kind of evolved to more inclusionary ESG investing, which means that instead of kind of excluding companies, we’re now focusing on companies that have embraced these ESG principles of, again, trying to limit the impact they’re having on the environment, doing right by all their stakeholders, having good governance. And I believe that that approach can really help you find companies that are built to last and built to outperform over time.

Jean Chatzky: (01:15)
HerMoney is supported by Fidelity Investments. We all have our own financial needs and goals. Investment advice from Fidelity can help you reach yours. Plus they have tools like financial checkups and more to help you make smarter well-informed decisions every day. Visit Fidelity.com/HerMoney to learn more.

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Jean Chatzky: (01:44)
Hey everybody, I’m Jean Chatzky. You know, one of my favorite things about my job is hearing from our readers and listeners. Thank you all for joining us by the way. And learning what you’re thinking and what you are most passionate about. And sometimes I start to notice some common themes and threads floating around out there, and today’s show is inspired by one of those. It’s all about something that it seems like everyone is talking about. Specifically, something that many people seem to want these days. And that is to put our money where our mouths are. To not just talk about doing good or tweet about doing good, but to take real action steps on the path to making a difference. Regular listeners of the HerMoney podcast are already familiar with the term ESG investing. But for those of you who are new to this, before I introduce my guests, let me just give you a little bit of background. ESG stands for environmental, social, and governance. And while that be a mouthful, the concept is simple. When you invest by ESG principles, you do it in a way that makes a positive impact for the causes that you care about. Essentially, you’re investing with companies that are operating in a way that might help reduce pollution or promote women or advance social causes. And when you do this, you know that your money is making a difference quite literally, while you sleep. In other words, ESG investing is an easy way to back the change that you want to see in the world. And best of all, it is also profitable. According to some research from neutral fund tracker, EPFR, funds with ESG mandates brought in more than $61 billion from just January to June of this year. And many of the bigger ESG funds are up 10% year over year, far outperforming the Dow and the S&P over the same time period. Also, and this just was pulled this week, a brand new report from the Wharton School at the University of Pennsylvania showed the number of funds that aim to deliver a positive impact on women grew by 59% last year. If we were all together, I would ask for a big Woohoo for that. And Wall Street investors put $4.8 billion into gender lens related funds in 2019. That’s more than double the 2.2 billion invested in 2018. And one more stat, just one more that I have to share, a recent client survey from financial advisory firm, deVere Group shows 56% of investors feel that ESG investments are the new safe haven asset class, meaning they expect these investments to retain or gain value during an economic downturn. And here’s the thing, I think they’re right. The majority of ESG investments have outperformed their non-sustainable counterparts this year. And, and this is really important cause you guys have all seen how much of a roller coaster these markets have been on, and they’ve had lower volatility. So, like I said, if you’ve listened to the show before, you may have already dipped a toe into these waters. But today we’re going to go a little deeper. We’re going to talk about how the ESG landscape has changed, why it’s changed and the concrete steps that we can all take to get involved. And I am thrilled to be joined by two amazing women who are going to walk us through. I’m going to introduce them one at a time so you can hear their voices. Eliza Badeau is Vice President of Workplace Thought Leadership for Fidelity Investments. Fidelity, of course, is our sponsor. She is responsible for developing data driven insights that are then used to inform the products and services that help people live well, financially thought out lives and take this with them into their retirement. She’s worked with Fidelity since 2010 and during her time there has studied the cost of gender differences in retirement planning and the intersection of financial wellness and total wellbeing. Hey, Eliza.

Eliza Badeau: (06:34)
Hi Jean. Thank you for having me.

Jean Chatzky: (06:36)
Oh, thanks so much for being here. I feel like the last time I saw you, we were climbing Camelback.

Eliza Badeau: (06:41)
Yes. Yes. I remember that. Yeah, that was a great experience.

Jean Chatzky: (06:45)
It was so much fun. It was so hard. It was so much harder than I thought it was going to be. But it is great to hear your voice and great to see you. We’ve also got a guest that you’ve heard before, specifically on episode 175, investing for Good. Nicole Connolly. She is the Head of ESG Investing and a Portfolio Manager in the equity division at Fidelity. In her role, she helps direct Fidelity’s ESG product roadmap. She educates investors about the ESG investment process and she also manages Fidelity’s Women’s Leadership Fund. She’s been with the company since 2000. Hey Nicole.

Nicole Connolly: (07:27)
Hey Jean. Great to see you again.

Jean Chatzky: (07:29)
You too. Thank you so much for being with us another time. I really, really appreciate it.

Nicole Connolly: (07:35)
Yeah, thanks for having me. And similar to Eliza, I remember being in sunny Arizona, what seems like many months, a world ago, so maybe someday we’ll get back there.

Jean Chatzky: (07:47)
I hope so. I hope so. So, I just took our listeners on a bit of a crash course through ESG. But Nicole, can you get us started on defining it in your own words? What does it mean to you and what do you think it has come to mean to the broader investing world during these times?

Nicole Connolly: (08:05)
So the way I think about ESG is, it’s a way to align your capital with things that you care about. With your values. It’s really investing with purpose. And if we were to unpack those letters of ESG, when we’re, investing with an ESG lens, we’re looking to invest in companies that are limiting the impact on the environment. They’re looking for ways to really best engage with their employees, their customers, the communities they operate in, their suppliers. That’s the essence of the S or the social. And then looking to invest in companies that have diverse and independent boards of directors, companies that have management teams that are navigating the business prudently. That’s good governance. And you might ask, what does the E, the S, and the G all to do with one another? But really it’s a framework with which, you to consider how a company is engaging with all of their stakeholders. With everybody that they impact. Again, whether it’s the employee, the suppliers, the customers, the environment. How is the company impacting all of those different stakeholders? And I think what’s so interesting about this current time that we’re in, whether it’s the pandemic or the racial tensions across the country, it’s really shedding light on, or moving the S, the social, front and center, and showing us how companies are prioritizing the wellbeing of the employees, their customers, the communities. And this might be a good time to pivot to Eliza who’s doing amazing work for Fidelity with our own customers and trying to improve the experience of our own customers.

Jean Chatzky: (09:51)
Well, that was a very nice cue. Eliza, wanna pick it up?

Eliza Badeau: (09:54)
Yeah. Yeah. Thanks, Nicole. Thanks for lining me right up. Yeah. So, for the past two years, I’ve been focused on creating an inclusive experience for our customers and addressing inequalities that different underrepresented communities face, including seeing gender diversity and race. But also unseen diversity, such as many disabilities or LGBTQ plus communities. So, there’s an opportunity to better understand the financial wellness through an inclusive lens across the industry. There’s reason to believe that what it means to be financially well means something different to different groups. And not all groups place value on the same aspects of finances, or go about achieving financial wellness in the same way.

Jean Chatzky: (10:38)
Can you give us an example or two here of what you’re talking about? Cause I think I get it, but it would make it clearer for me, and maybe for our listeners, if we could talk about some specific groups and how they achieve financial wellness differently.

Eliza Badeau: (10:52)
Absolutely. So, there’s a lot of value placed on community among these groups. So, the LatinX or Black communities are very culturally diverse in a way that the core is family and community. So, they want to see their money going towards supporting those communities and their families. So, financial wellness to them comes with a very big family lens on it. When some other people might not have that lens. It may be more of an individual lens. Or they may not be having those conversations at the dinner table like a lot of Hispanic families or communities are as well. So, placing value on family or communities, and giving back to those communities that supported, them is high priority on their list.

Jean Chatzky: (11:35)
One of the things, and Nicole and I talked a lot about this during our last ESG show. One of the things that I think has made ESG investing so attractive, over the last maybe half-decade, is the fact that you can do well financially while doing good. And I’m wondering Nicole, taking what Eliza just said into account about the differences in how different groups look to attain financial wellness, and look to support different sorts of companies, is that still possible?

Nicole Connolly: (12:21)
Yes. I mean, we’ve done a fair amount of research on ESG and performance and believe that, at the very least, you don’t have to sacrifice returns to invest with impact, to invest with purpose. If you think about the history of ESG really started as something called socially responsible funds, which had its roots in exclusionary investing whereby those funds would avoid companies that manufactured guns or sold alcohol or sold tobacco. And the industry has kind of evolved to more inclusionary ESG investing, which means that instead of kind of excluding companies, we’re now focusing on companies that have embraced these ESG principles of, again, trying to limit the impact they’re having on the environment, doing right by all their stakeholders, having good governance. And I believe that that approach can really help you find companies that are built to last and built to outperform over time. I mean, you certainly can still invest in funds that have an exclusionary focus. Those funds are still out there. But what personally gets me more excited is the opportunity of potential out-performance that can come from finding companies that are focused on all aspects of sustainability in their business. And if you look at, the Women’s Leadership Fund, it’s still early days. We launched about 14 months ago. But we are outperforming the market indices that we run against. And I think that speaks to the fact that having more diverse and inclusive organizations can lead to strong business performance over time.

Jean Chatzky: (14:07)
How do you select the companies that go into this fund?

Nicole Connolly: (14:11)
Yeah, so great question. So, the fund is made up of about 120 companies that’s sp,an every sector in the market. And what we’re looking for is companies that are truly committed to gender diversity. And increasingly I’m looking for companies that are committed to diversity more broadly. So I’ve been weaving in more research around how companies are helping all underrepresented populations thrive in their organization. So, we’re looking for companies that have initiatives and policies and philosophies in place like, equal pay for equal work, strong parental leave policies, flexible work environment, unconscious bias training, and looking to see that these initiatives are in place. And in some cases, these initiatives are already leading to better representation at all levels across the organization for women, for people of color. And so, it’s really focused on companies again that are committed to gender diversity. In some cases they’re led by women. 40% of the fund is invested in companies that are actually led by women. But we also want to see, again, just a strong commitment to gender diversity. And in terms of how to get started, one approach is to go to Fidelity.com. And in the search bar type in ESG investing, which will bring you to a page that tells you all about ESG, the different funds that Fidelity offers, the different funds that our competitors offer in terms of ESG. It’ll tell you about the different types of funds. Like Women’s Leadership or Clean Water or environmental funds. And if you really want to kind of geek out, most companies publish something called a corporate sustainability report or a CSR report, which really outlines what the company is doing along all aspects of ESG. How they’re trying to, again, limit the impact they’re having on the environment. How they’re trying to promote women or people of color in their organization. What we look for at Fidelity when we’re going through these reports is to see if a company is disclosing demographics of their workforce. So, are they disclosing how many people of color are at different levels in the organization? What’s the female representation at different levels? What are those initiatives in place to help underrepresented populations thrive in the organization? And are those initiatives paying off with progress? And is the company showing us that progress

Jean Chatzky: (16:42)
Are there benchmarks? I mean, I know for example, when I do research on charities, we like to see certain benchmarks. We like to see that a certain percentage of the money that a charity raises is going toward it’s programming rather than toward administrative expenses. When you look at these numbers on pay and diversity, are there benchmarks that we should look for companies to be hitting?

Nicole Connolly: (17:08)
So, it’s a great question. And I guess what makes it hard about benchmarks is this information is sometimes hard to find and not every company discloses, for example, what the demographics are of their workforce. And so, at Fidelity, we have now evaluated 700 different companies along 25 different diversity and inclusion criteria. We have looked at the leadership part of the organization to see how diverse that part of the organization is. Again, we look at these different initiatives and we’ve scored these 700 companies to see how they look versus the whole market and then how they look within their sector, in terms of their diversity. So, we’ve created an internal benchmark that we use for the fund. But I wouldn’t say that there’s an easy way to go find this information out there.

Jean Chatzky: (17:58)
On your own. We’ll have to rely on your screening. I want to come back and I want to talk a little bit more about current events, specifically with you Eliza. But before I do that, let me just remind everyone that HerMoney is proudly sponsored by Fidelity Investments. Whether you’re looking for a turnkey way to save and invest, or you need to tap the support of an experienced pro for a more complicated financial picture, Fidelity can help you meet your goals. In addition to investment advice, Fidelity also has online tools like financial checkups that can help you make smarter, more informed decisions every day. Visit Fidelity.com/HerMoney to learn more. We are back with Eliza and Nicole talking about all things ESG investing, and how our investments can impact change. Eliza, as you have been watching what’s happening in our country, starting most recently with the death of George Floyd and moving things forward, how do you see the social changes that we’re going through right now changing the investing landscape? And is it just millennials or is it more across the board?

Eliza Badeau: (19:16)
I would say it’s definitely something, a trend that we’re seeing with millennials. And it’s definitely something with Gen Z as well, as they enter the workforce and start accruing their own savings and investing. We’re seeing that they view the importance of diversity in a way that we haven’t seen other generations, right? So, that means through, not just obvious ways of viewing diversity, but also looking at ways that people have lived their lives. Different experiences and backgrounds. So, I think that really hones in on that S, like Nicole said, in ESG, and how they can give back to communities is something that we’re really seeing. But I wouldn’t just say it’s young investors alone. There is a lot of intersectionality across the board that happens here. Intersection of identity. So, you can have a millennial, but they may also be part of another underrepresented group. They could be a female who is a Black female in the community as well, which is also very important for them to give back to their communities that they come from. So, we’ve seen this come across with the recent George Floyd murder, as well as, all of the historical racial and inequality that has been going on. But also during the pandemic as well. We’ve seen the Black and LatinX communities has taken a hard hit from this pandemic specifically. And from a financial standpoint, they’ve been hit pretty significantly. So, I think there’s an opportunity for the industry to step up and engage these groups in a way that we haven’t before. And this type of investing is one way to do that. We need to be able to gain their trust. We need to be able to allow them to invest in ways that they see valuable to them in their communities.

Jean Chatzky: (21:01)
I think that this pandemic has put on fast forward, a lot of different things that were already in the water, but maybe were just sort of taking their time getting here. Right? And you can look at the ways we’re shopping, but you can also look at things like ESG investing. Nicole, can you talk a little bit about what you’re seeing in interest in this and how the pandemic has changed that?

Nicole Connolly: (21:33)
Yeah, so, I mean, we were already seeing people start to put money into ESG funds before COVID-19. ,I think what was really interesting about what happened in the pandemic was that we saw that people that were invested in ESG funds were more likely to keep their money in the market and in those funds than maybe people that weren’t invested in ESG funds. And so, we saw that that money was what we call stickier.

Jean Chatzky: (22:03)
Why do you think that is?

Nicole Connolly: (22:04)
We’ve kind of had the thesis at Fidelity that, if somebody is investing in a fund where they believe in the mission, they believe in the cause of that fund, that they might be more likely to stick it out during difficult times in the market. And we’ve also thought that maybe that investor, because some of these ESG issues are very long term in nature, when you think about environmental issues and climate, that this investor might also be a longer term focused investor, and again, more willing to ride out tough market conditions and stay the course. So, that was pretty inspiring for me. I’m passionate about this way of investing to see that people that were invested in these funds were committed to those investments.

Jean Chatzky: (22:53)
Have you heard anything from investors specifically? And I’ll ask both of you this. Are there any stories that you’ve heard from investors during these times that you can share?

Eliza Badeau: (23:03)
Yeah. I can certainly jump in there. From the research that we’ve been doing, we’ve heard that many of these underrepresented communities, they would prefer to invest in things that are more tangible for them or things that they can see giving back. We’ve heard from some of our Black investors that they would prefer to give back and invest in their churches rather than saving their 401k right now. So, again, that’s a reflection of giving back to the community that supports them day in and day out. We’ve also heard that people would rather invest in real estate because it’s something that is tangible to them. They trust it more and they view it as something that they’ll ride out. They see the long-term investment in that. So, those are a few things that we’ve heard and seen that are important to underrepresented communities across gender and race and ethnicity.

Jean Chatzky: (23:53)
Well, and that’s really interesting because we know that people are not, with our longer life expectancies, we need to be investing more for our futures, not less. So we have to, I think, help people figure out a way to strike a balance, where they can continue to support their churches, continue to put money into real estate, but also provide them with the sort of growth that they need in order to fund a retirement that lasts. As we wrap this up, if there was one thing that you both wish you could tell every female investor out there about ESG investing, what would that be? What would you tell them? And Eliza, let me start with you.

Eliza Badeau: (24:36)
Sure. Yeah. I would just say, this is a great way to truly do right by the money that you have and grow it for something that you believe in. And I think that that goes for women. And that goes for women of color. And that goes for anyone from any community. That it’s a great way to do right by the money that you have worked so hard to save.

Nicole Connolly: (24:59)
Yeah. I mean, I think what got me really interested in this way of investing is, I have four small kids and I think a lot about the world that I want them to grow up in. And it’s a world of equality. It’s a world where there’s an abundance of resources. And doing this work makes me feel like I’m, you helping, in a small way, helping that vision I have of the world for them come to fruition. So, I think it’s just a really exciting way to invest.

Jean Chatzky: (25:31)
I think not such a small way by the way.

Nicole Connolly: (25:32)
Thanks Jean.

Jean Chatzky: (25:32)
Eliza Badeau and Nicole Connolly. Thank you so much for a great conversation.

Nicole Connolly: (25:40)
Thanks guys. Thanks Jean.

Jean Chatzky: (25:40)
And we will be right back with Kathryn and your mailbag.

Jean Chatzky: (25:52)
HerMoney’s Kathryn Tuggle joins me now. Fresh off the road. How was your drive back from Birmingham?

Kathryn Tuggle: (26:00)
Oh, it was so great. It was lovely. We stopped in Charleston and one of the strangest things of my life happened to me. I got out of the car and we had just parked and we were just kind of stretching our legs. Like, oh, let’s get a coffee. And I hear this voice behind me. It says, Kathryn Tuggle. You’re a long way from New York City. And it was one of my college friends.

Jean Chatzky: (26:23)
Oh my gosh.

Kathryn Tuggle: (26:24)
He lives there now. And ended up inviting us out for a socially-distanced boat ride on Charleston Harbor.

Jean Chatzky: (26:30)
So nice!

Kathryn Tuggle: (26:30)
It was so nice. It was such a nice little highlight of the trip. So, we had a great time.

Jean Chatzky: (26:37)
It makes you realize, the world is not that big.

Kathryn Tuggle: (26:41)
It’s really not. It’s really. Yeah. I kept saying, what are the chances that the one person I know in Charleston would be driving down the street?

Jean Chatzky: (26:49)
When you are there.

Kathryn Tuggle: (26:50)
Yeah. And the funny thing is, I haven’t seen him since college. And he didn’t recognize me. He recognized my husband, who he’s only seen on social media. So, he pulled over the car saying, I know that guy. I know that tall guy. Ben has, dirt because of quarantine, he hasn’t had a haircut. So, he has this huge head of hair. And so, this college friend who I haven’t seen in over a decade recognized my husband’s hair from social media.

Jean Chatzky: (27:19)
That’s incredible.

Kathryn Tuggle: (27:19)
That stopped the car.

Jean Chatzky: (27:19)
Incredible.

Kathryn Tuggle: (27:21)
Anyway.

Jean Chatzky: (27:23)
That is so funny. Oh my goodness. You know, I will have to, we don’t have to do it now, but I am going to have to sort of debrief you on this road trip thing, because I really want to see my son who’s in California.

Kathryn Tuggle: (27:35)
Yeah.

Jean Chatzky: (27:35)
I really don’t want to get on a plane and I don’t want him to get on a plane. And so, I’ve been trying to talk Elliot into a road trip. And he is not happy about this.

Kathryn Tuggle: (27:50)
Oh.

Jean Chatzky: (27:51)
Yeah, no, he’s not at all happy about this. So, we will have to do an offline debrief. But if any of our listeners have actually gone through the process of renting an RV and doing that kind of road trip. I mean, that’s kind of really what I think I want to do. Cause I don’t really want to stay in a hotel and I don’t really want to eat out. So anyway, I am looking for advice on renting an RV and driving cross country.

Kathryn Tuggle: (28:18)
I can see you now.

Jean Chatzky: (28:19)
Yeah.

Kathryn Tuggle: (28:19)
I can just see you and Elliot rocking out singing , going up the country, baby don’t you wanna go.

Jean Chatzky: (28:23)
Although I read this column in the New York Times from a woman who did actually do a road trip. And she said it was all great, except for the driving.

Kathryn Tuggle: (28:35)
Oh, no.

Jean Chatzky: (28:37)
So that put me off it a little bit, but we will get there. Anyway, thank you for teeing up that conversation with Nicole and Eliza. I’ve just been seeing so many news reports file in about this growing interest in putting our money where our mouth is and continuing to support the changing world that we’re all so excited about. So, I was really happy to be able to do that.

Kathryn Tuggle: (29:02)
Yeah. I love that people are looking to take real steps to support the causes that they believe in. A term I’ve heard on social media recently is performative allyship. Performative philanthropy, basically that you post something on social media and then you’re done. You’ve supported your cause with your little 30 second Instagram story and now you can just go back to your normal life. And hearing these conversations, it makes me really happy and really encouraged that people are really looking to back what they believe in with financials, with monetary support. And I think that’s only going to continue.

Jean Chatzky: (29:40)
Yeah. I think it’s an absolutely essential additional step. Right? You can say it, but then you actually have to do something if you want to make a real difference. So, I know we’ve got questions, let’s answer some.

Kathryn Tuggle: (29:55)
Yes. Our first letter comes to us from Dawn. She writes, hi Jean and Kathryn. I love the podcast. Thank you for what you do. Age old question, invest or pay down my mortgage. I’m fortunate to be in the situation of having a well paying career and currently with $25,000 to either invest or pay down my mortgage, I’m set with an emergency fund. Retirement accounts are maxed. 529s are doing well, et cetera. I have $140,000 at 4% interest left on my mortgage in a middle cost of living area. I’ve done the math on my own to see how much interest I will save on my mortgage. But can you point me in the direction of a calculator to put in all the info and give me an objective answer of what is financially best. I’d love to pay down my mortgage, but will do what is objectively best. And I’m not trusting my own math. I’m 10 years away from retirement. Thank you.

Jean Chatzky: (30:44)
It’s a very, very interesting question right now. Because I might say, well, you could refinance that mortgage. I mean the 30 year, not that I would refinance you into a 30 year, because you’re too close to retirement for that in my estimation. But 30 year mortgage rates have fallen into the high 2% range. You could get a 10 or a 15 year mortgage, much, much cheaper than that. That is incredibly cheap money. And so by the numbers, and I don’t really have a, I know you asked for a favorite mortgage calculator. I don’t really have a favorite mortgage calculator. Like, I tend to just, when I’m going for a calculator, I end up Googling mortgage calculator or college calculator or calculator to tell me how much my savings will be worth in 30 years. That’s my favorite calculator by the way. Cause the numbers get so big, so fast. But I’m a little torn because by the numbers, you should absolutely invest this money. By the numbers, you should probably put it into a stock portfolio that will over a decade, historically speaking, beat the return that you are going to get on that mortgage. However, I really, really, really like the idea of going into retirement with that mortgage paid off. I have every intention of doing that in my own life. I think it gives you a much higher degree of a feeling of safety and security that I know is really important, particularly to women. So, if you are fully track for retirement. And that means you are meeting the benchmarks. You have one times your income put away by age 30, three times by 40, or six times by 50. You expect to have eight times by 60 and 10 times by the time you retire. If you’ve taken care of the college savings that you want to do, if you funded an HSA, if you have one, I think I’m getting rid of the mortgage. I’m sorry. I know I’m going to get creamed for this answer because rates are so low. It is such cheap money. But if it were me, I probably would get rid of the mortgage. And I would invest the rest.

Kathryn Tuggle: (33:22)
I like that.

Jean Chatzky: (33:23)
Yeah? You know, it’s a really hard time to be having this conversation. But I am looking at the very same thing in my own life. I mean, my retirement is funded. We took a mortgage on the place that we bought in Philly while we were going through our renovations. I just want to get rid of it. Even though it’s dirt cheap, I don’t like debt. So, there we go. That’s my answer.

Kathryn Tuggle: (33:46)
And having that stress off, that weight off your mind, knowing that your mortgage is paid, knowing that that is not a bill that you have to account for. If you have a pension, part of your pension does not have to go to the mortgage. Part of your social security does not have to go towards the mortgage. That is such a beautiful freeing feeling. And that’s worth a lot.

Jean Chatzky: (34:06)
I’ve started to think of it as sort of part of the fixed income part of my portfolio. If you think of a mortgage as forced savings, the money that you put into the mortgage right now is actually getting you a much, much better return than any money that you put into the bank, or any money that you put into treasuries. So, you might try thinking about it in those terms.

Kathryn Tuggle: (34:26)
Yeah. Good point. Our next letter comes to us from Jennifer. She writes, hi Jean and Kathryn. I’ve been a listener of HerMoney since the beginning, and I’m still loving it. Thanks for all the passion you put into it. For some background, I’m in my mid-thirties and live in New York. My husband and I have two kids ages two and five. My question is related to 529s. Right after my oldest was born. We opened a 529 account with a financial advisor. Upon their recommendation, we opened up the Virginia College America 529, as they said, the long-term benefits of that account would outweigh the tax benefit we’d receive through the New York State 529. When my youngest was born, we opened up the same account for them. Fast forward a few years, we’ve ended the relationship with that financial advisor. And now I’m questioning if we should open a New York State 529. And, if so, can we roll the Virginia 529s into them? I’m interested in your opinion because after doing some research, it appears we’re currently paying much more in fees and expenses for the broker managed fund in Virginia than we would be with a self-managed fund in New York State, which I think I’m fully capable of doing since learning so much from your podcast. Also the New York State 529 appears to perform better than the Virginia 529 and we’d benefit from the tax deduction in New York state. But, in the long run, is it worth the effort? And again, can I even transfer the 529 to New York State? Thanks in advance for your answer.

Jean Chatzky: (35:48)
So, you were sold a bill of goods. I’m really, really sorry to tell you that. I am not a fan of broker sold 529 plans. Not one bit. Because what you’ve discovered is absolutely correct. The direct sold ones, save you money on expenses and fees. These things do not have to be expensive. New York’s is a very, very good example of the fact that they can be tremendously inexpensive as fees are concerned. You can open New York accounts and roll your money in. You only are allowed to make that change – rolling the money from one plan to another – once a year. So, I would just go ahead and do that. Your kids are plenty young for you to continue to rack up the state tax deduction, and why not take it? I mean, I live in New York, so I know we get socked with taxes since the new tax law, things for many, many people, including me, are worse, not better. I would not be giving up that tax deduction if I didn’t have to. And personally, and I’ve been on the record with this before, I’m a fan of that New York plan. It’s New York Saves. I think it’s very easy to manage online. And I put my kids through college using it. So, yeah. And for anybody else, who’s thinking about a broker sold plan versus a direct sold plan. I want to send you to savingforcollege.com, where you can compare 529s, not just on performance, but on fees from every state in the country. It’s a wonderful, wonderful resource.

Kathryn Tuggle: (37:29)
That’s great advice, Jean. Thank you.

Jean Chatzky: (37:30)
Sure.

Kathryn Tuggle: (37:31)
Our last note comes to us from an anonymous listener. She writes, thank you so much for your podcast and your thoughtful and kind advice. I’m almost 50 years old and I live in Maryland. I have a few questions for you. First, my income is above the limit to contribute to a Roth IRA, but I contribute to a traditional IRA and then do a Roth conversion. Upon making this transaction, I’m always asked if I want to withhold taxes. I’ve always said no thinking I’m better off putting it all into the Roth. Is this the right move? Also, I began contributing to a Fidelity personal retirement annuity about five years ago, which has grown to be about one third of my portfolio. Lately, I’ve been opting to purchase ETFs rather than invest more in the annuity, but perhaps I should rethink that. Do you have any thoughts? Lastly, I’m in a domestic partnership and we do not have plans to share money. With that said my partner and I both have two children. Should we have some sort of prenup drawn up even if there are no immediate plans for a wedding? I never want to put myself at risk financially. Thank you so much.

Jean Chatzky: (38:30)
So, let me give you answers to two out of the three questions, and then some guidance for what to do with the middle one. Your last question is easy, cause it is a no brainer. Yes. Prenup. Yes. Make sure that you have all the other documentation that you need in place. A durable power of attorney for finances, a durable power of attorney for healthcare, a will, a living will. Particularly because you’re not married, you need to make sure that you are as buttoned up as possible for the sake of your children, for the sake of your partner, and for the sake of yourself, because none of us know what’s coming down the pike. So, I am a big fan of a prenup for these circumstances. I would just go ahead and do that and do it immediately. On the Roth IRA question, I think you’re doing it just right actually. I don’t think it’s worth using proceeds out of a conversion to pay the taxes. So if you didn’t have the money outside of that IRA account to use, to pay the taxes, I would probably tell you not to do the conversion in the first place. So, keep going in that direction. I think you’re doing it just fine. The only thing that I would point out is that as you get older, you may want to consider having tax diversification as well. You may want to consider having some money in taxable accounts, in addition to money in Roth accounts. And then you can pull from those accounts when it makes sense once you’ve already entered into retirement. Lastly, on that annuity, I think you’ve got to go back to the reason that you purchased an annuity in the first place. We’re hearing a lot, particularly right now, from people who are very nervous about the volatility in the markets, annuities provide a guaranteed income in retirement. They are structured in many, many different sorts of ways. I’m not sure how yours is structured. But if you were looking to know that you were going to have enough money to cover your fixed expenses, once you entered into retirement, by using that annuity money, in addition to social security, I think that is a very valid way to proceed. The markets have been so incredibly volatile that it makes the challenge of pulling money out of investment accounts, brokerage accounts, in order to pay for daily living expenses in retirement, potentially more difficult if that volatility continues. Because what you don’t want to have to do is sell investments when they’re down. That’s the sort of thing that makes the 4% rule of retirement withdrawals a little difficult to adhere to. So, what I would say is this is a really good question to have with a financial advisor if you have one. And go back to the reasons that you purchased that investment in the first place. Ask yourself if it still holds true. If you feel like you’ve already covered your bases, as far as those fixed expenses go, then you can continue to buy ETFs and invest the additional money that you have for growth. Hope that makes sense. Did that make sense, Kathryn?

Kathryn Tuggle: (42:15)
Yeah. Fantastic. Great advice. Thank you.

Jean Chatzky: (42:17)
Thanks. Sure. All right. Where can people send us their letters.

Kathryn Tuggle: (42:22)
Mailbag@hermoney.com and I will pick them right up.

Jean Chatzky: (42:26)
Okay. And just a reminder too. I mean, we’ve been spending a lot of time lately focusing on the newsletters that we produce at HerMoney. We produce two newsletters every week. The first is called This Week In Your Wallet. It comes out on Tuesdays. It is a look at what’s happened in the world of your money this week. What you really need to know about it. And what you really don’t need to know about it. And if you’re not on the list for that newsletter, it’s free and you absolutely should be. So, go to HerMoney.com and subscribe. Our other newsletter comes out on Thursdays. It’s our, HerMoney newsletter. And it’s a look at the content that we’ve created during the past week. And we’re just going gangbusters. Often, with your questions and your concerns in mind. So please head there and subscribe to those and pass them on to your friends and loved ones as well. In today’s thrive, is it time for a mid-year financial checkup? Giving your finances a comprehensive look a couple of times a year is always necessary. But it’s especially important right now when so many financial situations are in flux. If your finances are in a totally different place than they were just a few months ago, you are not alone. A mid-year checkup may be slightly different for everyone depending on your personal situation. But here’s a quick rundown of five steps to take. Number one, review your monthly spending. Even if you pay just nine bucks a month for a music service and 15 for a streaming video service, that adds up to nearly $300 a year. As you start to do more outside of your house, it’s a really good time to reassess which expenses are worthwhile. Second, assess your debt. Itemize all of your debt and the interest rates, including credit cards, student loans, car loans, mortgages. You get the idea. Prioritize which loans to pay down first and make a plan for getting on the phone with your creditors if necessary. Three, replenish your emergency fund. These past few months have illustrated just how important it is to keep some money in a safe liquid account so you can pay unexpected expenses or cover your bills if your income stops. If you’ve had to tap this fund, make it a goal to start replenishing the account as soon as you can. Four, set short-term and medium-term savings goals. Do you want to save for a down payment on a house, a car, start saving for a vacation once we can go on them again, or even holiday gifts. If you plan in advance, it’s much less painful to start setting aside a little bit of money every single month, rather than landing in expensive credit card debt afterwards. And fifth and finally, make sure that you are getting the most from your employer sponsored retirement accounts. If your employer offers a 401k or another retirement savings plan, and you’re not participating yet, make an election to do so as soon as you’re able. Or if you’ve been contributing just the minimum, just to get the match, think about bumping it up if you can. Time is the best asset we have when it comes to growing our money and your contributions to an employer sponsored 401k always come from pre tax dollars.

Jean Chatzky: (45:47)
Thank you so much for joining me today on HerMoney. Thanks to Eliza Badeau and Nicole Connolly for joining us to share their insight, because our money should always be making the greatest impact that it can while it’s working for us. If you like what you hear, I hope you’ll subscribe to our show at Apple Podcasts. Leave us a review. We love hearing what you think. We want to thank our sponsor, Fidelity. We record this podcast out of CDM Sound Studios. Our music is provided by Video Helper and our show comes to you through Megaphone. Thanks so much for joining us and we’ll talk soon.


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