Your beliefs are important to you. They shape the way you interact with others and society. Your beliefs also affect the way you make decisions. So why shouldn't they be reflected, or at least not violated, when you invest? When making the decision to invest according to your conscience – ethical investing – there are some key points that you should keep in mind.
First, define your beliefs. Choose investments that meet those requirements. Make sure your investments are fitting for your goals. Constantly re-evaluate your investments’ effectiveness in your portfolio. Finally, take pride that you're putting your money where your heart is and truly making a difference for your future and that of others. (For related reading, see: What Is Socially Responsible Investing?)
Develop Parameters for Screening Investments
There are three ways you can screen investments to make sure your beliefs are reflected in your portfolio. The first is called positive screening. Investments or companies chosen by positive screening support initiatives that the investor is passionate about such as environmental causes or religious and social advocacy. A second approach is negative screening. In this method, a fund manager or investor will not invest in businesses who support industries or products that the investor finds unethical, such as tobacco, pornography or perhaps non-sustainable energy initiatives.
The third and final means to evaluate an investment is by restrictive screening. Since companies often span different sectors and have multiple business interests, this screen decides whether to invest based on the amount of ethically objectionable business a company does. If this amount is negligible, it has passed the screen and is included in the fund or portfolio. (For related reading, see: Impact Investing: the Ethical Choice.)
Determine Which Investments Pass Your Screens
For stocks, look for designations and self-imposed company-wide operational codes that you agree with. One way is to look for designations that fit your ethical investing screen. Designations such as Fair Trade Certified have certain stipulations for an endorsed company to follow. You can also look for self-imposed codes of operation that the company enforces.
When ethically investing in mutual funds, be sure to read the prospectus. Many socially responsible mutual fund managers will display their methodology for choosing certain individual equities to include in the fund. Make sure you agree! (For related reading, see: Socially Responsible Mutual Funds.)
Make Sure Your Investments Also Support Your Financial Goals
It's also important to ensure these investments line up with your financial goals. Just because you support a cause doesn't mean you should jeopardize your financial future for it. There are plenty of ways to support a cause or belief without placing your financial well-being or future on the line.
Don’t over-concentrate your investment positions. Just because an investment is ethically appealing to you doesn’t mean it should take a disparate proportion of your portfolio. This lack of diversification could be devastating to your long-term or short-term financial goals. Talk to a trusted financial advisor to make sure you are on track to meeting your goals while still being ethically invested. Many financial professionals will be happy to help you find investments that agree with your goals and your conscience.
Evaluate Your Ethical Investments in an Objective Way
Don’t get caught up in the cause and miss the fact that you are in an unproductive or unsuitable investment. Have an objective way to evaluate your investment’s performance make sure they still fit into helping you achieve your financial goals. If you still believe in a cause and an investment under-performs, find another way to support it and remove underperforming and unsuitable investments.
Take Pride That Your Money Is Supporting Your Beliefs
Freedom to place your money and your support in ethical investments is a key part of the discretion you have as an investor. Enjoy it! Take pride that you are investing for your future with investments that are ethically agreeable. (For related reading, see: Ethical Investing: Benefits and Drawbacks.)
This article intends to offer factual and up-to-date information on the subjects discussed, but should not be regarded as a complete analysis of these subjects. No party assumes liability for any loss or damage resulting from errors or omissions or reliance on or use of this material.