A Guide to Faith-Based Investing

What Is Faith-Based Investing?

Despite what you may think, faith-based investing doesn't involve the purchase and sale of stocks in religious organizations. As nonprofit organizations, churches and other places of worship don't issue shares to the public on the open market. But that doesn't mean religion and investing don't mix. So what exactly is faith-based investing?

Faith-based investing is just like any other type of investment philosophy in that it aims to maximize investor returns. Where it does differ from traditional, secular investment plans is how individual investors choose their investment professionals and vehicles. Individuals who invest using faith-based principles often choose managers, companies, and investments that align with their own religious values. That's why this strategy is also called values-based investing.

Just about every major denomination has an opinion about how to deploy cash in support of favored causes and against those that contradict their views and values. We break down some of the main themes in faith-based investing in this article, as well as how it fits into some of the world's largest religions.

Key Takeaways

  • Faith-based investors want to generate returns by choosing investments that align with their religious beliefs and values.
  • Many faith-based investment strategies focus on ethically and socially responsible investment.
  • The majority of faith-based styles exclude investment in companies that are deemed immoral, such as alcohol, tobacco, and weaponry companies.
  • Faith-based investing doesn't guarantee returns.
  • This style is subject to the same risks as any other investment style, such as economic, interest rate, and geopolitical risks.

The Basics of Faith-Based Investing

While churches or other places of worship do not sell securities directly to investors, the investment principles followed by religious groups are often publicly available and easy to find. The basic premise behind faith-based investing isn't any different than any other strategy: Investors put their money into vehicles that generate a good return. But rather than chase any hot pick, these investors make decisions that align with their own principles with an environmental, ethical, and social focus into account.

For instance, a Christian investor may enlist the professional assistance of a Christian investment company, which only offers investments that align with the principles of the faith. Most of these firms avoid investing in companies that are involved with birth control and contraception, adult entertainment, and gambling or both.

The investment strategies advocated by some religious groups are provided below. This list is by no means comprehensive. Keep in mind that they are general guidelines and are in no way meant to represent the exact strategies and obligations of any particular institution or congregation. The interpretations of these investment styles vary and are based on the investor's religion. They may even differ between different denominations.

Knowing your priorities—doing good, generating a return, or both—before you dive in will help guide your faith-based investment strategy.

Christian Investors

Do you know that saying? The one that says all Catholics are Christians but not all Christians are Catholics? The same principle also applies to investors, including those who belong to the faith. You may see investment principles in these faiths called values-based investing or Biblically Responsible Investing.

Here's a look at the basic investment styles of two Christian groups—Catholics and Protestants.

Catholics

Investors who adhere to the Catholic faith follow principles outlined by the Catholic Framework for Economic Life. These 10 faith-based guidelines demonstrate how people should take part in the economy and finance—that is, by basing their decisions on "human dignity and the moral law."

Faithful Catholics who want to put their money to work in a manner consistent with Catholic values often avoid investing in firms that:

  • Pay domestic partner benefits to unmarried or same-sex couples
  • Support abortion and contraceptives
  • Engage in embryonic stem-cell research
  • Produce weapons of mass destruction
  • Take part in the adult entertainment industry

Instead, they favor firms that support human rights, environmental responsibility, and fair employment practices via the support of labor unions.

Multiple entities provide investment guidance that supports Catholic values, including investment firms and mutual fund firms that adhere to guidelines for investors who aren't able to take the "do it yourself." approach. For instance:

  • Catholic Investment Services seeks strong returns for its clients, while keeping religious principles at the heart of its investment strategy. The firm serves a total of 35 Catholic institutions, has a list of 700 restricted companies, and $900 million in assets under management (AUM).
  • The LKCM Aquinas Funds follow the socially responsible investment (SRI) guidelines set by the U.S. Conference of Catholic Bishops. It aims to maximize investor capital in the long term with Catholic investing principles in mind. Established in July 2005, the fund tracks the S&P 500. Its five-year return was 8.35% as of March 16, 2022.

Protestants

Hard work and thriftiness tend to go hand-in-hand with the Protestant work ethic, so working and saving are often closely related. Protestant denominations include a range of beliefs from liberal to conservative. But they all share one principle: The faith encourages followers to make investments based on broad Christian values, such as social consciousness.

The investment policies of some of these religious organizations are often easy to find, such as the guidelines of investment within the Church of England. The church has an Ethical Investment Advisory Group, which provides support in areas relating to investment choices, policies, relationships between investment managers and investors, and investment maintenance.

The board seeks investment in vehicles that promote the social and ethical concerns of the church and its teachings while excluding companies that engage in a variety of activities, such as:

  • Weaponry
  • Addictive behavior, such as tobacco and gambling
  • Adult entertainment
  • Embryonic cloning
  • High-interest lending, such as payday loans

There are a number of mutual funds that follow Protestant principles. Here are a couple of examples:

  • GuideStone Funds provide investments that are socially screened and based on Christian values. The company serves investors of all kinds, from institutional to individual investors. Fund offerings range from U.S. equities to fixed income. The firm had more than $18.2 billion in AUM as of Dec. 31, 2021.
  • New Covenant Funds makes "investment (decisions) consistent with the social-witness principles adopted by the General Assembly of the Presbyterian Church." The firm limits investments in companies involved in gambling, alcohol, and firearm-related issues.

Islamic Investing

Like many faiths, Islamic or Sharia law teaches followers to live by a set of guidelines while they seek returns on their investments. Investors follow halal or permitted principles, which provide a disciplined approach to investing. This approach is considered conservative, and both ethically and socially responsible.

These principles prohibit investment in the following areas:

  • Short-term speculation, as it is considered gambling
  • Investments that pay interest, such as money market accounts and traditional savings accounts
  • Companies that engage in and profit from alcohol, pornography, and gambling
  • Companies with heavy debt because they pay interest on loans
  • Pork-related businesses

A variety of mutual fund firms offer strategies based on Islamic values, including:

  • Amana Mutual Funds, which are offered through Saturna Capital. These funds avoid bonds and other interest-bearing securities, while seeking protection against inflation by making long-term equity investments
  • Allied Asset Advisors established the Iman Fund specifically for Muslims in 2000. This is another mutual fund that adheres to Sharia principles by investing capital in halal investments.

Investing in the Jewish Faith

Jewish values help guide investors who want to align their faith with their investment strategies. Philanthropy and diversification are key principles dictated in the Talmud. Throughout Jewish religious teachings, there are multiple references to the importance of giving and diversification, and those references are a cornerstone guiding tenets of investment practices.

While less formal than some of the other religions, socially responsible investing is often closely associated with Jewish-oriented investment strategies. This fits into several of the faith's mitzvot or commandments that lead investors to do good with their money. This includes investments that address:

  • Climate change
  • Social justice
  • Area-specific issues
  • The engagement of shareholders

Mutual funds that follow Jewish investment strategies provide multiple interpretations of Jewish investing. For example:

  • The Bend the Arc Community Investment Initiative (formerly known as the Jewish Funds for Justice) is offered through Calvert Impact Capital. This fund's goal is to foster community development through initiatives, such as affordable housing and small business.
  • The AMIDEX35 Israel Mutual Fund was launched in June 1999. A non-diversified fund, it invests exclusively in 35 of the largest publicly traded Israeli companies that trade in Israel and the U.S. The fund had $6.04 million in assets, with the goal of seeking long-term capital growth.

$3.2 trillion

Assets under management in Canada's faith-based investment industry in 2020.

Does Faith-Based Investing Work?

Faith-based investing is just as successful (or unsuccessful) as any other investment style. This means there's no guarantee that you generate better returns just because your investments align with your religious principles.

This investment style faces the very same challenges every other philosophy does and they are subject to the same amount of risk. Economic conditions, market sentiment, changes in government policy, interest rates, and geopolitical issues are just some of the issues that faith-based investors face.

That's why it's important to do your own research. While you can find investments that align with your faith, make sure they fit your financial profile, economic situation, and short- and long-term goals, When in doubt, you can always get help from a financial professional who subscribes to your principles. These individuals can recommend stocks, bonds, mutual funds, exchange-traded funds (ETFs), and other investments based on your personal situation and faith.

While you can't buy investments from a church, you can certainly donate investments to a church, if you prefer to give than to receive. An appropriate gift to your favorite religious institution not only helps support the institution that embodies principles you believe in, but it may also provide a tax deduction in return for your good deed.

Estate planning is another way for investors to transfer wealth in a manner that supports personal religious beliefs when they pass away. There are options available in the market if you choose to let your religion help provide guidance for your financial growth.

What is an investment?

An investment is an asset or item acquired with the goal of generating income or appreciation.

What are investment strategies?

The term investment strategy refers to a set of principles designed to help an individual investor achieve their financial and investment goals. This plan is what guides an investor's decisions based on goals, risk tolerance, and future needs for capital. They can vary from conservative (where they follow a low-risk strategy where the focus is on wealth protection) while others are highly aggressive (seeking rapid growth by focusing on capital appreciation


Investors can use their strategies to formulate their own portfolios or do so through a financial professional. Strategies aren't static, which means they need to be reviewed periodically as circumstances change.

What is socially responsible investing (SRI)?

Socially responsible investing (SRI), also known as social investment, is an investment that is considered socially responsible due to the nature of the business the company conducts. A common theme for socially responsible investments is socially conscious investing. Socially responsible investments can be made into individual companies with good social value, or through a socially conscious mutual fund or exchange-traded fund (ETF).

What are assets under management (AUM)?

Assets under management (AUM) is the total market value of the investments that a person or entity manages on behalf of clients. Assets under management definitions and formulas vary by company.


In the calculation of AUM, some financial institutions include bank deposits, mutual funds, and cash in their calculations. Others limit it to funds under discretionary management, where the investor assigns authority to the company to trade on their behalf.

What is market sentiment?

Market sentiment refers to the overall attitude of investors toward a particular security or financial market. It is the feeling or tone of a market, or its crowd psychology, as revealed through the activity and price movement of the securities traded in that market. In broad terms, rising prices indicate bullish market sentiment, while falling prices indicate bearish market sentiment.

The Bottom Line

Faith-based investing is just like any other type of investment philosophy in that it aims to maximize investor returns. The difference from some other types of investing is how individuals choose their investment professionals and their vehicles. It is not better or worse than traditonal, secular investment plans, but these investors make selections through the lens of their religious values.

Article Sources

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