Finance Blog
Socially Responsible Investing: How to Invest with Your Conscience
No comments
Socially Responsible Investing: How to Invest with Your Conscience I can understand why investors want to invest with their conscience. Socially responsible investing can mean choosing companies that are sensitive to issues like the environment, consumers’ rights, human rights, and diversity. It can also mean…
Socially Responsible Investing: How to Invest with Your Conscience
I can understand why investors want to invest with their conscience.
Socially responsible investing can mean choosing companies that are sensitive to issues like the environment, consumers’ rights, human rights, and diversity. It can also mean choosing not to support companies whose business is tied to alcohol, gambling, military activities, or tobacco.
If you want to invest this way, or are already investing in socially responsible industries, you are not alone. One report estimated that in 2007 over $2.71 trillion was invested in a socially responsible manner.
The issue is not whether these causes are worthy. There is an obvious, nonmonetary benefit to taking a principled position and placing ethics above profits.
Viewed from an investing perspective, however, socially responsible investing can be problematic. Most socially responsible funds are “actively managed,” which means the fund manager attempts to beat a designated benchmark. The data on actively managed funds is dismal. Because of their high costs (the average expense ratio of these funds is 1.33 percent), only a very small percentage of them are able to equal (much less beat) their benchmark over time. For this reason, I recommend against investing in any actively managed fund—socially responsible or otherwise.
There is another way to be socially responsible in investing. Some low-cost index funds and exchange-traded funds (ETFs) screen for various social criteria. These funds have low expense ratios and track designated indexes. Here are some of the better ones:
- The Vanguard FTSE Social Index Fund (VFTSX) tracks the FTSE4Good US Select Index and screens for certain social and environmental criteria. It has a low expense ratio of 0.29 percent.
- While the TIAA-CREF Institutional Social Choice Equity Retail Fund (TICRX) is not technically an index fund, it screens the Russell 3000 and selects those stocks that meet its social criteria. It has a low expense ratio of 0.38 percent.
- The iShares Select Social Index Fund (KLD) tracks the performance of the MSCI USA ESG Select Index, while the iShares KLD 400 Social Index Fund (DSI) invests in companies in the KLD 400 Social Index. Both have an expense ratio of 0.5 percent.
Those funds have a broad social agenda, but you can be narrower in your focus:
- Energy and conservation: PowerShares WilderHill Clean Energy Portfolio (PBW)
- Cleantech: PowerShares Cleantech Portfolio (PZD)
- Progressive energy: PowerShares WilderHill Progressive Energy Portfolio (PUW)
- Water industry: PowerShares Water Resources Portfolio (PHO)
Be a Socially Responsible AND a Smart Investor
If you decide to engage in socially responsible investing, remember not to abandon the basic principles of smart investing. You still need to focus on your asset allocation (the division of your portfolio between stocks and bonds), and your entire portfolio should consist only of globally diversified, low-cost, high-quality stock and bond index funds. I make specific fund recommendations in The Smartest Investment Book You’ll Ever Read. You can modify those recommendations to include some of the low-cost, socially responsible funds I have listed here.
Dan Solin is a Senior Vice-President of Index Funds Advisors. He is the author of the New York Times best sellers The Smartest Investment Book You’ll Ever Read and The Smartest 401(k) Book You’ll Ever Read. His latest book is The Smartest Retirement Book You’ll Ever Read.
Strategies for Outsmarting Uncle Sam at Tax Time
Participating in Your Company’s 401(k) Plan Is Not a No-Brainer
All Money Market Funds Are Not Created Equal
Maximize Your 401(k) Returns
No comments yet
We welcome your interest and participation on this forum, but be aware that comments will be published at Equifax's sole discretion. Please don't use this blog to submit questions or concerns about your Equifax credit report or raise customer service issues. Instead, you should contact Equifax directly for all such matters and any attempts to do so in this forum will be promptly re-directed.
Some other factors to consider when commenting:
- Registration and privacy. While no registration is required to visit our forum, participants wishing to post a message must register by creating an account. All personal information provided by forum members incident to registration is governed by our Terms of Use and Privacy Policy.
- All comments are anonymous. We'll delete your name, e-mail address, and any other identifying information, including details about your investments.
- We can't post or respond to every comment - As much as we'd like to, we can't post every comment, nor can we guarantee that we will respond to each individual message. All questions or comments about your Equifax credit report or similar customer service issues should be handled by contacting Equifax directly.
- Don't offer specific legal, tax or financial advice. All of the materials on this Site are for information, education, and noncommercial purposes only and this forum is not intended as a means of expressing views or ideas regarding any specific legal, tax, or investment advice. While offering general rules of thumb is both permitted and encouraged, recommending specific ideas or strategies regarding investments, taxes, and related matters is prohibited.
- Credit Repair. This blog is not intended as a venue for the discussion or exchange of ideas regarding credit repair or other strategies intended to assist visitors and community members improve or otherwise modify their credit histories, ratings or scores.
- Stay on topic. Your comment should be concise and pertain to the specific post in question.
- Be respectful of the community. The use of profanity, offensive language, spam, and personal attacks will not be tolerated and egregious or repeat offenders will be banned from future participation. We encourage disagreement and healthy debate, but please refrain from personal attacks on our WordPresss and contributors.
- Finally: Participation in this forum may be terminated by Equifax immediately and without notice for failure to comply with any guidelines or Terms of Use. As such, you should familiarize yourself with all pertinent requirements prior to submitting any response through the blog or otherwise. All opinions expressed in this forum are solely those of the individual submitting the comment, and don't necessarily represent the views of Equifax or its management.
Equifax maintains this interactive forum for education and information purposes in order to allow individuals to share their relevant knowledge and opinions with other members and visitors. We encourage you to participate in discussions about personal finance issues and other topics of interest to this community, but please read our commenting guidelines first. Equifax reserves the right to monitor postings to the forum and comments will be published at our discretion. Do you have questions or comments about your Equifax credit report or customer-service issues regarding an Equifax product? If so, please contact Equifax directly. All opinions and information expressed or shared in blog comments are solely those of the person submitting the comments, and don't necessarily represent the views of Equifax or its management.
RSS Feeds