With Social Security going bankrupt, 401Ks being pilfered and pensions going the way of the Dodo, it’s more important than ever for individuals to take their personal investment strategies seriously. But, if you’re like me, investing has always had an ugly connotation: thoughts of slick Wall Street
brokers, rampant corporate corruption and sleazy CEOs immediately surface.
And these ideas are not entirely unfounded. Just take a look at your daily newspaper.
You probably won’t get past the front page before reading about some billion-dollar company outsourcing jobs overseas for a bigger bottom line, a morally bankrupt CFO who stands accused of padding his pockets at the expense of employees’ pension funds or a multi-national conglomerate doing everything in their power to bend environmental policies until they break.
So if you have a conscience, how can you do anything but stick your hard earned money in a bank account and sweat it out as retirement looms and you’re collecting a paltry .3% (if you’re lucky) interest?
Socially Responsible Investing (SRI) just might be your answer. Investing doesn’t have to be a dirty word. SRI is a way to build your nest egg while also investing in ethical companies.
Socially concerned investors seek profitable companies that treat their employees well, have strong records of community involvement, and adhere to particular socially responsible principles. Some mutual funds won’t invest in companies that produce weapons; others won’t invest in companies that conduct animal testing. Sweatshop labor, gay-friendly policies and profiting from alcohol or tobacco are a handful of other criteria that SRI mutual funds screen for.
If you’re hearing of socially responsible investing for the first time, you may be comforted to know that this isn’t some fringe movement. Assets in socially screened portfolios climbed to $2.15 trillion in 2003, an increase over the $2.01 trillion in 2001 and socially responsible mutual funds tracked by the 2003 Trends Report increased to 200 in 2003, up from 181 in 2001.
Like all investing, SRI is a personal thing; everyone has a different strategy and varied goals.
You can invest in individual companies yourself, but that can be a lot of work. Finding out where a company stands on every social concern that’s important to you can be a major undertaking. If you’re set on this route, a good place to start would be to find a mutual fund that aligns with your values and see which companies they include in their portfolio.
Mutual funds are arguably one of the wiser ways to invest if you don’t have a lot of time to spend chasing stock prices and researching company fundamentals. Mutual funds gather groups of companies into specific categories like growth or value, small or large cap and, in Socially Responsible Investing, fund managers go a step further and categorize them by certain social criteria.
For example, funds concerned with the environment will select companies that don’t pollute our air, food and water. The New Alternatives Fund concentrates its investments in renewable energy and companies with environmentally friendly policies. The Green Century Balanced Fund invests primarily in the stocks and bonds of select companies that have clean environmental records, many of which also make positive environmental contributions.
There are several websites devoted to helping socially conscious investors make responsible decisions about where they’re putting their money. Here are a couple of the best. Check out the list of other resources at the end of the article.
http://www.socialinvest.org A great site that has news, charts, top funds and tons of links. If you want to know anything about SRI, you can probably find it here.
http://www.socialfunds.com SocialFunds.com is a comprehensive site featuring SRI mutual funds and daily social investment news. They also have free guides for the new socially responsible investor.
Social investing is an excellent way to gain returns on your investments and feel good about being a responsible citizen. Studies have shown that SRI funds perform on par with conventional funds.
In fact, a 2004 study by Marc Orlitzky, Frank Schmidt and Sara Rynes analyzed more than 50 academic reports and concluded, “there is a positive association between corporate social performance and financial performance.”
And Morningstar, one of the leaders in independent market research, gave 17 of the 55 socially responsible mutual funds that they track as a 4 or 5-star rating. Lipper, a top resource for fund information, analysis and commentary gave 24 of the 57 funds they follow high marks.
Some funds are certainly better than others and only your particular risk tolerance and good due diligence can determine which is right for you. Is your money better off in a socially responsible mutual fund? There’s no absolute answer to that, but one thing is certain, you’ll be able to sleep better at night.