Sustainable vs. Traditional Portfolio: What Characteristics Make Them Different?

When you think of investing, what comes to mind? Perhaps you picture the famed Gordon Gekko character from the movie “Wall Street” or other depictions of cutthroat investors who happily take people’s money while betting against them in their personal lives.

If those images make you cringe, maybe it’s not your calling to be a stockbroker. But that doesn’t mean you can’t invest your money and watch it grow over time. There are plenty of ways to invest your money responsibly and profitably.

Now, in the world of finance, there are two types of assets: traditional and sustainable. Both asset classes generally involve investments that will generate cash flow over time. The primary difference is that the money is strictly directed towards positive social or environmental impacts with sustainable investing.

A sustainable investment portfolio can include companies that produce hybrid cars, green energy, or even organic food and clothing vendors. These businesses have the potential to provide a solid return while also having positive implications for society.

Let’s take a closer look at the benefits of each approach and see which works best for you.

What Is a Sustainable Investment Portfolio?

Most people have some concept of a traditional investment portfolio, but a sustainable investment portfolio is a concept that most people have less familiarity with.

A sustainable investment portfolio refers to a strategy for investing in stocks, bonds, or other types of financial instruments that are not only profitable but also positively impact the world around us.

An ethical investment portfolio is designed to do more than just generate a return on investment — it is intended to improve the world and is characterized by companies like hospitals, research organizations, or aid organizations. It would exclude tobacco, weapons, or other companies that have a negative impact on society.

Ethical investors are concerned with minimizing the impact their investments have on the environment, society, and their finances. In many cases, ethical investments also have a lower rate of return than traditional investments, but ethical investors are willing to accept this trade-off because they do not want the negative consequences associated with the potential for greater profits.

How Does Sustainable Investing Work?

To be considered an ethical investment, a company must be shown to be beneficial in some way to society or the environment.

Ethical investing involves a lot of due diligence on the investor’s part to ensure that the companies they choose to invest in meeting these criteria. Ethical investors will also typically not invest in companies they do not understand to minimize the risk they are taking without an understanding of what they are getting into.

There are a number of different criteria that can be used when deciding which companies to invest in, such as focusing on companies related to a specific cause, industries that the investor is familiar with, or even just choosing companies that have a low enough share price that the investor could buy a significant number of shares.

Benefits of Sustainable Investing

There are many benefits associated with an ethical investment strategy.

One of the main benefits is that, by being socially responsible, an investor can sleep better at night knowing that their portfolio is not contributing to the suffering or destruction of others or the planet. Other benefits include the potential for higher investment returns and a lower risk of losing money. 

What is a Traditional Investment?

A traditional investment is one that is designed to produce quick and dramatic gains.

While this can be a good thing for investors who want to see big changes in their portfolio as quickly as possible, it also means that some of these profits may come from other investors who get pulled into the same trend and lose money in the process.

Traditional investments often involve high-risk ventures, such as startup companies that are unproven and have a high chance of failing. They can also include extremely volatile assets, such as commodities, that can experience dramatic price swings on a regular basis.

How Does Traditional Investing Work?

A traditional investment strategy typically involves taking on as much risk as possible in the hopes of generating returns as quickly as possible. This might mean investing in startup companies or other ventures that are highly risky and have a high chance of failing. It can also involve investing in very volatile assets, such as commodities, in the hopes of seeing big gains as these assets correct themselves.

Traditional investing is often a good choice for those who have a high risk tolerance and can stomach the ups and downs of a volatile market. It can be a great way to quickly increase the size of your portfolio, but it also comes with a lot of risks.

Traditionally, investors have been advised to diversify their portfolios to reduce risk. But since traditional investors are often looking for quick gains, they may be more willing to take on as much risk as possible in the hopes of seeing big gains quickly.

So, Which One Is Right for You?

As you can see from the above sections, sustainable investing and traditional investing are very unique approaches to the realm of finance. 

Sustainable investing is ethically investing in companies that are actively doing good for the world, while traditional investing is designed to maximize returns as quickly as possible while taking on as much risk as possible.

A traditional portfolio is not necessarily bad or evil; it’s simply an investment strategy that focuses on things like price, volatility, and risk rather than ESG factors (although these things are still taken into consideration).

With that said, sustainable investing is often a good choice for those looking to contribute to society in a positive way while still growing their assets. Traditional investing, on the other hand, can be a great option for those who have a high risk tolerance and are willing to take on a lot of risk in the hopes of seeing quick gains.

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