Investing

Concentrated stock positions are one of the most common and least discussed financial risks among corporate professionals and executives. You have worked hard, accumulated equity in your company, and watched it grow. That feels like success. And it is. But it also comes with a level of risk that most people are not actively managing.

When a significant portion of your net worth sits in a single stock, your financial future becomes closely tied to the performance of one company. No matter how strong that company is, that is a structural risk that no investment thesis can fully justify.

How Concentration Happens Without a Strategy

Most concentrated positions are not the result of bad decisions. They build up naturally. RSUs vest over several years. Options are exercised and held because the stock keeps climbing. An ESPP accumulates shares at a discount. An inheritance arrives in the form of a long-held family position.

Before long, one stock represents 30%, 40%, or more of total investable assets. At that point, you are no longer just an investor. You are highly correlated to a single outcome.

Portfolio management services exist precisely to address this kind of structural imbalance before it creates a problem.

The Real Cost of Holding Too Long

The instinct to hold concentrated positions is understandable. You know the company. You believe in its prospects. The stock has done well, and selling feels like giving something up.

But there are real costs to holding:

• Volatility drag: A single bad quarter, regulatory action, or sector rotation can wipe out years of gains
• Tax inefficiency: Allowing a position to grow without a strategy for how to exit can create a larger and harder-to-manage tax event later
• Portfolio imbalance: The rest of your investments may be structured conservatively, but a large concentrated position can dominate your actual risk exposure
• Correlation with your income: If you also earn your salary from the same company, your financial life is doubly exposed to that single entity’s health

How a Managed Approach Changes the Outcome

A systematic approach to managing a concentrated position does not mean selling everything at once. It means building a thoughtful strategy that accounts for your goals, tax situation, and timeline.

That might include several approaches, depending on your tax situation, timeline, and how much room you have to work with.

Cut the Tax Bill With Losses You Already Have

Selling a concentrated stock position almost always comes with a significant capital gains bill. But before you write that check, look at the rest of your portfolio. Chances are, something else is sitting at a loss. Tax-loss harvesting finds those positions and sells them strategically to offset the gains you are realizing elsewhere. It rarely wipes out the tax bill completely, but shaving it down meaningfully in the year you diversify can be the difference between pulling the trigger on a plan and continuing to put it off because the cost feels too high.

Do Not Sell It All at Once

There is no rule that says you have to exit a concentrated position in a single year. Spreading sales across two, three, or even four tax years keeps your annual gains in a range that is far easier to manage. It reduces the chance of jumping into a higher bracket, gives you more control over the timing, and lets you adjust the pace if your income changes. Yes, it requires patience. But the tax difference between a well-spread exit and a single large sale can be substantial enough to justify the wait.

Give Stock, Not Cash

If charitable giving is already part of your life, this strategy deserves serious attention. Donating appreciated shares directly to a charity or a donor-advised fund means you never pay capital gains tax on the growth at all. You still get the full fair-market-value deduction. Selling first and donating the proceeds leaves money on the table every single time. For anyone holding a large concentrated position and giving consistently, building this into the annual plan turns a one-off tactic into a genuine wealth strategy.

Reduce the Risk Without Triggering a Sale

Sometimes selling is not the right move yet, either because of timing, tax considerations, or personal reasons. That does not mean you have to sit with full downside exposure. A collar strategy uses options to put a floor under your potential losses while a call option helps offset the cost of that protection. Exchange funds work differently, letting you pool your concentrated shares alongside other investors to achieve diversification without an immediate taxable event. Neither approach is simple, and both come with eligibility requirements and costs that need to be weighed carefully. But in the right situation, they give you a way to manage risk without forcing a premature sale.

The thread running through all of these approaches is the same. You do not have to choose between reducing risk and avoiding an unnecessary tax hit. With the right plan and enough lead time, you can do both.

Wealth Management Services and Concentration Risk

Wealth management services that address concentration risk go beyond standard portfolio rebalancing. They require visibility into your full financial picture, including your income, your other accounts, your tax bracket, and your long-term goals.

This is where coordinated wealth management proves its value. An advisor who only sees your investment account cannot build the right strategy. An advisor who sees your entire financial life can.

The Psychological Side of Letting Go

There is an emotional component to concentrated positions that does not get discussed enough. When a stock represents your hard work over many years, selling it can feel like a statement about your faith in the company or your own judgment. That psychology keeps people holding longer than is rational.

Good advisors know this. They do not push clients to make moves that feel wrong. They help clients see the full picture, model the scenarios, and make decisions that are grounded in data rather than emotion. Over time, that kind of guidance is what turns good earnings into lasting wealth.

FAQ

Q: How much concentration in one stock is too much?

Most financial advisors consider anything above 10-15% of investable assets in a single stock to be a significant concentration risk worth actively managing.

Q: Can I reduce a concentrated position without a large tax bill?

In many cases, yes. Staged selling, tax-loss harvesting, charitable strategies, and timing the sales across tax years can significantly reduce the tax impact of diversifying.

Q: Should I wait until my stock fully vests before creating a diversification strategy?

No. The earlier a diversification strategy is built, the more flexibility you have. Planning before vesting dates allows you to coordinate with your overall tax picture and avoid reactive decisions.

Most people think investing is something they can figure out on their own. You pick a few stocks, put some money into a mutual fund, and trust that time will do the rest of the work for you. And honestly, that approach works fine for a while — until it doesn’t.

The real problem with investing isn’t the market. Markets go up and markets go down, and that’s always been true. The real problem is the decisions people make when they’re not sure what they’re doing — buying at the wrong time, selling out of fear, putting too much into one place, or simply never having a plan to begin with. These are the mistakes that quietly cost people money over years, and most of the time, people don’t even realize it’s happening until they look back and wonder where all the growth went.

That’s exactly what a wealth management firm is there to help you avoid.

What Role Does Financial Direction Play in Building a Strong Investment Strategy?

Here’s a question most investors have never seriously asked themselves: what is this money actually for?

Not in a vague sense — not just “I want to grow my wealth” or “I want to retire comfortably.” Those are wishes, not plans. A real financial direction means knowing what you need, when you need it, and how your investments are supposed to get you there.

A wealth management firm starts the entire process by building that clarity with you. They look at your income, your expenses, your goals, your timeline, and everything in between before a single investment decision is made. That might sound like a slow start, but it’s actually the most important step in the whole process, because when your investments are tied to something specific and real, you make far better decisions along the way and you’re far less likely to abandon your plan the moment things get uncomfortable.

How Does Tax-Efficient Investing Help Protect and Grow Your Wealth?

Taxes are one of those things that most investors don’t think about until they’re already paying more than they needed to. Selling investments at the wrong time, triggering unnecessary capital gains, failing to take advantage of tax-loss harvesting — these are decisions that chip away at your returns year after year in ways that aren’t always obvious until you add it all up.

A wealth management firm builds tax-conscious investment management into every layer of your investment strategy. They think about when to rebalance, when to sell, how to structure your accounts, and how to manage gains in a way that keeps your tax burden as low as reasonably possible. These aren’t dramatic changes — they’re careful, deliberate adjustments that add up to a real difference in how much of your money actually stays with you over the long run.

Why Is Portfolio Diversification So Important for Long-Term Investors?

One stock performs really well for a couple of years and suddenly it feels like the smartest investment you’ve ever made. So you hold onto it, maybe even add more, and before long a single company is carrying a significant portion of your entire financial future.

This is called over-concentration, and it’s a risk that catches a lot of investors off guard — not because they were being reckless, but because they were following what felt like a logical path. The problem is that the bigger one position grows relative to the rest of your portfolio, the more damage it can do if things go wrong.

Wealth managers build portfolios that are spread across different assets, sectors, and geographies so that no single investment has the power to significantly set you back. Diversification isn’t exciting, but it is genuinely one of the most reliable ways to protect your financial progress while still allowing your money to grow meaningfully over time.

How Should Your Investment Risk Change Based on Your Financial Timeline?

Risk means different things to different people depending on where they are in life. Someone who is 35 years old and investing for retirement can afford to ride out short-term volatility because they have decades ahead of them for the market to recover and grow. Someone who needs money in four years for a specific goal is in a completely different situation and needs a very different approach.

The mistake a lot of investors make is either taking on far more risk than their situation actually calls for, or avoiding risk so completely that their money barely grows at all. Both of these create problems, just in different ways and at different times.

A wealth management firm helps match your investments to your actual life circumstances — your timeline, your goals, and your genuine comfort with uncertainty — so that the level of risk in your portfolio is working for you rather than quietly working against you.

Why Are Regular Portfolio Reviews Essential for Long-Term Financial Success?

A portfolio that was perfectly designed for your life three years ago may not be the right portfolio for your life today. Your goals change, your income changes, your timeline gets shorter, and the market itself shifts in ways that can quietly push your investments out of alignment with what you actually need.

Wealth managers conduct regular reviews to make sure your portfolio continues to reflect your current situation and long-term objectives. If something needs to change — whether because of a shift in the market or a shift in your personal circumstances — those adjustments happen proactively, before small misalignments become larger problems that are harder to correct.

Why Do Investors Choose Strata Capital for Wealth Management?

Strata Capital starts every client relationship the same way — by taking the time to genuinely understand your financial life before making any recommendations. Your goals, your risk comfort, your timeline, and your full financial picture all come first, and everything that follows is built around that foundation.

Portfolios are reviewed regularly, strategies are updated as life changes, and the focus stays consistently on helping you build long-term financial stability without the costly mistakes that hold most investors back.

FAQs

Q: What is the biggest mistake investors make without professional guidance?

The most common mistake is investing without a clear financial direction. Most people focus on chasing returns without defining what those returns are actually meant to achieve, which leads to emotional decisions, poor timing, and a portfolio that never truly aligns with their real life goals.

Q: How does a wealth management firm help manage investment risk?

A wealth management firm helps by aligning your investment risk with your actual financial timeline and personal circumstances. Rather than applying a generic approach, they build a strategy around your specific goals so that the level of risk in your portfolio is always working in your favor rather than quietly against you.

Q: Is working with a wealth management firm beneficial for regular investors?

Absolutely. The advantages of structured planning, tax efficiency, and disciplined decision-making are not exclusive to high-net-worth individuals. Any investor who is serious about building long-term wealth can benefit significantly from having a professional team that brings clarity, consistency, and expertise to the entire process.

By David C. D’Albero II

Understanding and managing risk tolerance is crucial, particularly for corporate professionals who navigate complex financial landscapes. Risk tolerance refers to the degree of variability in investment returns you’re willing to withstand—essentially, how much potential loss you’re prepared to accept in your portfolio in exchange for the possibility of higher returns. For executives managing significant assets, aligning your risk tolerance with your investment strategy is not just important—it’s a strategic imperative.

The Role of Risk Tolerance in Professionals’ Investment Strategies

As a corporate professional, especially in dynamic areas like the NYC metro and New Jersey, your financial decisions are often more complex than those of the average investor. Risk tolerance isn’t just a personal preference; it’s a vital component of your overall financial strategy. Executives with lower risk tolerance might prefer a portfolio that leans heavily on conservative assets like cash equivalents, bonds, or other fixed income investments. These options offer stability but typically come with lower returns.

On the other hand, if you have a higher risk tolerance, your portfolio might be more heavily weighted in stocks and other higher-risk assets. This approach can yield higher returns but also exposes you to greater volatility. For highly compensated professionals, the key is to invest according to your specific risk tolerance and broader financial objectives. For instance, if you prefer to minimize risk, you might allocate only 35% of your portfolio to stocks, with the remaining balance in bonds, fixed income, or alternatives like commodities, hedge funds, or real estate. These alternative investments can help mitigate volatility, offering a diversified approach that aligns with your risk profile.

Avoiding the Pitfalls of Misjudging Risk Tolerance

Corporate professionals often have a higher appetite for risk due to their professional experiences and successes. However, it’s easy to misjudge risk tolerance, especially when basing it on periods of strong market performance. During bull markets, even seasoned professionals can fall into the trap of overconfidence, assuming that the market will continue to perform well indefinitely. This mindset can lead to a misalignment between your actual risk tolerance and your investment strategy.

Risk tolerance isn’t about gauging how comfortable you feel during good times. It’s about assessing your ability to withstand downturns or significant market volatility—much like what we saw during the 2008 financial crisis or in more recent market disruptions. If your portfolio is too aggressive for your true risk tolerance, you may find yourself making impulsive decisions, like selling off investments at a low point, which can severely impact your long-term financial goals.

Assessing Your True Risk Tolerance

For highly compensated corporate professionals, understanding your true risk tolerance is essential. Begin by reflecting on how you felt during the most recent market downturn. Did it cause you significant anxiety? Were you tempted to make quick, emotion-driven decisions? If so, this might indicate that your current investment strategy is too aggressive.

Another effective way to assess your risk tolerance is by using a structured risk tolerance questionnaire. This tool can help you evaluate your financial goals, time horizon, and comfort level with risk, offering a more accurate picture of your risk profile. Honest answers to these questions will provide crucial insights that can guide your investment decisions and ensure they align with your financial objectives.

Time Horizon: A Key Factor in Risk Management

As an executive, your time horizon—the length of time you expect to hold an investment before needing to access it—is another critical factor in managing risk. Typically, the longer your time horizon, the more risk you can afford to take on, as you have more time to recover from potential market downturns.

There are two primary types of time horizons to consider: income cash flow time horizons and lump sum time horizons. For example, if you’re planning for retirement, your strategy will likely focus on generating long-term income, rather than liquidating assets immediately upon retirement. In contrast, if you’re saving for a large purchase, such as a vacation home or a significant business investment, your strategy will involve liquidating your portfolio at a predetermined future date.

Understanding and planning around your time horizon is crucial because it influences how you allocate your investments. Mismanagement in this area can lead to significant setbacks, especially when timing is critical to achieving your financial goals.

Strategic Management of Risk Tolerance

Mismanaging your risk tolerance can have significant consequences, particularly for corporate executives with complex financial portfolios. If you’re too aggressive with short-term investments, you could incur substantial losses with insufficient time to recover. Conversely, being overly conservative with long-term goals could result in underperformance, leaving you short of your financial targets when your time horizon ends.

To avoid these pitfalls, it’s essential to consider the specific purpose of your investments. Most professionals have multiple financial goals, each with different time horizons and risk tolerances. For example, the strategy for a short-term investment goal, such as funding a child’s college education, will differ significantly from your long-term retirement strategy.

Working with a financial advisor who understands the unique challenges and opportunities faced by corporate executives is key. Together, you can complete a cash flow analysis to determine how much you need to save and invest to meet your goals. By starting early and leveraging market growth, you can optimize your investment strategy and minimize the financial burden on your capital.

For corporate professionals, understanding and managing risk tolerance is not just a financial necessity; it’s a strategic advantage. Regularly reviewing your risk tolerance and time horizon ensures that your investment strategy remains aligned with your evolving goals and the market landscape. By taking a proactive approach, you can navigate the complexities of the financial markets with confidence and achieve your long-term objectives.

Strata Capital is a wealth management firm serving corporate executives, professionals, and entrepreneurs in the New York Tri-State Area, focusing on corporate benefits and executive compensation. Co-founded by David D’Albero and Carmine Coppola, the firm specializes in making the complex simple to ensure clients feel confident in their financial decisions. They can be reached by phone at (212) 367-2855, via email at carmine@stratacapital.co, or by visiting their website at stratacapital.co.

Cornerstone Planning Group, Inc., (“CSPG”) is an SEC registered investment advisory firm. The information contained herein should not be construed as personalized investment advice and should not be considered as a solicitation for investment advisory service. The information (e.g., tax ) provided is believed to be accurate however CSPG does not guarantee or otherwise warrant such information. For more information regarding CSPG you can refer to the Investment Adviser Public Disclosure website (www.adviserinfo.sec.gov) and review our Form ADV Brochure and other disclosures.

The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual.

By Carmine Coppola

Deferred compensation allows you to delay receiving a portion of your income until a later date, which can be particularly advantageous if your taxable income is expected to be lower in the future. For many, this strategy mirrors the familiar 401(k) plan, a qualified deferred compensation plan protected by the Employee Retirement Income Security Act of 1974 (ERISA). While 401(k) plans have their benefits, particularly for the average employee, they come with restrictions that can limit their utility for high earners. This is where non-qualified deferred compensation (NQDC) plans step in, offering far greater flexibility and potential benefits.

What Are Non-Qualified Deferred Compensation Plans?

Non-qualified deferred compensation plans, often referred to as elective deferral plans or supplemental executive retirement plans (SERPs), provide a powerful tool for high-income earners to manage their income and tax liabilities strategically. Unlike qualified plans like 401(k)s, NQDC plans do not have the same contribution limits, age restrictions on withdrawals, or required minimum distributions (RMDs). This means you can defer a significant portion of your income, reducing your taxable income for the current year while allowing the deferred amount to grow tax-deferred until you choose to withdraw it.

Moreover, many NQDC plans allow you to select your investments and may even include a company match—essentially a raise that can further enhance your financial growth. These plans are sometimes called “golden handcuffs” because they can be used by employers to incentivize retention among their most valuable employees. The more you earn and defer, the more you stand to benefit from the tax advantages, making NQDC plans an attractive option for those planning to stay with their employer long-term.

Strategic Considerations for NQDC Plans

Participation in an NQDC plan requires careful planning and decision-making. Typically, you’ll need to enroll during a designated period and establish a written agreement with your employer. This agreement outlines critical details, such as the amount of income you’ll defer, the deferral period or distribution schedule, and your investment choices. Once these elections are made, they can be challenging, if not impossible, to change, so it’s essential to approach this decision with a clear understanding of your financial goals and the potential long-term impact.

To simplify the process, it’s helpful to break down your strategy into three main components:

1. Purpose: What specific goals do you want to achieve with your deferred compensation? Are you saving for retirement, a child’s education, or a major purchase like a vacation home?

2. Amount: How much of your salary or bonus will you defer each year? This decision will depend on your current financial needs and your future goals.

3. Timing: When do you want to start receiving distributions, and how long do you want them to last? Your timing will affect your tax liabilities and your ability to meet your financial goals.

Practical Examples of NQDC Plan Utilization

To illustrate how NQDC plans can be strategically leveraged, consider the case of Gianna, a highly compensated employee with a salary and bonus totaling $550,000 per year. Gianna also receives $50,000 annually in restricted stock units (RSUs) and is withdrawing $25,000 per year from an inherited IRA. This puts her total income at $625,000, placing her in the highest federal tax bracket with an effective tax rate of 30.7%. Gianna doesn’t need the additional $75,000 in income from the RSUs and IRA, so she decides to defer $75,000 of her bonus each year into her NQDC plan. By doing this, she reduces her taxable income to $550,000, dropping her just below the threshold for the highest tax bracket and saving her approximately $27,000 in federal taxes annually. Over ten years, this strategy could add $750,000 to her retirement savings, not including investment growth, while maintaining her current lifestyle.

Another example involves Bill and Laura, a couple with ambitious financial goals. They plan to cover their children’s college expenses and purchase a dream vacation home. Bill, who has an NQDC plan through his job, decides to defer $50,000 per year into three different accounts within the plan, each aligned with a specific goal. One account will cover their son’s college expenses, another their daughter’s college expenses, and the third will be used for the down payment on the vacation home. By carefully structuring their deferrals and distributions, Bill and Laura can achieve these goals without disrupting their cash flow or lifestyle.

Addressing Income Gaps and Retirement Planning

NQDC plans can also be a valuable tool for addressing income gaps in retirement. For example, John and Sarah plan to retire at 62 but want to delay taking Social Security until they turn 67. This creates a five-year income gap. By deferring a portion of her bonus each year, Sarah can use the distributions from her NQDC plan to fill this gap, allowing their retirement and investment assets to continue growing. This strategy also gives them the flexibility to maximize their Social Security benefits by delaying them until age 70.

Mitigating Risks and Planning for the Unexpected

It’s essential to recognize that while NQDC plans offer significant benefits, they also come with risks. For instance, if your company undergoes layoffs or restructuring, you could face financial uncertainty. However, if you’ve been deferring a portion of your income into an NQDC plan, you may have a financial cushion to fall back on. Consider the case of Mike, a 55-year-old vice president who began deferring part of his bonus each year. With a current plan value of $350,000, Mike has the flexibility to manage his income if he’s laid off, retires early, or decides to work for a lower salary. His NQDC plan allows him to supplement his income, cover health insurance costs, and delay taking Social Security until it’s more advantageous.

Non-qualified deferred compensation plans are a potent tool for high-income earners looking to strategically manage their income, reduce tax liabilities, and achieve long-term financial goals. However, these plans are complex and require careful planning and ongoing management. Before making any decisions, it’s crucial to collaborate with a seasoned financial professional who can help you navigate the options and ensure your deferred compensation plan is intricately woven into your broader financial and retirement strategy. By taking a thoughtful approach, you can leverage your NQDC plan to secure a more flexible and financially stable future.

Strata Capital is a wealth management firm serving corporate executives, professionals, and entrepreneurs in the New York Tri-State Area, focusing on corporate benefits and executive compensation. Co-founded by David D’Albero and Carmine Coppola, the firm specializes in making the complex simple to ensure clients feel confident in their financial decisions. They can be reached by phone at (212) 367-2855, via email at carmine@stratacapital.co, or by visiting their website at stratacapital.co.

Cornerstone Planning Group, Inc., (“CSPG”) is an SEC registered investment advisory firm. The information contained herein should not be construed as personalized investment advice and should not be considered as a solicitation for investment advisory service. The information (e.g., tax ) provided is believed to be accurate however CSPG does not guarantee or otherwise warrant such information. For more information regarding CSPG you can refer to the Investment Adviser Public Disclosure website (www.adviserinfo.sec.gov) and review our Form ADV Brochure and other disclosures.

The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual.

Our society has become increasingly aware of how our individual actions influence the world around us. Now more than ever, Americans are making an effort to “go green,” speak out for the underrepresented, and make the world a better place to live. With that, consumers and investors have become increasingly adamant about contributing to worthy causes—not only do buyers want to shop local and support the small business owner, but they want to invest in companies that reflect their personal values.

In short, people want to put their money where their mouth is.

When it comes to investment strategies, the term “ESG investing” has gained a lot of traction. Most people define ESG investments as ones that improve the environment or benefit society in a positive way, but the true definition is a little more complex.

In this blog, our team at Strata Capital will tell you everything you need to know about this financial buzzword and how it applies to your plan.

What exactly is ESG investing?

ESG stands for environmental, social, and governance, and it refers to a ranking system that uses these three categories to classify companies as sustainable investment opportunities. (The term “sustainable” is used broadly here to refer not only to environmental longevity, but a positive impact in each category.) The rank (or score) a company receives helps investors determine whether the company is worthy to be included in a portfolio of sustainable investments.

• A company’s environmental ranking considers how the company contributes to the conservation of the natural world.
• A company’s social score reflects the treatment of people inside and outside the company.
• Governance considers a company’s operations from an ethical perspective.

Here are some of the specific factors that determine a company’s ESG score:

In general, the higher the ESG score, the more sustainable the company (and therefore the investment).

Is ESG different than SRI (socially responsible investing)?

Yes and no—ESG is the grading system used to measure companies in these categories, while SRI refers to the act of using an ESG-based grading system to choose companies or funds to include in portfolios. So if you’re investing in companies that have a high ESG score, you’re probably partaking in what you would consider socially responsible investing.

That said, socially responsible investing is a general term that encompasses environmentally sustainable investing, impact investing, or ethical investing. SRI investing can differ depending on the investor’s definition of what is “socially responsible.”

Some investors (or wealth managers helping choose investment accounts) use an exclusionaryonly approach. This strategy, rather than seeking value-driven investments, simply avoids investments that don’t align with an investor’s values—like companies that produce tobacco, alcohol, or firearms.

So while you might define socially responsible investing as avoiding tobacco investments, others might take a more comprehensive approach.

How is a company’s ESG score determined?

Each company is compared to others in its industry, so there’s no numerical threshold for what qualifies a company as an ESG investment. Companies are generally considered part of a sustainable investment strategy when they have a higher ESG score than their peers in the three qualifying categories. Depending on who is ranking the company, the precise score or ranking can vary, and most analysts use a percentile system rather than a specific score.

Who determines a company’s ESG score?

ESG scores aren’t regulated by one particular authority, so there are lots of companies that use their own grading systems to measure a company’s ESG qualification. MSCI is one of the largest independent providers of ESG ratings, and they create sub-categories within the three main categories (environmental, social and governance) that each carry their own weight to determine a company’s final percentile ranking.

How can I find out a company’s ESG score?

Unfortunately, it’s not always easy to find a company’s ESG score, since much of the research and data is sold to institutional firms, rather than distributed for public consumption. There are a few websites like Sustainalytics where you can search for companies’ scores, but they typically don’t disclose why the score is high or low or where the company ranks in individual categories. However, most publicly traded companies have an ESG section on their website where consumers can investigate their ranking.

Should I consider ESG scores when shaping my investment strategy?

There are pros and cons to focusing solely on companies with high ESG scores. The main benefit, of course, is that you’re supporting companies with values similar to yours (assuming you agree with the standards of the ESG scoring system). And because this is increasingly important to many investors, it can also benefit your portfolio from an economic standpoint. Investments into ESG funds have increased dramatically in recent years, which has caused them to outperform lower-scoring companies—which in turn makes them a more viable investment.

But just because a company has a low ESG score, that doesn’t mean it’s a bad company or a bad investment. By excluding low-scoring companies, you could miss opportunities to invest in lucrative companies that could benefit your portfolio.

If it’s important to you to invest sustainably, the most important thing to understand is your definition of “sustainable” and how it compares to an ESG score. Your values may not align with an analyst’s definition of sustainable, so if you’re relying heavily on an ESG score to influence your decisions, make sure you do as much research as possible.

What’s next?

At the end of the day, different investments suit different people, and part of our job is helping clients determine which strategies best align with their values and goals. If you’re interested in maximizing your portfolio for socially responsible investing, we’d love to help. We’ve learned a thing or two about ESG investing (and by that, we mean quite a lot), and we’re here to help in any way we can. To talk with one of our advisors, just give Carmine a call!