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The How-To Guide for Investing With Your Conscience

Sep 25, 2017 3 min read Kate Ashford

Key Takeaways

  • What will you fight for? What’s acceptable to one person may not be to you.
  • Know what’s lurking. Some funds might have exposure to companies you’re avoiding.
  • Watch out for low returns. Some managers avoid conscientiously run funds because of poor performance.

 

If you’ve ever questioned whether you should invest in a stock because you didn’t agree with something the company was doing, you might be a socially conscious investor.

 

 

For investors of this ilk, a company’s behavior matters. Investors might have objections to a company that sells guns, for instance, or to one that pollutes or reportedly treats employees unfairly.

But being interested in socially responsible investing (SRI) doesn’t mean you don’t also want to see your money grow over time. And putting your money toward companies whose agendas you support doesn’t require you to sacrifice good returns.

In fact, the number of funds—both mutual and exchange-traded—that are tailored to specific principles has flourished over time, and many of the big investment houses are on board. As of 2015, over one out of every five dollars in the U.S. under professional management was invested according to SRI strategies, per the US SIF Foundation’s 2016 report.

A Google search for “socially responsible” mutual funds or ETFs will yield plenty worth a look.
Here are some considerations for putting your money where your morality is.

 

Decide what’s important to you

Are there issues on which you draw a hard line (such as tobacco sales), but others that might not exclude a company from your investment sphere (say, low employee satisfaction)?

Or are you looking for a company that is socially responsible on all the fronts you find important? Some firms score high marks on one measure but fail on another, so you’ll have to give some thought to which behaviors tick your “no good” boxes.

You can also look to third-party measurements, such as Morningstar’s Sustainability Rating or CSRHub’s rankings information, or check out sites such as SocialFunds.com, which is devoted to socially responsible investing.

 

Dig through your funds

You may object to investing directly in a company’s stock but have its shares already in your portfolio’s funds. If companies that provide fast food and sugary sodas are on your “don’t” list, for instance, browse your fund components to make sure you aren’t accidentally investing in companies that offer those products.

 

Dig through their funds, too

An investment firm’s idea of what constitutes a “socially responsible” company may differ from yours, so don’t blindly invest in the first such fund you find. You may subscribe to a more specialized issue, such as animal testing or medical ethics. Or you may widely object to the alcohol industry, but plenty of socially responsible funds still include them. Do your research so you can understand why that group of funds was chosen.

 

Be okay with potentially lower returns

One of the things about avoiding companies you might deem socially irresponsible is that those same companies often post great numbers over time. Some studies have found that socially screened funds don’t always match the performance of conventional investments. Around 1 in 6 advisors don’t consider SRI funds due to performance, according to one survey by Wealthmangement.com.
 
Again, that doesn’t mean there isn’t growth to be had in socially accountable stocks, because you may be able to find good value and strong returns in this realm. But you may not always see the numbers you could have seen without employing your conscience filter.

 

Pay attention to fees

One thing to know is that socially responsible funds can be more expensive than others—likely because fund managers must do more research to put a portfolio together. Run all the numbers before committing.

 

What you can do next

If you want to make sure your money doesn’t go to companies engaging in practices you don’t endorse, check out Morningstar’s Sustainability Rating or CSRHub’s rankings information. Look into sites that are devoted to socially responsible investing.

 

Kate Ashford is a freelance journalist who writes about personal finance, work and consumer trends. She has written for BBC, Forbes, LearnVest, Money, Real Simple and Parents, among others.

 

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