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Gemini Review: Secure Cryptocurrency Exchange With Advanced Tools

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Finding a cryptocurrency exchange that is secure and has never been hacked can be a tall order.

And if you also prefer for the company to be based in the United State, you might already be thinking about Coinbase. But you might be surprised to learn that Coinbase isn’t the only game in town that meets all of those requirements.

Gemini is a U.S.-based company with FDIC protection for USD and has never been hacked (that we’re aware of as of publication). It’s a straightforward platform that is easy to use and puts security at the highest level. In this article, we’ll do a detailed review of Gemini.


Gemini logo

Quick Summary

  • Cryptocurrency exchange based in the United States
  • Industry-leading security standards
  • 20+ supported digital currencies

Gemini Details

Product Name

Gemini 

Features

Cryptocurrency exchange, digital wallet, and USD Coin marketplace

Supported Currencies

20+

Fees

Convenience Fee: 0.50% above market rate

Transaction fee: $0.99 to 1.49%

Promotions

$10 worth of free Bitcoin (after buying or selling $100)

Who Is Gemini?

Gemini is a cryptocurrency exchange. It was started by the Winklevoss twins (Cameron Winklevoss and Tyler Winklevoss). You might recognize those names. They created ConnectU, which was the predecessor to Facebook.

Gemini was started in 2014 and is based in New York, New York, which means it is one of a few cryptocurrency exchanges that is regulated in the U.S. Specifically, it is regulated by the New York State Department of Financial Services (NYSDFS).

What Do They Offer?

Gemini has over 20 cryptocurrencies, including its own currency called Gemini dollars (GUSD). You can trade and store cryptocurrencies with Gemini.

Through a partnership with Samsung, Gemini powers the Samsung Blockchain. Customers in the U.S. and Canada can connect their Samsung Blockchain Wallet to the Gemini app to trade currencies.

Funding Your Account

You’ll have to fund your account from a bank account. It can’t be funded using a debit or credit card. The maximum daily funding limit is $500 USD and $15,000 USD monthly. The daily withdrawal limit is $100,000 USD.

If you have cryptocurrencies in another off-site wallet and want to fund your Gemini account using those currencies (crypto-to-crypto), you can do that as long as the currencies are BTC, ETH, BCH, LTC, or ZEC. 

Mobile Trading

Like many crypto exchanges, Gemini has a mobile app that you can trade from. You’ll find that it’s easy to use and comparable to the desktop platform. If you want to execute complex trades, it’s probably best to do those on the desktop platform. Complex trades can get a bit tedious on the mobile app.

Gemini Dollar

The Gemini dollar™ is a stablecoin that can be used in all kinds of transactions from spending to lending to investing. Its backed by US dollars held at State Street Bank and Trust Company and offers 1:1 transferability back to US dollars at any time. And Gemini has partnered with BlockFi to offer savings accounts for your Gemini dollars with interest rates of up to 8.6% APY.

Related: These Are The Top Crypto Savings Accounts of 2020

Flexa

Would you rather spend your cryptocurrency directly from your wallet? With Gemini, you can. Through a partnership with Flexa, you can purchase products at participating retailers using cryptocurrencies. Retailers include Nordstrom, GameStop, Whole Foods, and Home Depot. You’re able to spend Gemini dollars (GUSD), Bitcoin, Bitcoin Cash, and Ether.

Nifty Marketplace

The Nifty Marketplace is Gemini’s recently launched platform where you can buy and sell digital art and collectibles. Digital artistic assets can also be stored in the marketplace, which increases trust and security for both the buyer and the seller.

Are There Any Fees?

Yes, Gemini does charge commission rates for trading on its platform. There is a convenience fee of 0.50% above the market rate. To figure out the convenience fee amount, multiply 0.50% (1.005) by the amount of currency you want to buy. 

There is also a flat transaction fee for orders placed via their web or mobile applicaitons. The fee ranges from $0.99 to 1.49% of your order value, as shown in the chart below.

Order Amount

Fee

≤ $10.00

$0.99

> $10.00 but ≤ $25.00

$1.49

> $25.00 but ≤ $50.00

$1.99

> $50.00 but ≤ $200.00

$2.99

> $200.00

1.49% of order value

ActiveTrader fees are more involved. You can view the ActiveTrader fee schedule here.

For people who want to custody (i.e., cold storage) crypto with Gemini, there is a 0.40% charge for customers with assets greater than $1million. There is a $125 administration withdrawal fee as well.

How Do I Open An Account?

The account sign-up process for Gemini is simple and straightforward. You will need to verify your identity using a form of ID. You’ll also need to connect your phone for two-factor authentification.

Finally, you’ll need to fund your account. Gemini uses Plaid to connect with your bank acount or card issuer. Once your application has been accepted and your account has been funded, you can start making trades! Get started with Gemini and earn $10 in free Bitcoin!

Is My Money Safe?

As long as it’s been in operation, Gemini has not been hacked. Like Coinbase, USD stored in your Gemini account is FDIC insured.

Gemini started with a “security-first” mentality. They utilize security and compliance by being compliant in SOC 1 Type 1, SOC 2 Type 1 and Type 2. All of that compliance means you’ll need to be prepared to give up some of your personal information such as email address, bank account details, phone number, and some form of ID when opening an account. 

Is It Worth It?

Gemini is one of the most secure cryptocurrency exchanges out there. Security is its main selling point. It is a U.S. based company and the platform is easy to use.

If your crypto trading is mostly in popular currencies such as Bitcoin, Ethereum, Litecoin, Bitcoin Cash, or Zcash, you’ll probably enjoy using Gemini. For all of those reasons, Gemini is certainly worth checking out as a cryptocurrency platform.

However, before you rush into cryptocurrency investing, keep in mind that digital currencies are often volatile investments and should only receive a small portion of your total investing capital. To start building a diversified stock market portfolio, see our favorite stock brokers of 2020.

Gemini Features

Services

Cryptocurrency exchange, digital wallet, and USD Coin marketplace

Supported Currencies

  • Bitcoin: BTCUSD
  • Ether: ETHUSD
  • Bitcoin Cash: BCHUSD
  • Litecoin: LTCUSD
  • Chainlink: LINKUSD
  • Zcash: ZECUSD
  • Maker: MKRUSD
  • Basic Attention Token: BATUSD
  • DAI: DAIUSD
  • Kyber Network: KNCUSD
  • 0x: ZRXUSD
  • OmiseGo: OMGUSD
  • Orchid:OXTUSD
  • Enjin Coin: ENJUSD
  • Flexacoin: FXCUSD
  • Decentraland: MANAUSD
  • Golem: GNTUSD
  • Numeraire: NMRUSD
  • Storj: STORJUSD
  • Loom: LOOMUSD
  • Bread: BRDUSD
  • Caspian: CSPUSD
  • Filecoin: FILUSD
  • Dogecoin: DOGEUSD

Fees

  • Convenience Fee: 0.50% above market rate
  • Transaction Fee:
    • ≤ $10.00: $0.99
    • > $10.00 but ≤ $25.00: $1.49
    • > $25.00 but ≤ $50.00: $1.99
    • > $50.00 but ≤ $200.00: $2.99
    • > $200.00: 1.49% of order value

Supported Areas

US: All states except Hawaii

International: Canada, Hong Kong, Singapore, South Korea, and the UK

Minimum Deposit

None

Trading Minimums

  • BITCOIN (BTC): 0.00001 BTC
  • ETHER (ETH): 0.001 ETH
  • ZCASH (ZEC): 0.001 ZEC
  • BITCOIN CASH (BCH): 0.001 BCH
  • LITECOIN (LTC): 0.01 LTC
  • ERC-20 TOKENS (OXT, BAT, LINK, or DAI): 1 token
  • Transfer Methods And Fees

    • ACH: Free
    • Wire Transfer: Free
    • Bitcoin, Ether, Litecoin, Bitcoin Cash, Zcash, Chainlink, Orchid, Dai, BAT, ACH, Gemini dollar (Redemption): Free

    Deposit Fees

    • ACH Transfer: Free
    • Wire Transfer: $10 ($25 outgoing)

    Customer Service Phone Number

    1-866-240-5113

    Mobile App Availability

    iOS and Android

    Promotions

    $10 worth of free Bitcoin (with referral link and after buying or selling $100 or more)

    The post Gemini Review: Secure Cryptocurrency Exchange With Advanced Tools appeared first on The College Investor.



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    Finance

    Can A Crypto Savings Account Beat The Bank?

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    I’m sick of cash savings rates. Big banks at 0.06%? No thanks. Even the best online savings accounts are only hovering around a miniscule 1%. 

    Where can I get a decent savings rate anymore? If you’re a holder of cryptocurrencies like bitcoin, possibly in a cryptocurrency savings account, where some accounts are paying 8.6%!

    Yes, you read that correctly.

    If you think that sounds too out there, so did I. However, in my never-ending quest to find outside-of-the-box investments, I recently researched and opened a cryptocurrency savings account on Blockfi.com, where I’ll earn 8.6% in crypto interest paid monthly to my account. Here is what I found about the benefits and the risks.

    Wait, Isn’t Cryptocurrency Super Risky?

    Yes, bitcoin, ethereum and other cryptocurrency are very volatile, making them very hard to hold long term. For example, this year alone bitcoin has traded down to $3,000 and as high as $12,500! Please, please, please do NOT go out and buy bitcoin just to try and earn interest on it. Most crypto currencies are WAY too volatile.

    However, there are various “stable” currencies that trade on a 1-to-1 basis with the US dollar. These are the currencies we want to hold, and earn interest on. Even though these currencies are pegged to the US dollar (i.e. 1 stable coin = $1 USD), this doesn’t mean that you have no risk. Market forces can make a stable coin worth less than a dollar, in a similar way to how money market funds have occasionally “broken the buck.” 

    All of this is to say: just because this account has the words “savings account” next to it, doesn’t mean it’s the same as an FDIC, U.S. dollar savings account at a regulated bank. You need to ultimately decide if the risk is worth potential 8% returns on a very liquid asset. Here’s how I’m thinking about this new class of accounts.

    How to Earn 8%+ in a Crypto Savings Account

    1. Decide How Much Money to Try

    I’m hugely risk averse, as I laid out in my Barbell Investing article. I’m leery of “too good to be true” promises, so I run lots of small experiments where I can learn by doing. This is no different.

    I opened the accounts to figure out what I needed to know to decide if I should add more money. I first invested in bitcoin (BTC) in 2014, so I was relatively early and had built up a sizable portfolio of crypto assets over the last six years. I chose to make an initial deposit of $2,000 mainly because I had $2,000 of USDC (Stablecoin) idly sitting in my coinbase account. 

    After making the initial deposit, and having a few more weeks to learn, I’ve added all of my USDT (another stablecoin) holdings as well. This totals just under $30,000.

    If you don’t already own cryptocurrency, you’ll choose a dollar amount (for those in the US) that you’re comfortable with. There are generally no minimum deposit or minimum balance requirements; however, some services have minimum withdrawal requirements (BlockFi is 0.003 BTC and 0.056 ETH which is approximately $35 at current prices). I would go with at least $100 to start.

    2. Open a Crypto Savings Account

    After my research, I chose BlockFi. It seemed to have the widest range of coins available, and generally better deposit rates that other competitors I researched. Setting up your account is a breeze, and they use the same bank-level encryption that every other financial institution uses.

    3. Transfer Dollars Into Your Crypto Savings Account

    The next step is to transfer your crypto (if you have it) or your US dollars into your account. Here are your options:

    Right now, you can only deposit U.S. dollars by wire transfer. It’s also important to note that when you deposit dollars, you’re purchasing Blockfi’s USD stablecoin which is called Gemini.

    4. Choose Which Currency You Want to Hold

    Once you have stablecoin or cryptocurrency in your account, you can trade into any of the other available currencies. For the purpose here, I don’t recommend trading cryptocurrencies. Remember, I’m after as stable of a return as I can get that closely mimics a normal savings account, but with a higher return. 

    Also, the stable coins offer the highest interest rates as you can see here:

    I chose USDC as my preferred currency simply because I already owned some. I don’t know enough about the differences in these stable coins to recommend one over the other at this time.

    If you’re just adding U.S. dollars to your Blockfi account, then you might as well stick with Gemini.

    5. Start Earning!

    Once you’ve deposited money in your account, you don’t need to do anything else. Interest will accrue daily, and is deposited in your account monthly. It’ll look something like this:

    6. Understand How Crypto Savings Differs From Cash Savings

    To take this beyond an experiment, we really need to know what the overall risk is here. Your cash currency is protected in several ways that cryptocurrency isn’t.

    • First, your savings account is FDIC insured, so you don’t lose your money if your bank becomes insolvent.
    • Second, the U.S. dollar is a world reserve currency backed by the full faith and credit of the U.S. government, whereas the U.S. government doesn’t back any of these stable coins — YET.
    • Third, a stable coin pegged to the U.S. dollar isn’t the same as a dollar. See here about Tether’s peg.
    • Fourth, big banks have billions to throw at security. A cryptocurrency upstart might fall short on some security measures. I honestly don’t know how to analyze this at the moment.

    7. Decide to Go Bigger

    Understanding the above risks, I don’t think it makes sense to have a gigantic amount of money in these accounts yet. Further, I wouldn’t suggest putting your emergency fund money in an account like this, or any money that you think you can’t live without.

    The risk of you losing money is unlikely, but it’s non-zero, and it’s absolutely higher than the risk of losing your cash savings account money. But is it worth the risk anyway?

    To me, it is — on a portion of my liquid assets. It makes sense for me to go bigger and add more to my account, because I’m not risking my emergency fund and I was already taking many of the risks above by holding USDT in another account without getting paid for it like I am now.

    Does a Crypto Savings Account Make Good Financial Cents?

    For now, this experiment makes sense for people who are long-term cryptocurrency holders, or people looking to juice their rate of return on liquid assets. However, because of the additional risks outlined above, it doesn’t make sense to put a huge amount of your savings in one of these accounts.

    What would I need to see to change my mind?

    I would put a significant amount of money behind this account if my principal was insured against loss and theft in similar ways to the US banking system.

    Basically, if I could insure my account against devaluation, theft and insolvency —  at say, 2% per year — I’d borrow millions of dollars to add to this account and earn a very healthy low-risk spread. This is the definition of a carry trade.

    The post Can A Crypto Savings Account Beat The Bank? appeared first on Good Financial Cents®.



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    Top Student Loan Scams

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    Right now there is over $1.5 trillion in student loan debt. With billions of dollars being loaned to students each year, there is no doubt that there are scammers trying to get your money that are offering services that they do not follow through on, or have no real idea about.

    In fact, the Consumer Finance Protection Bureau (CFPB) has even issued multiple warnings about what to look out for when it comes to getting help with your student loans. (For example, this one and this one).

    Here are some common scams that are happening right now that you should be aware of when looking for student loan help.

    This article is pretty long – we cover a lot of ground here. If you’re looking at a specific company, jump to our section on “Is There Any Company You Can Trust To Help You”.

    What You Need To Know About Student Loan Debt Help

    Before we dive into different types of student loan scams, it’s important that we talk about getting help for your student loan debt.

    There are a lot of companies that advertise that they can help you with your loans – you might see the ads on Facebook, on Google, or even in the mail (yes, people still get mail). And these companies might promise you things or advertise some type of help for your student loan debt which might entice you to call or sign up.

    Before you take any action with these companies, remember this: you don’t ever have to pay someone to get help with your Federal student loans if you don’t want to. Not that help is not available, but it’s up to you to decide if you want to do it on your own, or hire a professional organization to handle it for you.

    Here’s why:

    • Enrollment in repayment programs is available at no cost to Federal student loan borrowers and can be done for free at StudentAid.gov
    • Debt relief companies do not have the ability to negotiate with your Federal student loan creditors in order to get you a better deal.
    • Payment amounts, qualifiers, requirements under IBR, PAYE, and other repayment programs are set by Federal law

    But that doesn’t automatically mean paying someone for help is a scam. While these programs are free, signing up can be confusing for some people. Or they may have complex situations and want someone to help them. Just like some people do their taxes themselves, while others hire a CPA, the same applies to student loan debt help.

    You can do it yourself. Or you could pay someone to help you (if you want to see who we recommend, scroll to the bottom). However, if you pay someone to help you, you need to make sure you’re not going to be ripped off and the company is reputable.

    Here are the warning signs to help you avoid student loan debt relief scams.

    Advanced Fee Scam

    This scam involves a student loan company that tells you they can get you the “best” interest rate and loan terms, but you have to pay a “small” fee up front for this service. The fee can be anywhere from 1-5% of the loan amount. Sometimes the fee is a flat rate up front (say $1000).

    If you come across this offer – RUN! There are no circumstances in which you should have to pay money to get money. Legitimate student loans, even from private lenders, do not require any fees up front. If there are any fees, they are deducted from the disbursement check or they are included in the repayment amount and are amortized over the repayment period.

    There are two common fees that will be paid with the loan, but once again, never up front. Federal student loans charge a 1% default fee, but charge no origination fees. Most private loans charge some type of either disbursement fee or origination fee, but these are usually negotiable and vary widely from lender to lender.

    If you are working with a third-party company to help you with your student loan debt, they might take a fee up front. But this fee should go into an escrow account (or third party account) and the company should only get paid once they prove they’ve helped you sign up for a program. Look for wording like “we only get paid once you’ve made your first payment on your new repayment program”.

    Note: A new variation on a theme has emerged in the last year. Instead of charging a direct advanced fee, some companies are offering a second personal loan – which is basically a fee in the format of a loan. Most borrowers who get involved in this don’t realize they took out a new loan, and there are repercussions if you cancel or don’t pay (such as interest and collection fees). 

    The bottom line is, if you use a third party company, make sure you fully understand the pricing and payment structure. 

    Loan Consolidation Scam

    After you graduate, it might be a good idea to consolidate your student loans. This is another area that is ripe with scams. The most common student loan consolidation scam is one in which the company charges a consolidation fee, but actually does nothing. The fee is sometimes called processing fees, administrative fees, or consolidation fees.

    If you have a federal student loan, there are no fees whatsoever for student loan debt consolidation. You can do it yourself for free at StudentAid.gov.

    If you have a private student loan, there are

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    a number of lenders who will refinance your private loans, federal loans, or both. Refinancing differs from consolidation in that rather than simply combining all your loans into one, you are actually taking out a separate loan with a new lender who pays off your existing loans. Credible is a comparison tool that allows you to fill out one form and see personalized offers from multiple lenders in the space. Going through any lender on the Credible platform is NOT a scam.

    Plus, College Investor readers can get up to a $750 bonus when they refinance through Credible!

    Finally, if you are considering consolidation, make sure you read our guide on The Right Way To Consolidate Your Student Loans.

    Law Firm Lawsuit Student Loan Scam

    This is a scam where a law firm will claim to be able to settle your student loan debt. There are a lot of variations on this scam, but typically a borrower is referred to a law firm by a “student aid company”. The student aid company promises that this law firm can settle your student loan debt for thousands less than you owe.

    Many times the law firm will ask you to make your full student loan payment to the the law firm itself (or whatever amount you can afford to pay). The law firm says they’ll then negotiate a settlement with your lender.

    However, what typically happens is that this law firm doesn’t make any payments while negotiating with your lender – as such, you go into default on your student loans. At that point, the law firm will then claim you can’t pay your bills, and try to negotiate a settlement based on that.

    What happens to you, as the borrower, is that your credit score is trashed, and you made thousands of dollars in payments to the law firm. In the end, there is no guarantee that you will be able to settle your loans. And even if you do, the process may take years, and you’ll still have to deal with the settlement in the end.

    If you’re considering speaking to a lawyer about your student loan debt, learn about what a lawyer can do for your student loans.

    Student Loan Debt Elimination Scam

    The important thing to remember about student loan debt is that it must always be repaid – it cannot be eliminated unless you have a federally qualifying reason (death, permanent disability, school closure, falsification of documents or identity theft). If you come across a company that promises to get your student loan debt eliminated, it is a scam!

    We see these scams a lot relating to closed for-profit colleges and universities. Companies will advertise that, simply because you attended a certain college or university, you can get your student loans eliminated. This is usually false. 

    There are many potential student loan forgiveness programs that you can read about here. If your school closed or is facing lawsuits, you can potentially do what’s called Borrower Defense to Repayment. But if you’re paying a company for help, ask them specifically what they are doing for you.

    Scam Or Bad Service?

    There are times when it’s not a scam, but it just seems like one because the customer service is bad or paperwork gets “lost”. For example, I get a lot of readers asking about the FedLoan Servicing Scam. FedLoan isn’t a scam, but just a poorly run student loan servicing company that is looking out for their own best interest.

    Student Loan Servicer is actually the code word for “Student Loan Collection Agency.” Another one I get asked a lot about is NelNet, especially when it comes to their KwikPay Service. Once again, not a scam, just a poorly run program that is incentivized by the collection of full payments. 

    I hope this helps you navigate the world of student loans a little better and avoid getting played. If you want to know more, don’t forget to check out my Definitive Guide to Student Loan Debt.

    Student Loan Relief Red Flags

    Now that you know some of the main types of student loan relief scams, what are some red flags to look for?

    Based on talking to consumers for several years, these themes have emerged:

    • Any company that claims to have a relationship with the Department of Education (third-party companies do not have any relationship with the Department of Education)
    • Any company that promises you a set payment or forgiveness (companies cannot promise forgiveness or guarantee an income based repayment because both will change based on your income)
    • Any promise of immediate loan forgiveness or cancellation
    • Any promise that a buyer will buy the loan and settle it for a set amount
    • Any promise that because your school closed or is being sued, you an get forgiveness

    Is There Any Company You Can Trust To Help You?

    Even though I’ve said countless times you can do it for free at StudentAid.gov, there are still people who’ve asked me “that’s great Robert, but I still want to pay someone to help me – who can I trust?” That’s a fair question, so who can you trust?

    Next, call your student loan servicing company. I know this sounds counter-intuitive, but 80% of issues and concerns can be resolved by simply calling your loan servicer. These free options are usually your best bet for help with student loans.

    If you’re still not quite sure where to start or what to do, consider using talking to a financial planner that specializes in student loan debt. A real financial planner with have a CFP or similar designation, AND they will have a fiduciary duty to you. We recommend the Student Loan Planner. Check out our Student Loan Planner review here.

    Worried You’re Being Scammed?

    I hope this helps you navigate the world of student loans a little better and avoid getting played. If you want to know more, don’t forget to check out my Definitive Guide to Student Loan Debt.

    Are you worried that you could be dealing with a scammer? Stop by our new Student Loan Forum and post about it in the Student Loan Scams section. Protect yourself and protect others as well!

    Readers, have you ever been the victim of a student loan scam?

    The post Top Student Loan Scams appeared first on The College Investor.



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    Socially Responsible Investing: Is It Also More Profitable?

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    Since the Dawn of Mustachianism in 2011, the same question has come up over and over again:

    “MMM,

    I see your point that index fund investing is the best option. But when you buy the index, you’re getting oil companies, factory farm slaughterhouses and a million other dirty stories.

    How can I get the benefits of investing for early retirement without contributing to the decline of humanity?”

    And in these nine years since then, the movement towards socially responsible investing has only grown. Public pension funds have started to “divest” from oil company stocks, and various social issues like human rights, child labor, climate change or corporate corruption have bubbled to the surface at different times.

    And all of this has led to the exploding new field of Socially Responsible Investing (SRI), and a growing array of new ways to do it.

    So it seems that this is not just a passing trend – people just might be starting to care a bit more. And since capitalism is just an expression of human behavior, the nature of capitalism itself may be starting to change.

    This leads us naturally to the question:

    What can I do with my money to help fix the world? And even better, is there a way I can make money in the process of fixing it?

    The answer is a good, solid “Probably.”

    As long as you don’t get too hung up on getting every last detail perfect, because just like real life, investing is a haphazard and approximate and unpredictable thing. But by understanding the big picture, you can make slightly better decisions on average, which lead to slightly better results. And slightly better results, stacked up consistently over time, can lead to a much better life, or even a much better world.

    This is true in all of the main areas we care about – personal wealth, fitness and health, even relationships and happiness. And while your money and investments are certainly not the most important thing in life, they are still worthy of a bit of easy and effective optimization.

    So anyway, the first thing to understand with SRI is, “what problem am I trying to solve?”

    The answer is, “You are trying to make your investing (especially index fund investing) have a better impact on the world.”

    On its own, index fund investing is ridiculously simple. You just get an account at any brokerage like Vanguard, Etrade, Schwab or whatever, and dump all your money into one exchange-traded fund: VTI.

    When you do this, you are buying a stake in 3500 companies at once(!), which is both impressive and overwhelming. How do you even know what you are holding?

    Well, this is all public information, and easily available with a quick Google search. For example, here’s a list of the top 90 holdings in VTI (click for larger):

    Top 90 holdings in Vanguard’s VTI Exchange Traded Fund

    As you can see, the biggest chunk of money is allocated to today’s tech darlings, because this index fund is weighted according to market value, and these are the most valuable companies in the US today.

    Through a convenient coincidence, the total value of the VTI fund happens to be just under $1 trillion dollars, which means you can just throw a decimal point after the ten billions digit of market value to get a percentage. In other words, about 4.7% of your money will go towards Apple stock, 4.4 towards Microsoft, and so on. Together, these top 90 companies are worth more than the remaining 3,410 companies combined, so these are what really drive your retirement account.

    And within this list, you will see some of the usual suspects: Exxon and Chevron (oil), Philip Morris (tobacco), Raytheon and Lockheed (bombs), and so on.

    But what about the less-usual suspects? For example, I happen to think that sugar, and especially sugar-packed beverages like Coke, is the biggest killer in the developed world – a major contributor to 2 million of the 2.8 million deaths each year in the US alone. Should I exclude that from my portfolio too?

    And what about drug and insurance companies – aren’t they behind the political stalemate and high costs of the US healthcare system? Comcast funded some election disinformation campaigns here in my home town in the early 2010s, should I exclude them too? And if you’re part of a religion that is against charging interest on loans, or in favor of pasta and Pirate costumes, or against a spherical Earth, or any number of additional ornate rules, you may have still more preferences.

    The higher your desire for perfection, the more difficult this exercise will become. However, if you are like me and you just want to get most of the desired result with minimal effort, you might simply have a look at the Vanguard fund called ESGV.

    ESG stands for “Environmental, Social and Governance”, and in practice it just means “We have tried to avoid some of the shittier companies according to some fairly simple rules.”

    And the result is this:

    Vanguard’s ESGV Exchange traded fund (ETF) – top 90 holdings

    The first thing you’ll notice is that it’s almost the same. In fact, the top five holdings – Apple, Microsoft, Amazon, Facebook, Alphabet (Google) and Netflix not far behind, collectively referred to as the FAANG stocks – are completely unchanged – and this means that there will be plenty of correlation between these funds.

    It’s also the reason that the stock market as a whole has recovered so quickly from this COVID-era recession: small businesses like restaurants and hair salons have been destroyed by the shutdowns, but big companies that benefit from people staying at home and using computers and phones are making more money than ever. The stock market isn’t the whole economy, it’s just the publicly traded companies, which are the big ones.

    But let’s look at the biggest differences between the normal index fund versus the social version.

    The following large companies listed on the left are missing in the ESGV fund, in order of size. And to make up the difference, the stake in the companies on the right have been boosted up to take their place in your portfolio.

    Main differences between VTI and ESGV (source: etfrc)

    The omission of Berkshire Hathaway was a bit of a shocker, as it is run with solid ethical principles by Warren Buffett, one of the worlds most generous philanthropists. And in fact the modern day nerd-saint Bill Gates is on the Berkshire board of directors, another person whose work I follow and respect greatly.

    (side note: Apparently the company fails on the “independent governance” category. And Buffett disputes this category, but in his characteristic way has decided to say, “Fuck it, I’ma just keep doing my own thing with my half-trillion dollar empire over here and you can have fun with your little committee” – I’m paraphrasing a bit but he totally did say that.)

    Furthermore, both funds hold the factory meat king Tyson foods, while neither holds Roundup-happy Monsanto, because it was bought by the German conglomerate Bayer AG a while back. Nextera is a giant electric utility in the Southeastern US that claims to be the world’s largest generator of renewable energy. Some do-gooders are against nuclear power, while others (including me) think it’s the Bee’s Knees and we should keep advancing it. And all this just goes to show how nobody will agree 100% on what makes a good socially responsible fund.

    But What About The Performance?

    In the past, some investors were nervous about giving up oil companies in their portfolio, because while it was a dirty substance, it was also what made the world go round – which meant it was a cash cow.

    Now, however, oil is on its way out as renewable energy and battery storage have crossed the cost parity threshold – meaning it’s cheaper to make power (and vehicles) that don’t use oil. In its place, technology is the new cash cow, and tech is heavily represented in the ESG funds. The result:

    Traditional index fund (VTI) vs Socially Responsible equivalent (ESGV)

    As you can see, the performance has been similar but the ESG fund has done significantly better in the (admittedly short) time since it was introduced at Vanguard.

    Of course, we have no idea if this will continue, but the point is that at least our thesis is not a ridiculous one – environmentally sustainable companies do have an advantage, if the world gradually starts to care more about these things. And if you look at the share price of Tesla and other companies that surround it in electric transportation and energy storage, you will see that there are many trillions of dollars already lining up to benefit from this transition. And the very presence of so much investment money creates a self-fulfilling prophecy, as Tesla is now building or expanding five of the world’s largest factories on three continents simultaneously.

    So What Should You Do? (and what I do myself)

    Image
    My latest home-brewed ebike project – this one can reach 42MPH / 67km/hr!

    First of all, it helps to remember a fundamental piece of economics: your spending dollars will probably have a much bigger impact than your investment dollars. This is because you are sending a direct message to the world rather than an indirect one:

    When you buy a new gasoline-powered Subaru (or a tank of gas for your existing guzzler) or a steak at the grocery store, or a plane ticket, you are telling those companies directly that consumers want more of these products, so they will produce more of them immediately.

    When you buy shares in Exxon, you are only subtly raising the demand for those shares, which raises the average price, making it ever-so-slightly easier for Exxon to maybe issue more shares in the future. In other words, you are making it easier for them to access capital. But capital is only useful if there is demand for their products. And with oil there is a nearly constant surplus, which is why OPEC and other cartels need to work together to artificially restrict supply, just to keep prices up.

    Plus, as a shareholder you are theoretically eligible to place votes and influence the future direction of companies – even companies that you don’t like. If you look up the field of “shareholder activism”, you’ll see this is a tradition that goes way back.

    So I have tried to take a few simple steps on the consumer side myself, and I find it quite satisfying: Insulating the shit out of all of my properties, building a DIY solar electric array on one of them, and buying one electric car so far to eliminate local gas burning. And a few electric bikes including a super fast one I made myself.

    Each one of these steps has provided a very high economic return, percentage-wise, but that still leaves a lot of money to account for, which brings us back to stock investing.

    As someone who loves simplicity, I have done this:

    • Bought almost entirely VTI (or similar Vanguard funds) from 2000-2015
    • Started experimenting with Betterment in 2015, liked it, and have been adding a percentage of my ongoing savings to that account to that since then. (Note that Betterment now also offers a socially responsible portfolio option.)
    • Switched the dividend re-investing of my old Vanguard VTI over to Vanguard ESGV, to avoid “wash sales” in making the most of Betterment’s tax loss harvesting feature.
    • Bought some shares of Berkshire Hathaway separately, and also make a few sentimental investments in local businesses, including the MMM HQ Coworking space.

    But you could choose to be more hardcore in your ESG/SRI investing:

    • Buy your own basket of stocks based on the index, but with different weighting based on your own values
    • Spend more money on other things that generate or save money (a bigger solar array on your house, better insulation, electric car, an ebike to reduce car trips, etc.)
    • Invest in local businesses of your choice, rental real estate, community solar projects, or other things which generate passive income – publicly traded stocks are just one of many ways to fund an early retirement!

    Like most areas of life, investing is not something you have to do perfectly in order to succeed – even socially responsible investing. If you apply the 80/20 rule to get the big picture right, you have probably found the Sweet Spot and you can move on to the next area of life to optimize.

    In the Comments:
    What is your own investment strategy? Have you thought at all about this ESG / SRI stuff? Did this article bring anything new to the table?



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