Vanguard announced some big changes to its primary impacting investing mutual fund VFTAX (admiral shares) VFTSX (investor shares).
The index provider for the FTSE4Good US Select Index (the “Index”), which is the index tracked by the Fund, announced that it will revise the methodology for the Index. FTSE plans to update the environmental, social, and governance (“ESG”) screens utilized to determine the companies that comprise the Index and will also change the Index rebalance schedule from annually to quarterly. The Index methodology change will take effect with the first quarterly Index rebalance in March 2020.
Changes to the index methodology
The methodology change will result in the following primary updates to the ESG screens: (i) FTSE will add a fossil fuels screen (described in more detail below); (ii) FTSE will add a screen for companies that do not meet certain anti-corruption criteria in accordance with the United Nations Global Compact Principles; (iii) FTSE will modify the Vice Screens to primarily exclude producers, rather than, for example, producers, distributors, or retailers, of various products; and (iv) FTSE will evaluate companies under the Company Conduct Screens in accordance with the United Nations Global Compact Principles.
VFTAX is one of the funds I hold and I think these changes are for the positive. The quarterly rebalancing is effective in an arena that is constantly evolving. In terms of impacting investing ESG mutual funds VFTAX is difficult to beat.
As I start to explore Impact Investing on this blog one of the most essential tools is a good stock market tracking app for your smartphone. I’ve tried a number of them and my hands down favorite is My Stocks Portfolio, available on both the Apple and Google Play stores.
I use an android phone, specifically a Google Pixel 3a XL, which I absolutely love (more on that later) to track items in my portfolio plus ETFs and mutual finds I’m watching. I find a tracking app is essential particularly in the Impact Investing field because so much of what you are likely to be tracking are ETFs.
As I covered in an earlier post, ETFs trade like stocks and as such you buy and sell them in a similar fashion. You can place limit orders, good til cancelled orders etc which require a certain degree of management. This is where the My Stocks Portfolio app becomes tremendously useful. You can set alerts on price point targets (up or down) to be notified if an ETF hits a target price you are looking for. Then based on that information you could place the necessary order through your broker.
My Stocks Portfolio also allows you to add and track items from your portfolio. You can add multiple mutual fund or ETF buys including the number of shares and price point and it will track your gains/losses. I find this feature very handy as its often difficult to quickly get this information through a brokerage account like Vanguard or Schwab. I think they make it purposely confusing.
My Stocks Portfolio is simple and clean and provides detailed charts, news and alerts better than either the Vanguard or Schwab apps. I can say this with confidence because I use both the Vanguard and Schwab apps to place orders and neither one of them provides the features found in My Stocks Portfolio. Of the two, the Schwab app comes the closest.
The app is available for free (ad supported) or for $19.99/yr for no ads and additional features. I use the app daily and to me the $19.99 is well worth it to help the developer continue to develop and support the app.
The ideal smartphone and headphone combination: Google Pixel 3a XL + Etymotic ER3SE
I said earlier I’d come back to the phone. If you work in an office and/or commute on public transit regularly like I do and appreciate listening to music and podcasts etc using decent headphones or in ear monitors (IEMs), and not some mediocre headphone that comes with your phone, I can honestly say the combination of the Pixel 3a XL and theEtymotic ER3SE IEMs are the ideal pairing.
The Etymotic IEMs have up to 35-42 db of external sound blocking and also are very easy to drive with a smartphone at 22 Ohms. I’ve tried more than a dozen of the leading earphones and this is the best combination I’ve found for the office and commute that values price and performance. I’d even recommend the ER3SE’s over their big brother the ER4SR’s, which I also tried and could not discern enough sound difference to justify the +$100 in cost (they sound amazing).
The Pixel 3a XL is almost the perfect smartphone, it runs pure android, is fast and has what is still one of the best cameras on any smartphone. Plus both the Pixel 3a and the 3a XL have headphone jacks!!! No dongle needed!.
A blog I highly recommend is JL Collins. A book I highly recommend is Jim’s book A Simple Path to Wealth. Both are tremendous resources for building wealth and savings. I follow Jim’s methodology which is to save as much as possible and invest it into low cost index funds. The key is not to waiver, stay focused and keep investing even when the market tanks. The beauty of Jim’s message is its simplicity and as such its become a favorite among the Financial Independence Retire Early (FIRE) community.
The backbone of Jim’s philosophy is index investing through Vanguard and the fund he focuses most attention on is VTSAX, their total stock market index fund with a super low .04 expense ratio (ER).
The challenge for me is VTSAX and other funds like it are index funds of the top companies in the United States. For example, VTSAX holds over 3,500 companies, as an impact investor some of those I don’t want to invest in. Among those companies are more than 150 in the oil/gas industry, 13 in the coal industry, 5 manufacturers of civilian firearms, 16 manufacturers of nuclear armaments and 31 major military contractors according to screening tools outlined in my first post.
Simply put I don’t want my investments supporting any of those areas. In reality, completely divesting from all areas you personally deem problematic and still having a relatively simple investment strategy is a challenge and may not be possible. The good news is with minimal effort you can significantly reduce or eliminate exposure to some problematic areas and keep costs lows, sticking to the approach outlined on JL Collins.
VFTAX the Impact Investing ESG Alternative to VTSAX
My core holding is Vanguard’s FTSE Social Index Fund (VFTAX). VFTAX, like VSTAX is an index fund that holds US-based companies and has a low ER of .14. VFTAX has almost 500 companies in its fund and tracks an index modified for certain environmental, social and governance criteria. Looking at its stocks, VFTAX has 25 holdings in the oil/gas industry, none in coal, zero gun manufacturers and 1 major military contractor. Is it perfect? No. But it is a hell of a lot better than VTSAX in areas I care about and it allows me to do all the things that are key to following JL Collins like: high savings, automatic investing and low costs.
VTFAX is my core holding. Of all the impact investing ESG mutual fund options out there, this fund has the lowest costs and best balance. I intend to supplement VFTAX with either another fund to pick up some international exposure and/or some ETFs in areas I am personally interested to invest in. Those endeavors will be the focus of future posts.