Sustainable investing, and the supposed trade-offs involved, have been a topic of heated debate. But trade-offs are a fundamental part of all types of investment; the key is to be clear about one's objectives.
This paper explains:
- why all investments entail trade-offs
- the importance of having clear objectives
- some of the trade-offs pertaining to specific sustainable approaches
Trade-offs are part of everyday life. We make choices on how we work, what we consume, how much money we save and how we utilise our spare time.
Trade-offs are also a fundamental tenet of investing. Every investment decision is predicated on optimising and managing the inherent trade-offs between risk, return, liquidity, volatility and other considerations.
Trade-offs, then, should not be thought of as something that must be avoided at all costs. But we need to understand where trade-offs exist, assess their relative importance, and decide on a course of action based on a clear sense of our goals, needs and preferences.
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