How to make money in finance and become a creator of prosperity? Part 1 – Price of investing and investor profiles

This is a three-part series summarizing the reflections of an investor who explores ways of making money and having a positive impact on society.

In part 1, I investigate the price of investing and investor profiles

I display my own sense of cognitive dissonance, the gap between what I say and what I do, based on an investment decision I made in 2002. I also approach how investment activates (or does not) other kinds of capital, beyond financial capital.

In part 2, I describe my search for answers regarding sustainable investments alongside financial institutions

  • . Dissonances in an interviewee that works in finance, and at Harvard University;
  • . Reflections included on the promises of the new system of Open Banking;
  • . “Green Swan” and the risks of investment; and
  • . Outlook of Brazilian finance through Q&A with entrepreneurs during event (4 min video)

In part 3, I deepen the discussion around how to give form to sustainable finance and to be sustainable

All references will be listed in this last post.

Part 1: Price of investing and investor profiles

Who are the investors, globally and in Brazil?

Globally, in 2017, a mere 27% of the adult population declared having put away or saved money in the last 12 months in a formal manner. By formal I mean savings that were invested in a bank or in a regulated financial institution such as a credit co-op or microfinance institution.

While twice this population has access to an account with an institution, this does not translate to an ability to create savings. And the kinds of savings are very distinct when comparing data between developing and developed countries. It is a huge inequality, as can be seen in the figure.

Figure 1 – Adults with an account and savings profile (%)

In Brazil specifically, where I live, one in three adults does not have a bank account. And of those who do have an account, a mere 20% is able to save formally. In other words, only 13% of the Brazilian adult population has access to the financial system. I am a part of this privileged elite. And precisely because of this, I have questioned my role as an investor and my capacity to be a creator of prosperity. I came to question and talk to financial institutions where I have funds to find out more about how these funds are invested.

But this is a recent habit.

In the beginning of the 2000s, I joined a federal government program that let me migrate part of my FGTS fund (social security) to buy stocks in companies like Vale and Petrobrás. While being somewhat averse to risk, I chose to migrate the funds to a FGTS Vale Stocks plan with the expectation of improving the returns of the fund.

Beyond financial capital, which other capitals do our investments activate? Or do not activate?

It was only after the environmental crime in Mariana in 2015, where 29 people died, hundreds of thousands were negatively affected and nature was massively devastated, that I awoke from the trance which attributes value only to financial capital as a criteria for choice in investment. Investments which had impacts that lay ruin on human capital, health capital, infrastructure capital, natural capital, psychological capital, and which led to profound trauma in survivors and in society as a whole.

How to change the world?

There are many ways to change the world. Normally, the first things we imagine are policies to promote education, healthcare, jobs, access to food, water, and sanitation. We ended up handing over this duty of “changing the world” to someone, in this case governments.

But what about the financial institutions? What about me as an investor? Does my investment choice promote prosperity, social inclusion, and increase the overall health of the population?

I, as a Vale stockholder, with a contribution of 0.0000008% in that company, was co-responsible for deaths, human suffering, and degradation of all those other expressions of capital in Mariana, and in 38 other municipalities in Minas Gerais and Espírito Santo. Co-responsible for the contamination of more than 600 km of the river Rio Doce and its tributaries leading into the Atlantic, and which left a trail of destruction of fauna and flora in its wake.

Facing cognitive dissonance: the gap between “the talk and the walk”

All considered, I still hesitated in retrieving the funds following the environmental crime. Attachment to the money? The price of the shares really fell after the accident. I took a year and a half (!) to solicit my recovery of the FGTS funds and finally disinvest in 2017.

Despite the long period, I did not monitor or analize at what time would be best to sell and leave the fund. Looking back, I realize what I really did not want was to face the impact I had had. I entered a modus operandi that said “get on with your life” and forget about it.

Today, telling this story, not with a sense of guilt, judgment or embarrassment, but accepting the limitations I had at the time, makes me feel whole. Neither I nor any human being is perfect. Recognizing mistakes with compassion, and acting in a different way following reflection, is the right path.

“The curious paradox is that when I accept myself just as I am, then I can change”

Carl Rogers

What is the price of investment?

Since the FGTS Vale program was created in 2002 through to 2019, the funds saw an increase in value of 1500% while the FGTS fund saw an increase of 231% in the same period.

But of what worth is wealth of a single capital, financial capital, which favors only shareholders, while 7 other kinds of capital lay in ruin and society as a whole is harmed?

Figure 2 – Different capitals and investment impact
And how to do things differently?

After I made the decision to disinvest, the question I have gone into deeper is: where to invest? How can I do things differently?

Continue reading… Part 2: Search for answers regarding sustainable investment

Cristina Mendonça

Master of Science in Urban and Environmental Engineering from Pontifical Catholic University of Rio de Janeiro (PUC-Rio) and Technical University of Braunschweig, Executive MBA from COPPEAD-UFRJ (Federal University of Rio de Janeiro), specialist in R&D from COPPE-UFRJ, Chemical Engineer from UFRJ, and leadership courses in personal, social and cultural transformation processes.

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