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Written by: Kate Dore | Cashville Skyline
One of my most vivid memories of this past holiday season was relaxing around a square table with family casually chatting about politics.
I was probably enjoying my second chocolate chip covered cannoli when my cousin halted the debate over changes in a local recycling program and friendly jabs at 2016 presidential hopefuls.
“I have a serious question, and I’m looking for your advice. I’m starting a new job with a retirement plan, so I need to know, is socially responsible investing possible ?”
There may have been a few bursts of nervous laughter, but I was hesitant to spit out a quick reply. Quite honestly, I hadn’t given it a great deal of thought.
It had been months since I invested any extra money and my portfolio consisted mostly of low-maintenance index funds.
Now that I’m employed full-time again, and I’ve waded back into investing, I’ve wondered the same thing as my cousin.
I’d like to think I’m a socially-conscious consumer, allowing my hard-earned dollars to be my voice for or against like-minded businesses. And my voice may seem small and insignificant, but should that hinder my efforts of striving to be better? Should that same mindset apply to investing?
Short answer: it’s complicated.
What is Socially Responsible Investing?
Not everyone’s definition of socially responsible investing (SRI) is the same.
Generally speaking, socially responsible investors seek to invest in companies that share their values. There are many issues of concern, however, they can generally be summarized as “Environmental, Social and Governance” or ESG investing. Additionally, many of these investors care deeply about shareholder advocacy and community investing .
With US sustainable, responsible, and impact investing ballooning to $6.57 trillion by the start of 2014 , more individuals than ever are concerned about contributing to a more sustainable and equitable economy.
There is even a detailed method of screening securities based on certain ESG investing concerns, but are investors making the impact they think they are?
Bloggers Weigh In
Jason from Dividend Mantra recently dug into ethical investing and pointed out how difficult it can be to find a company whose practices you agree with 100%.
He also argued how limiting it can be to eliminate certain companies from your portfolio. He questions how much we should allow our ethics should cost us.
John from Frugal Rules also tackled socially responsible investing recently. In his former career, he was often asked to help investors find socially responsible funds.
He describes the amount of work that is required to research a fund made up of hundreds of companies or even more frustrating, the number of companies within a conglomerate. Despite these challenges, John believes socially responsible investors will ultimately be happier with their portfolio.
Bogleheads Discuss
One of the most interesting and informative resources I stumbled upon is a Bogleheads forum thread discussing socially progressive fund options .
The entire thread is worth reading, but here’s the gist – a gentleman is discussing his plan to max out his Roth IRA, however, his wife insists it only consist of “progressive industries.”
While many commenters acknowledged that this strategy may not be the most effective method in which to enact change, they were empathetic to his wife’s concerns about making money from businesses that she doesn’t agree with.
The commenters made some interesting recommendations:
- Government bonds
- Peer-to-peer lending
- REITs
- CDs from a local, insured credit union
- Individual stocks from the top socially responsible companies in the S&P 500
A few commenters pointed out that his wife may be better off investing in the total market, maximizing returns, minimizing expenses, and then donating a portion of their earnings to charity.
Investing is Personal
Ultimately, the choice to practice socially responsible investing is personal. Investors should assess their own comfort levels and attempt to make the most informed choices possible.
As Jason succinctly puts it, “No amount of money is worth being uncomfortable, in my opinion. If you can’t sleep at night, you’re doing it wrong.”
Readers: Do you think socially responsible investing is possible?