socially responsible investing

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ssarah
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socially responsible investing

Postby ssarah » Mon Mar 18, 2013 6:43 am

I'd like to learn more about investing in funds that screen companies based on various criteria. I've poked around on the web and found some that seem to screen based on socially conservative criteria but I was looking for something more focused on human rights and environmentalism. I'll keep searching but thought I'd ask here in case anyone has a good reference or website.

I'm not very investing savvy and usually just stick my money in a Fidelity index fund. If there's a fund I can buy through them that would make it very easy.

kombat
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Re: socially responsible investing

Postby kombat » Mon Mar 18, 2013 7:19 am

The terms you're looking for are "Ethical Funds", or "Green Funds." I don't know of any specific examples, but there should be plenty of ETF's out there that market to that philosophy.

In my opinion, your investment portfolio is not the proper place to make a political statement. Your investment portfolio is the place to make money.

brad
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Re: socially responsible investing

Postby brad » Mon Mar 18, 2013 7:41 am

My feeling is that an investment portfolio is a great place to make a political statement, or more accurately it's a great place to help change the world. But I don't think "ethical funds" do much good in either case. The reason is that these funds buy shares on the stock market, which is a secondary market -- i.e., shares are traded among investors, and the companies whose shares you're buying don't see any of that money. When you buy shares of a stock on the stock market, the money goes into another investor's pocket.

In most cases when you buy shares in an "evil" company, it doesn't benefit (except in a small and temporary way from your role in helping to maintain its share price), and if you boycott that company by not buying its shares, the evil company isn't hurt either. Similarly, if you buy shares in a "good" company, you're not helping it in any direct way, because the money you used to buy the shares doesn't go to the company, it goes to the investors who sold the shares you bought.

My feeling is that ethical funds mainly make investors feel good about themselves, but they don't do much to change the world. There is the argument that if you invest in a bad company and the value of your investment grows or you receive dividends, you're personally benefiting from that company's bad practices, but even on an ethical basis I don't find that argument very compelling.

There's a new branch of ethical investing called impact investing that I think is much more attractive: in impact investing you bypass the stock market and invest directly in companies or organizations that are doing things you want to support. In that case your principal can be put directly to work to make the world a better place. Traditional ethical investing feels like an opportunity cost in comparison, because your principal just ends up in some other investor's pocket. The other good thing about impact investing is that the returns are very competitive -- there are examples of impact investors who've earned 200% returns (and of course there are examples of impact investors who've lost everything, just as with any other kind of equity investment).

Right now the opportunities for impact investing are limited for retail investors (ordinary people investing for retirement, etc.), but I'm hoping that'll change in the years to come. Currently most opportunities for retail investors are for debt investments (where your money is loaned out), which offer much lower returns. Check out the Slow Money website for links to some of these offerings.


ssarah
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Re: socially responsible investing

Postby ssarah » Mon Mar 18, 2013 8:46 am

I don't see how living by your own values is a political statement.

Brad, I was thinking more along the lines of what you're talking about and wondering about ways to do that, too. I don't feel strongly about it any which way, but I'd like to know what my options are.

brad
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Re: socially responsible investing

Postby brad » Mon Mar 18, 2013 9:01 am

ssarah wrote:Brad, I was thinking more along the lines of what you're talking about and wondering about ways to do that, too. I don't feel strongly about it any which way, but I'd like to know what my options are.


There is an outmoded school of thought that if you want to use your money to change the world in positive ways, you should use philanthropy for that, because the goal of investing is simply to make money. That's an arbitrary distinction. Given the amount of money people may put into investing, they can in some cases make more of a difference with their investments than their charitable donations.

As for your options in terms of impact investing, as I mentioned above they are currently limited. Here's what I do: I have my core investments in a standard balanced portfolio of index funds and bonds, no social screening. But for my "cash" or "fixed income" portion I've been gradually adding impact investments. I'm in Canada, so the options up here are different than what you have in the US. The best source I've found for impact investments in the US is Slow Money's guide here: http://slowmoney.org/other-resources.

As you'll see, most of those impact investing opportunities are for debt, so your rate of return will barely keep up with inflation. But that may be okay for the cash or fixed-income portion of your portfolio, and if you adjust your definition of "return on investment" to include social and environmental returns, you'll be happy with those investments.

Currently most of the equity investments in impact investing are open only to venture capitalists and accredited investors. In time, though, some of these will be available to the rest of us. Until then, I'm sticking with standard index funds and ETFs.


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