Global instability. Climate change. Market swings. Investors need to look beyond sustainable investing to resilient investing, argue the authors of a new book. In The Resilient Investor: A Plan for Your Life, Not Just Your Money, Michael Kramer, Hal Brill, and Christopher Peck (pictured from left to right, above), the Managing Partners of financial advisory firm Natural Investments, offer a roadmap for investing in an uncertain world. I spoke recently to Michael Kramer and Christopher Peck about resilient investing and what it means for investors.
Amy Cortese: What is resilient investing and what prompted you to write a book about it?
Michael Kramer: During the financial crisis of 2008-2009 and the emerging severity of climate change, we came to see that our circumstances as a species are unlike previous eras and warrant a different attitude and skill set that can help us to be ready for any possible future scenario. Given the inherent risks in the global financial system and humanity’s impact on the environment, resilience offers a guiding framework to help people withstand possible shocks and perhaps bounce back better.
Christopher Peck: We define resilient investing as investing in one of three strategies that helps us anticipate and prepare for disruptions, improve our capacity to withstand shocks, rebuild as we need to, and adapt and evolve as we can. Hence the “bounce back better.”
AC: The book takes an expansive view of investing that goes beyond financial investments… can you explain that?
MK: We expanded the definition of investing to include our time and energy, because every day we are making investments in ourselves, our homes, nature and our communities. We all have personal and tangible assets in addition to financial assets, so in making life planning decisions it’s important to align our values with how we spend our time, energy, and money in order to thrive in our life purpose and in helping the world.
CP: In recognizing that we do actually invest in a much broader range of assets than normally considered, we wanted to bring some of the investment advisor rigor to that process, the “green visor” perspective, if you will. Investment advisor 101 is “diversify, diversify, diversify.” So we expanded our definition to include more “baskets” to keep our eggs safe, to follow the cliché.
“Local investing is foundational for us. It’s what ALL investing used to be, and many of us have realized that it needs to become a significant portion of our investment portfolios again.”
AC: You also have a different definition of net worth…
MK: Our true value as human beings includes all our strengths, values, behaviors, skills and capacities. This includes our emotional and spiritual life, our process of learning, our career, our home, our participation in community, and our shopping and investing practices. Everything we do has a ripple effect and creates impacts on ourselves and the world, and we can see our true net worth by looking at the qualities of these relationships and our lifestyle and financial choices.
CP: We’ve created not just more baskets for more eggs, we’ve also created a bigger net worth pie. (There’s something about food obsessions in this whole thing…)
AC: You’ve boiled that philosophy down to a map with 9 investment zones. What are they and how does an investor use this tool?
MK: The 9 investment zones form a grid where the 3 types of assets – personal, tangible, and financial – are matched to 3 investment strategies — close to home, sustainable global economy, and evolutionary. The book leads people through a process of examining their own assets in each of these 9 zones in order to identify and prioritize where to focus time, energy, and money to best serve oneself and society. Because everyone has different and varying amounts of assets, the map is unique for everyone, and each person’s plan will be customized to their own needs, interests, and goals.
CP: We have numerous examples of the map and how folks have used it, as well as many examples for each zone on our website at www.resilientinvestor.com.
AC: How does local investing fit in? Examples?
MK: Local investing offers opportunities for people to have a stronger relationship with the enterprises or infrastructure projects they support. Whether it’s owning equity in a local solar or wind project or lending money to a local bakery, these investments have different risk characteristics than marketable securities, and therefore are not correlated to what happens on Wall Street. Local investing also includes community development finance, whether through venture capital funds, loan funds, or community banks and credit unions that are financing important endeavors such as affordable housing, small businesses, renewable energy retrofits, and non-profit and community facilities.
CP: Local investing is foundational for us. It’s what ALL investing used to be, and many of us have realized that it needs to become a significant portion of our investment portfolios again.
AC: Is there an appropriate amount or rule of thumb that you use when thinking about how much of a portfolio should be allocated to investments in local businesses?
MK: There isn’t a rule of thumb about the amount, it has to be based on the nature of one’s overall assets as well as one’s tolerance for risk and the return profile. Opportunities exist in both low and high risk investments, with varying terms and rates of return. That being said, given the system risk of the capital markets, more and more investors are increasing their allocation to local investments. The key is conducting proper due diligence so that investors pick wisely.
CP: This is one of those questions where investment advisors and financial planners have to fall back on our most trusted response to tough questions: “it depends.” There are so many factors like risk tolerance, timing, age of the investor, interest level, etc. Ultimately a portfolio as a whole has to pass the “sleep test,” is the client not worrying (too much) about their investments?
“Get in shape, spend much less than you make, meditate, cultivate contentment, and love your family.”
AC: The book posits that non-financial investments — whether education or even personal relationships — are just as important, if not more so, than the financial kind. Can you give some examples? And how do you measure the return on those types of investments?
MK: Since flexibility and adaptability are key aspects of resilience, this way of being in the world will become more and more necessary in our view. People may need to learn new skills – like growing food, harvesting water, and producing renewable energy – while perhaps changing their careers to be either less dependent on the global financial system and/or to be of greater positive social and environmental impact. We’re encouraging people to act in alignment with their worldview and their values, contributing to the community and society in ways that transform it into something more just, responsible, and regenerative. The best way for this to happen is for people to begin to live this way themselves. This means letting go of all sorts of attachments to obsolete expectations, and this practice leads to increased psychological well-being and compassion and support for towards those we care about.
Measuring return can certainly look different – quantifying positive impact can include everything from the amount of energy saved or the number of ecosystems preserved – but it also means evaluating our level of happiness, which is subjective and has to do with achieving personal or community goals.
CP: Education is a great example. Getting educated to be able to move up from minimum wage is clearly worth it. Getting a second PhD, probably less so.
AC: The book describes different investor types, from “doomers ” to “dreamers.” Which type are you?
MK: I’m primarily a Dreamer. While I am fully aware of all the problems in the world, my focus tends to be on conceptualizing and creating innovative positive solutions to our challenges. Often my ideas are very progressive. For example, I’d like to see us move beyond nation states and form a global government that cares for all people and the planet in a cohesive way. I’d also like to see us evolve beyond violence as a way of being in the world. I’d like to see the new normal for business as operating for the benefit of employees, customers, communities, and the environment—not just owners. I hold fast to dreams like these, and focus my time, energy and money on them to see if I can help them to manifest, recognizing that not all seeds I plant will germinate.
CP: I’m totally a Driver. I’m aware of problems but focus primarily on moving forward to create change. It’s funny, looking back, I can see that I’ve been a Driver since late high school, so maybe some of these types that we uncovered are more fundamental than we really claim in the book. Our third co-author Hal Brill is what we call a Dualist: we’re either going to break through to the promised land or we are doomed. The diversity in viewpoints certainly created an interesting dynamic during the writing process!
AC: Do you see a shift in how people approach investing? How so?
CP: Millenials seem to way more flexible and entrepreneurial than my generation, and they’re investing time and their whole lives really in amazing and groundbreaking pursuits. Not all of them of course, but a much higher percentage. When we’ve pointed out to younger people what a huge asset they have in time and energy we see a big eye-opening happen. I’m 47 with a 2-year old, so I yearn for the days of high energy and sleeping in on the weekends; I never thought about how wealthy I was!
MK: People no longer assume that the future will be like the past, and as such, people are generally becoming more cautious about investing in the traditional financial system. We became accustomed to 90 years of fairly persistent economic growth in that system. [But] with apparent limits to growth, particularly given natural resource constraints and population growth, investors appear to be more and more interested in the quality of their investments rather than the expectation of persistent high growth. The notion of sustainable and responsible investing has now become a mainstream approach, particularly among Millennials, and this will continue to shift our expectations of business as corporate citizens.
AC: In your practice as financial advisors, what are the biggest mistakes you see people make?
MK: Planning is difficult in and of itself, but even more challenging can be to maintain a sense of discipline. Investing is meant to have a long-term time horizon, but sometimes people forget that and make decisions that are based on short-term financial data or fear of volatility. It’s important to have a comprehensive, well-diversified plan while not attempting to time the cycles of markets, as it nearly always leads to poor decisions.
CP: So many mistakes …buying annuities, maxing out credit cards, spending inheritances, marrying poorly, where to begin? Seriously, we are so wealthy in the US that it’s easy for us to be lazy and inattentive about money. As Michael says, not planning really undermines the future. I think losing sight of the principles of thrift and frugality is one of the biggest mistakes I see.
AC: Can you share some tips for resilient investing?
MK: Being ready for anything means taking a hard look at every aspect of one’s life. This is both fun and challenging, but it can be highly illuminating to see where you’re strong and where you could use some improvements in your life. Our intention is to give people a sense of personal empowerment, to let go of any semblance of victim consciousness and become a proactive force in charting the course of your life and all its meaningful relationships. For if volatility and uncertainty is the new normal, our ability to thrive and maintain peace of mind requires a sincere and thoughtful assessment and planning process that reflects what we believe and what direction we wish our life and humanity to take.
In my own personal life, I’m diversifying my career so it is not entirely dependent on the securities markets (via consulting, teaching and writing in related fields). I’m growing some of my own food. I’m using biodiesel in my car. I’m actively involved in policy work locally, at the state level, and in serving on the national policy committee for my industry trade association. I invest in meaningful crowdfunding opportunities. I am working to start a community loan fund here in Hawaii and helped get Impact HUB Honolulu off the ground through HI Impact, which I co-founded to build the local impact investing ecosystem. I practice yoga. Those are just a few examples!
CP: I’m more declarative: get in shape, spend much less than you make, meditate, cultivate contentment, and love your family.