воскресенье, 6 ноября 2016 г.

The Pros and Cons of Socially Responsible Investing

The Pros and Cons of Socially Responsible Investing

The Pros and Cons of Socially Responsible Investing

We recently received an email from a podcast listener who is new to investing and is trying to figure our her investing strategy. Although she wants to make money off of her investments, she also wants to do it in a way that lines up with her system of beliefs. Here is an excerpt from her email:

My one great concern about my investing is ethics. I care deeply about the environment and about good treatment of people. It makes no sense to me that I would profit from the destruction of the land that our kids and grandkids need in the future for their food and water. They won’t be able to eat money

Do you have any suggestions about clean, green and ethical investing? I’d be willing to take a smaller profit knowing that my money is helping grow something positive and sustainable.”


Annie isn’t the only person concerned about how her ethics line up with her investment choices. Socially responsible investing is an investment strategy that has been gaining traction in recent years. With news of shady and illegal investment deals becoming more commonplace, many active investors have begun to insist that the companies they invest in make socially responsible choices. In addition to being good stewards of the environment, these “socially responsible” businesses are expected to treat their employees well, create healthy products and services, and steer clear of unethical or predatory business practices. To this type of business, and the individuals who have a stake in them, investing is not just about turning a profit and growing one’s nest egg. It’s about growing and thriving in a responsible and sustainable way.

While all of this sounds warm and fuzzy, many people wonder if socially responsible investing is a winning investment strategy. Unfortunately, there is no perfect answer to that question. Though it is entirely possible that investments in socially responsible companies will provide investment returns comparable to the general market, these businesses experience the same ups and downs as anyone else.

The Pros of Socially Responsible Investing

Still, even if socially responsible investing doesn’t match or exceed the general market, it still has plenty of rewards.

For example:

Benefit #1 – You’re putting your money where your mouth is. The following Bible verse makes this point clear: For where your treasure is, there your heart will be also. It’s hard to insist you’re a committed environmentalist if part of your portfolio is invested in companies or industries that are destroying the environment. By investing in socially responsible businesses you’re doing more than talking the talk, you’re walking the walk – with your money!

Benefit #2 – You’re voting with your feet. It’s easy to complain about undesirable situations, but infinitely harder to do anything about it. When you commit to socially responsible investing, it’s an opportunity to withhold your investment dollars from businesses that are not behaving. If more people invested only in businesses that acted responsibly, the bad apples would be forced to shape up and make better choices.

Benefit #3 – You’re rewarding the “good guys.” Socially responsibly investing punishes companies that act unethically, but it also rewards companies that are doing the right thing. If you want companies to make more responsible choices, you have to support them in the most tangible way possible, which is through investment capital.

Benefit #4 – You can feel good about what you’re doing. Although none of us are perfect, most people truly want to do some good in the world. If you can invest your money in socially responsible companies, and make a profit doing so, you’ll have two things to feel good about – making money and using your money to improve the human condition.

The Cons of Socially Responsible Investing

While socially responsible investing offers plenty of benefits, there are drawbacks as well.

Here are some examples:

Drawback #1 – Social responsibility might be more important than returns. Let’s not forget the reason we’re investing in the first place – to obtain the highest return on investment possible. When socially responsible investing becomes the primary objective, the financial side of the equation will likely suffer – at least part of the time.

Drawback #2 – You may be leaving a lot of good investments on the table. Let’s say you find a new business with below average performance in terms of social responsibility, but a history of creating innovative products and services that improve lives and generate jobs. If you pass on this winning investment opportunity because of the social responsibility factor, you may lose out.

Drawback #3 – Many companies claim to be socially responsible but… Marketing spin is a part of modern business culture. In many cases, it’s more important to craft the image of being socially responsible than to actually be socially responsible. As the saying goes, it’s not the truth, but what the people believe that counts. With the right marketing campaign, people will believe nearly anything.

Drawback #4 – The definition of socially responsible investing is highly subjective. What constitutes socially responsible investing is not always universal. Perhaps the best example is nuclear energy. If viewed from a perspective of damage from nuclear accidents, it might be seen as one of the worst investments possible. But if it is viewed as a substitute for fossil fuels, it could constitute a socially responsible industry.

5 Fund Options for Socially Responsible Investing

If you’re trying to be a socially responsible investor, you should be going out of your way to buy funds that meet that criteria. Here are five fund options that fit the bill. Usually, they measure their performance against a socially responsible investment index, such as the MSCI KLD 400 Social Index. However, since the S&P 500 Index is the most common benchmark used to measure an investment’s performance, I decided to show their recent five-year performances against it instead.

Vanguard FTSE Social Index (VFTSX) – This fund tracks a benchmark of large and mid-capitalization stocks that have been screened for certain social, human rights, and environmental criteria.

Expense ratio: 0.27%

Minimum investment: $3,000

5 year average annual performance through 3/31/2015: 14.96%

S&P Index 5 year average annual performance through 3/31/2015: 14.47%

Calvert Equity Fund (CSIEX) – This fund invests in companies that demonstrate a history of positive environmental, social, and sustainability practices.

Expense ratio: 1.17%

Minimum investment: $2,000

5 year average annual performance through 3/31/2015: 13.24%

S&P Index 5 year average annual performance through 3/31/2015: 14.47%

iShares MSCI KLD 400 Social Index ETF (DSI) – This fund tracks the investment results of an index composed of U.S. companies that have positive environmental, social and governance characteristics as defined by the index provider (the MSCI KLD 400 Social Index). Excluded from the fund are alcohol, tobacco, firearms, nuclear power, military weapons and gambling stocks.

Expense ratio: 0.50%

5 year average annual performance through 3/31/2015: 13.22%

S&P Index 5 year average annual performance through 3/31/2015: 14.47%

Walden Equity (WSEFX) – This funds invests in socially responsible companies for long-term growth. While screening for companies that have positive records on community investment, the environment, human rights, and employment practices, they avoid companies engaged in the production and sale of weapons, animal testing, nuclear power, alcohol, tobacco and gambling.

Expense ratio: 1.00%

Minimum investment: $100,000

5 year average annual performance through 3/31/2015: 12.08%

S&P Index 5 year average annual performance through 3/31/2015: 14.47%

Domini Social Equity (DSEFX) – This fund conducts in-depth social and environmental research on each of their individual holdings. Meanwhile, they also look for companies that respect their communities, protect the environment, produce safe and useful products, and treat workers, investors, and suppliers fairly.

Expense ratio: 1.20%

Minimum investment: $2,500 ($1,500 for IRAs)

5 year average annual performance through 3/31/2015: 13.35%

S&P Index 5 year average annual performance through 3/31/2015: 14.47%

Will Socially Responsible Investing Work for You

Based on the performance of the funds listed above, socially responsible investing seems like a reasonable proposition. In the end, it may come down to a matter of conscience. If you value socially responsible investing more than the prospect of making money at any price, you might be willing to sacrifice some returns in order to invest your money in companies that you believe in.

Is corporate social responsibility important to you? What constitutes a socially responsible investment in your eyes?

Original article and pictures take http://www.doughroller.net/investing/pros-and-cons-of-socially-responsible-investing/ site

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