How To Divest from Specific Stocks in Wealthfront

One of my favorite bloggers, Dr. Doom, recently wrote an excellent post on how to unload (clever, that) guns from your Vanguard portfolio. It prompted me to publish this post, which has been sitting in draft form for some time.

Before I get rolling (and do feel free to skip this and scroll to the how-to with screenshots)…

I was surprised at the number of comments Doom’s post solicited, and the venom therein. I will probably never understand what it is about another person’s freedom to choose (in this case, one’s investments) that freaks people out so much, to the point that they scream “Unfollowing!” What’s so crazy about deciding how you want to invest your own, hard-earned money? What’s so frightening about ideas different from your own (which no one forces you to read about)?

But I digress.

It’s remarkably easy.

First, you need a Wealthfront account.

Go to your account “Settings.”

On the left hand side, click “Restrictions.” You will see the following box into which you can type any ticker symbol, for any stock you do not want Wealthfront to purchase:

Wealthfront screen in Settings > Restrictions

If you read Dr. Doom’s post on his challenges with Vanguard, you will find the reasons we still have some investments in Wealthfront. I have an Apex-Clearing-and-IEX-exchange beef with Wealthfront, but that’s another post. I’d rather have more of our money in Vanguard but, until I can more easily exclude specific stocks, our Wealthfront account lives to see another day.

There are numerous reasons someone may not legally be able to trade a certain stock, which is the likely use case Wealthfront had in mind when they designed this feature. But it can also effectively be used to divest from, and/or avoid purchasing, certain stocks.

Why would anyone want to do this?

Why might you want to divest from specific companies?

I’ll start with the emotional/personal reasons and move on to the logical/rational ones.

The ability to divest from (or never invest in) specific stocks is the ability to refrain from profiting from things that don’t align with your values and/or incentives.

Frankly, I have never believed that violating our principles and earning money must be mutually exclusive. I don’t care what personal beliefs and morals you have (unless, of course, they limit mine). I do believe, however, that any person should be able to put their money where their mouth (and heart) is, and that there is no need for it to be difficult. (The fact that it is difficult indicates that divestment is powerful, and that companies do not want us to be able to do this easily, which is itself a tacit acknowledgment that they know many of us don’t like their doings.)

Personally, I cannot abide the state of cognitive dissonance that results from my behaving in ways that don’t reflect my values. You may not be this kind of person. If so, I’m envious. My life would be easier (and more fun) if I were. But I’m not.

Bother.

Shifting from the emotional/moral to the logical view of divestment, it doesn’t make sense to shoot yourself in the foot. This is a matter of incentives and a focus on our desired, rational outcomes, vs. our feelings.

Let’s say, as the climate movement has, that we humans have an interest in Earth remaining habitable for… humans. It makes no sense for us to continue pull oil and gas out of the ground, because greenhouse gas omissions contribute to global warming and to the opposite outcome of the one we want.

Oil and gas companies, by contrast, have little or no incentive to create our desired outcome. Perhaps the humans who run these companies don’t care if Earth remains habitable for current and future generations, or perhaps Earthly habitation is less important than current profits to shareholders… which includes every person whose pension and/or retirement fund makes them a few dollars a month based on the oil and gas company’s performance.

Ah. There’s the rub, and our shot in our foot.

It’s not entirely our fault. The very structure of investment funds doesn’t make it easy for us to notice the extent to which we profit from the very things we abhor. Index and mutual funds may contain dozens, hundreds, or thousands of funds, with names and descriptions that mask what they do. We pick one of a few funds allowed in the company 401(k) plan, and that’s the extent of our “consumer choice.” Hours of research might be required to see, look up, and truly understand the contents of our portfolios (believe me, I know). And those contents change all the time.

This system creates an uncomfortable conflict in our rational incentives: We humans want to be able to survive in retirement, but we also know that our survival can only take place on Earth, with its key ingredients for human life: sun, water, bees, and top soil. It is entirely rational, then, for us to decide that the planet — the only one known to sustain human life — is more important than a certain segment of our portfolio. We should be allowed to make that choice. It’s rational. The market is all about rational actors, no? (Ha ha.)

When taken beyond the individual effort to a collective one, it’s possible that — if enough people divest — they can begin to starve the beast. (Divestment was one of several strategies that helped end apartheid, for example, and its cumulative effects can be powerful.) This can change the company’s incentives: if they lose institutional investors, if their stock price plummets, they have an incentive to change their behavior or risk further failure.

Anyway, this is just one example that applies to all humans. Depending on your personal beliefs and morals, you may not want to invest in a pharmaceutical company that manufactures the Plan B pill, for example; or a clothing manufacturer that uses child slave labor; or a media company that donates to a certain presidential candidate. Whatever you believe, I believe it should be possible and fairly straightforward for your investment behavior to align with your beliefs.

How Do You Divest?

If you’ve found ways to divest from and/or avoid purchasing stocks, I’d love to hear about these mechanisms and your experiences in attempting to use them. Please do comment. Thanks!