Seeking: New methods of generating long term wealth other than RE and IF/MF

[AJStenner]

Hello!

I recently had a conversation with a good friend of mine about generating long term wealth with a hard earned savings rate (pick your own flavor, likely a nice high % in the Mustachian community). This friend and I got to talking about the externalities of index and mutual funds, as well as the externalities of real estate investment.
Both of us are liberally minded, ex young farmers - we've been broke and are very familiar with environmental damages and degradation. Now we've got solid income and benefits in unionized work - him white collar work and me blue collar.
We frankly are disheartened by the reality that our own resources are part of reinforcing businesses and cycles of: degradation&exploitation to the environment and exploitation of poor and impoverished people through cheapened labor (re: index funds).

At the end of the day, I'm going to continue increasing my savings rate as quality of life allows. That increasing amount of resources will be going into index fund, and my wife and I are going to purchase a multi unit property we can afford soon; slowly developing a real estate portfolio.

That exposition now laid out:

What I want to think about further with y'all is the following statement of questions:

1) What ways other than index funds and real estate investment can one utilize to generate long term significant, steady wealth that are well known and practiced?
    - Of these practiced ways to generate wealth, which of these have the least damaging effects to environment and the well being of people.

2)And finally, what methods/considerations/examples are known to mitigate the damages caused by investing in real estate and inside of the stock market?

Specific examples, detailed experiences and case studies encouraged - general brainstorming required.

Thanks for your thought, criticisms, witticisms, and good actions.

P.S.

Some ideas of my own:

On reducing the damaging effects of gentriciation when purchasing a residential property:
Dont increase the rent for years upon purchase, and dont buy properties youd need to increase the current rents in order to make money. 
Dont be greedy, dont up the rents if you're cash flowing well, regardless of what the market is doing.
Get to know your tenants and try to navigate the mess of being a landlord AND a friend/neighbor to tenants.
Be a good neighbor, get to know folks in the neighborhood.

On another way to generate wealth:
Start a business and employ others to work for you. Pay them well, benefit them and their families well, and work your way out of being required day to day for operations. Invest in lean processes and total recycling/conservation methods for your business processes.

On better investment:
Dont just stuff it all into a fund - invest on your values wherever possible as well. I.E. invest in responsible material/waste mannagement  companies.

[lutorm]

The problem with your stated assignment is that there is a contradiction between requiring steady returns and any reduction in diversification.

Dont just stuff it all into a fund - invest on your values wherever possible

About a decade ago I decided, being concerned about global warming, that I would buy some mutual funds investing in alternative energy companies. This year I sold the remains of those, with a net loss of about 50%. There is absolutely no guarantee that your values will be profitable.

Start a business and employ others to work for you. Pay them well, benefit them and their families well

This has the same problem. It's not like you can just start a business and free money will appear. AFAIK most businesses that are started fail to become self-sustaining, profit-generating enterprises. It's another form of lack of diversification -- the potential upside is larger, but there's also a significant risk of generating 100% losses.

Personally, I've come to terms with the fact that if generating wealth from index funds means that I'll be taking money from the Exxons, etc, but also makes me not have to work all the time and thus frees up my time and energy to be a more concerned and involved citizen, it's an acceptable tradeoff.

However, there is a way to generate steady, risk-free wealth, while also not contributing to environmental destruction or increased inequality in society. To quote Epictetus:

Wealth consists not in having great possessions, but in having few wants.

:-)

[Villanelle]

Do some searching around the forums as this has been discussed.  (The search function here is, unfortunately, crappy and with the recently slowness of the site it's probably even more difficult to use.)

To me, it is probably more efficient and effective to make higher returns the usual ways and then use those returns to support various causes than it is to try to invest according to those causes.  You take profits from Exxon and use them to donate to clean energy research, and you've probably channeled more money to the thing that is important to you than if you make risky investments directly into that research.

Likewise, renting a FMV and then using that money to support a cause, rather than gifting reduced rent to one family may well do more good, especially because it would be difficult to screen for a family that truly needs the help (vs one who might appreciate it but not really need it and use the difference to buy More Stuff).  And you'd likely be increasing the chance that your tenant eventually defaults entirely, if you were able to screen to that point, meaning you'd be worse off, and you wouldn't really be helping anyone else, either. 

Accepting section 8 is one way to go about a compromise.  Although I did it once, get screwed with massive damages I had to cover out -of-pocket and what turned out to be abuse of the program and fraud*, so I won't ever do it again. 

*tenant was, according to the program, required to pay 1/3 (IIRC) and the program paid the rest.  But our rent was over their cap, so she paid more than 1/3, which was against program rules.  Then she had her mom move in with her (without tell me or the PM), which put her over the program's occupancy limits, even before she had an additional child.  And she left the place filthy, which holes in the walls, massive stains on the carpets, marker and pen drawings on the walls, etc., which far exceeded her security deposit.  $15,000 in damages. 

[mistymoney]

This is a difficult question, and one I have struggled with as well over the years.

Truly ethical companies rarely perform as well as those willing to exploit both workers and resources/environment for increased gain. Investing in individual stocks or very narrow sectors is inherently more risky.

My career trajectory/income was stunted by a refusal to work in a several sectors of my industry with high-carnage clients, I did eventually land in a really good niche with low negatives and some even positive person impacts. It did take a decade to learn those ropes, additional formal education and professional development, and start advancing, and now I have a good salary but now in 50's so little time to really recoup from what my salary might have been if I'd gone into one of those lucrative sectors rather than re-specializing, and been at current salary or higher for 10-15 years.

But I feel good about those choices and sleep well!

My retirement funds are largely tied up in MFs that the employer offers so not a lot of choice there if I want any hope of FI.

I try to make my impact as a consumer as much as I can, but of course without going all backtotheland, it's a pretty tall proposition. I recycle at work and at home, favor packaging that is not plastic.

If work doesn't have a recylcing program, you can try to implement it. My work even has battery recycling so I take my batteries at home to work for recycling. The university has a pen recycling program, I think I will enquire if work can set up one of those too!

Thanks for the thread! We all need to nudge ourselves to take one more small step today to do a little better! 

[AJStenner]

Truly ethical companies rarely perform as well as those willing to exploit both workers and resources/environment for increased gain. Investing in individual stocks or very narrow sectors is inherently more risky.

My career trajectory/income was stunted by a refusal to work in a several sectors of my industry with high-carnage clients, [...]

But I feel good about those choices and sleep well!

My retirement funds are largely tied up in MFs that the employer offers so not a lot of choice there if I want any hope of FI.

I try to make my impact as a consumer as much as I can, but of course without going all backtotheland, it's a pretty tall proposition. I recycle at work and at home, favor packaging that is not plastic.

If work doesn't have a recylcing program, you can try to implement it. My work even has battery recycling so I take my batteries at home to work for recycling. The university has a pen recycling program, I think I will enquire if work can set up one of those too!

Thanks for the thread! We all need to nudge ourselves to take one more small step today to do a little better!

MistyMoney - I've selected a summary above I'm responding to here.
Way to go sticking to your values - I'm sure that it was an ongoing process to identify what was right to you, in terms of what work you would be willing to do with your clients.

Unfortunately I have to agree in my experience within companies about one of your opening points - truly ethical companies just don't dish out as much in return. On the other side of that coin, though, is that in those (smaller) returns, is not... as much (at best mitigated)... the sweat/blood/deprivation of exploited persons or places. Investing only in a narrow sector won't be the way I go, but I think I'm going to move a small percentage (probz sub 5%) of my total investments into individual stocks for companies that line right up with my values - its risky and not even optimized for making money but I think I'll feel emotionally wealthier.

Funny thing about recycling in my workplace currently - I'm in the construction industry in a major midwest city. We don't separate resources at all - sadly. All the scrap metal studs, drywalll, concrete, electrical conduit, iron pipes, and everything else, goes in the same big old dumpster. I hope that waste management companies see these dumpsters of mixed items as a resource to sort out to make some $$ on the scrap metal (theres a LOT). Luckily scrappers come by sites frequently and grab metal frequently. The only resource I KNOW never goes in those dumpsters, and makes it to a scrap yard is copper wire and copper pipe scraps - because that is serious bonus $ for folks. Oh and to add insult to injury - unless its a Google or Microsoft level project... all those nasty "must dispose of responsibly" materials (mercury containing bulbs, lead, batteries etc), yeah no contractor is paying the disposal facilities to dispose of responsibly - its an utter, well okay this tangent is long enough as it is.

Now that the forum is running smoother - I'm scanning around for good info.

Cheers!

[AJStenner]

Do some searching around the forums as this has been discussed.  (The search function here is, unfortunately, crappy and with the recently slowness of the site it's probably even more difficult to use.)

- finally working on that now that the forum is a bit smoother.

To me, it is probably more efficient and effective to make higher returns the usual ways and then use those returns to support various causes than it is to try to invest according to those causes.

-Fairly put - from your reply and others' I'm realizing I've got to sit down for another deep session (or a few) to consider how much of my approach to FI I'm committing to each bucket (straight up $ return, supporting various cause, real estate, etc)

Likewise, renting a FMV and then using that money to support a cause, rather than gifting reduced rent to one family may well do more good, especially because it would be difficult to screen for a family that truly needs the help (vs one who might appreciate it but not really need it and use the difference to buy More Stuff).  And you'd likely be increasing the chance that your tenant eventually defaults entirely, if you were able to screen to that point, meaning you'd be worse off, and you wouldn't really be helping anyone else, either.

- Fair points. I most agree with you that it makes sense to support a cause with that money, focusing on people/groups who are clearly good actors. I would say, though, that I want to have optimistic outlook on the things that someone getting a good (cheapened) rent might spend the difference on - I currently benefit from a low rent for my neighborhood, quality of my apartment, neighborhood, and quality of landlord I have and I'm using the extra $ to invest in FI.   

Accepting section 8 is one way to go about a compromise.  Although I did it once, get screwed with massive damages I had to cover out -of-pocket and what turned out to be abuse of the program and fraud*, so I won't ever do it again. 

Yikes - sorry to hear. My father in law is a career landlord and accepts section 8. He has one horror story about that over the decades - so it doubtlessly can happen.

Cheers!

[AJStenner]

The problem with your stated assignment is that there is a contradiction between requiring steady returns and any reduction in diversification.

Dont just stuff it all into a fund - invest on your values wherever possible

About a decade ago I decided, being concerned about global warming, that I would buy some mutual funds investing in alternative energy companies. This year I sold the remains of those, with a net loss of about 50%. There is absolutely no guarantee that your values will be profitable.

Sorry to hear about the disappointment - the industry of green energy does seem to me hopeful on the global warming front. However, the manufacturers, developers, and power producers in the US all currently depend on big government subsidies to even the playing field out on the risk of research, investment, and varying size installments (in short). Because of this, the market  really plays out surprisingly and differently - a lot of investors have been thrown for a loop. For a related example, we have had horizontal axis wind turbines (HAWTs) (where the blades spin in a vertical axis but the turbine rotates on the horizontal axis) on commercial scale for decades now, and great improvements have been going on, but energy engineering and manufacturing experts observe that the industry has not been improving efficiencies (namely reducing the downsides of HAWTs) as quickly as they might in a (more) free market because they are riding the "gravy train" of government subsidy for as long as they can make the case that the subsidies are legitimate needs.
In my own opinion - I think that while "green energy" is needed, its really not going to solve the crisis of resource management in the realm of satisfying the massive (and growing) demand for energy to do more stuff, buy more stuff, etc. I often support this view with an example from nutritional wellness regarding sweeteners. People have asked - is it better to use sweeteners xyz over abc? To that I say, there are differences to discuss and consider - but the real problem here is the addiction to sweeteners, we are better off to reduce or remove this addiction. Coming back to energy - the real problem is the massive consumption of energy - yes fossil/nonrenewables are more bad than "green," but "green" is not the remedy to the problems and downsides of fossil/nonrenewables. We ought to take stepping stones forward here - but as I think you are aware to, Lutrom, its a big body of water we are trying to cross here.

Start a business and employ others to work for you. Pay them well, benefit them and their families well

This has the same problem. It's not like you can just start a business and free money will appear. AFAIK most businesses that are started fail to become self-sustaining, profit-generating enterprises. It's another form of lack of diversification -- the potential upside is larger, but there's also a significant risk of generating 100% losses.

I completely agree. The amount of talent, research, time, and luck needed to come out economically viable is tough, and with very ethical commitments, woah boy. Not for the faint of heart, or those without backup plans. Definitely key to start very small with something and let it grow slowly while you skill up and find your audience.

Personally, I've come to terms with the fact that if generating wealth from index funds means that I'll be taking money from the Exxons, etc, but also makes me not have to work all the time and thus frees up my time and energy to be a more concerned and involved citizen, it's an acceptable tradeoff.

However, there is a way to generate steady, risk-free wealth, while also not contributing to environmental destruction or increased inequality in society. To quote Epictetus:

Wealth consists not in having great possessions, but in having few wants.

:-)

I agree with you - the tradeoff of having your time is hard to overstate in value, in my eyes. And with that time, I can volunteer, work, research, give, a lot to make a better future.
Thanks for the Epictetus reminder ;-)

Cheers!

[marty998]

On reducing the damaging effects of gentriciation when purchasing a residential property:
Dont increase the rent for years upon purchase, and dont buy properties youd need to increase the current rents in order to make money. 
Dont be greedy, dont up the rents if you're cash flowing well, regardless of what the market is doing.
Get to know your tenants and try to navigate the mess of being a landlord AND a friend/neighbour to tenants.
Be a good neighbor, get to know folks in the neighbourhood.

Can you elaborate here? I come from the point of view that gentrification is not necessarily a bad thing, provided the inhabitants are also moving up the socio-economic ladder at the same time.

Isn't it beneficial to raise sections of society out of poverty, and hence reduce the crime and social problems that tend to come with those circumstances?

[BicycleB]

OP, I applaud your focus on these concerns, and encourage you to keep exploring options.

That said, IMHO most of the "charge less on purpose" techniques should be limited. As a small landlord myself, I have considerable latitude in who I rent rooms in my house to, but would have little legally acceptable control over which tenants I would accept in other properties if I had them. After years of renting out rooms, my observation is that merely offering low rent to anyone who wants it is very inefficient. There's a line where you're a bit low in the market and in return you can get lots of tenants to choose from, can select ones with defensible characteristics of high reliability, and obtain low turnover - business benefits with long term value in exchange for a slight discount. Lowering beyond that helps little for society but cuts your own income a lot. I suggest not over-discounting until you have significant excess wealth. Even then, I join the other posters in believing that there are more efficient techniques.

I don't know of any investments that automatically meet all of your criteria, but you could explore investing in credit unions.

One idea I would offer is to investigate paths within real estate that offer moderate environmental or social justice gains without being perfect or even "pure", so to speak. For example, if you specialized in providing insulation, you'd reliably be improving the environmental profile of existing houses that currently contribute to the climate crisis. Similarly, if you became a flipper or a landlord, and ensured that each property has the maximum environmental efficiency that the market will support, you'd add quality to everything you touched.

If any of your projects involve employees, you can fight gentrification by finding employees from the relevant communities, and being as reliable or good-paying an employer as the market will allow.

Keep us posted on what you learn and do!