Conventional investment advice assumes that you don't mind putting your money in the hands of the country's large corporations by way of index funds that hold shares of all of the companies in the S&P 500. Some industries that may cause people concern include defense, tobacco, gambling and alcohol. For those who feel uneasy about owning the commonly criticized companies held by these funds, there are socially responsible investments (like mutual funds and exchange-traded funds) that screen out businesses you may not agree with morally.
For some people, though, even the best socially responsible and environmentally friendly funds still aren't morally high enough. What if you don't want to give your money to any corporation at all? Corporations are bound to make as much money as possible for their shareholders, which can put even the most well-meaning corporation at odds with making socially and environmentally responsible decisions, leaving choosy investors with few options. (To learn more about social responsibility, see Change The World One Investment At A Time and Socially Responsible Mutual Funds.)
While the ideas presented here may not provide the consistent high returns that can be expected from a long-term investment in the stock market, they will allow you to use your money in a way that doesn't put the conventional shareholder interests above all else. They'll also give you a chance of earning a better return than if you were to stash your money in your sock drawer.
You may not think you're investing when you deposit your paycheck in the bank, but you are. In fact, you are likely receiving a tiny bit of interest payment in exchange for allowing the bank to make money by lending out your deposits. And, if you knew where your money was going, you might be unhappy about a lot more than the meaningless interest rate you're getting in return.
Is it possible for you to choose a bank committed to your principles? Yes, and you can still earn interest and get FDIC insurance, too. One type of socially responsible bank, called a community development bank, aims to use deposits to finance projects that will be used to revitalize depressed communities. If there isn't a bank like this in your area, you can choose a bank that allows you to bank online no matter where you live. A few socially responsible banks in the U.S. are Chittenden, Community National Bank and South Shore Co-operative Bank. While these banks still have shareholders, these shareholders are part of the community and will probably steer the bank's operations to benefit it.
When you buy a home, you're making an investment in a community, and that's generally a good thing (tricky gentrification issues aside). Because you're going to have to pay interest on that mortgage, you may want to look for a socially responsible bank or credit union to lend you the money. You shouldn't depend on a home to provide your retirement nest egg, however, as the house may not appreciate faster than the rate of inflation. That said, buying a home serves to diversify your assets and allows you to have a store of value that may not exist if you had decided to rent a place. While you'll still need a place to live when you're retired, you may be able to sell your home for a smaller place and still have some money left over for your retirement.
Consider becoming a landlord. In many areas, it is possible to purchase a duplex, triplex or quadriplex for the same price as a single family home with a comparable square footage. All of these housing options qualify as residential housing, which means that you'll be able to get the lowest mortgage rates and possibly a low down payment. If you live in one of the units, you also won't have to pay taxes on a portion of the first $250,000 of profit when you sell if you're single under the current tax code (or $500,000 if you are married and filing jointly). The proportion of tax exclusion received is based on the proportion of property that served as your home. Many of these buildings may come with tenants in place at the time of the sale, giving you instant cash flow in the form of monthly rent payments. For those without any other debts to repay, these rent payments may be a good way to pay off the multifamily dwelling's mortgage faster. That way, you would be able to save on future interest payments without digging too deep into your wallet.
As the tenants move out, you can renovate each unit yourself to force appreciation.
Furthering your education allows you to invest in yourself. This investment can be the single best way to increase your long-term financial security, especially if you haven't yet completed college. Receiving more education could be your ticket to a higher paying career. Out of all the investment opportunities in this list, education may be the one that will yield the greatest return. If traditional schooling has never been your thing, look into unconventional options for improving your knowledge and skills, such as online learning, apprenticeships, internships, or attending a college with a less conventional curriculum (generally a liberal arts college).
Entrepreneurship and Private Lending
If you're unhappy with the existing corporate business model, why not start your own business? Being self-employed is a great way to keep out from under the thumb of "The Man." Though many small businesses do fail early on, if yours succeeds, it can be a great source of job stability. Owning your own business can also give you more direct control over your financial future – no one can downsize you, and if your business starts doing poorly, you're in full control to turn things around. You'll also get to surround yourself with employees and business partners who share your values. (Is it possible to be environmentally friendly and still make money? Read our Green Investing Feature for both sides of the issue.)
If running your own business sounds like too much work, you could always consider lending money to someone who is starting a business that you'd like to support as a (silent) partner. Just keep in mind the failure rate of small businesses is fairly high and that friends and money are often a bad combination.
Antiques and Collectibles
The market for antiques and collectibles can be tricky; it is difficult to predict what items will be highly valuable in the future and there can be a great deal of waiting, speculation and risk involved. Like thinly-traded stocks, receiving accurate valuation and finding a buyer at any given time can be an issue for antique sellers.
Not unique to antiques, but still very important is the fact that the best way to make a quick buck in a market like this is to become familiar with current hot consumer trends and get involved in buying low and selling high while prices are at their peak. If you only buy items from other people, you won't be giving any additional money to corporations for their products, and you can make the herd mentality of rampant consumerism work in your financial favor. You can also try to find misspelled or poorly marketed antique and collectible auctions on eBay, buy the items for far less than they are worth, and resell them for a profit. To gain an understanding of antiques, you will want to do a lot of reading, start attending antique shows, visit antique shops and consider taking some classes on the subject.
The Bottom Line
For those who are interested in earning a return on their money but don't believe it's possible to invest responsibly by putting money into the hands of any type of corporation, there are still several options for creating a more secure financial future. These choices do require more work, more research and more risk, but then, if keeping your money separate from corporate America is one of your values, you're already used to finding creative solutions to this problem. Being skeptical of the current corporately based financial system doesn't have to mean enduring constant financial stress; there are ways to get your money working for you without abandoning your belief system.