How Can You Invest in Stocks Ethically? How To Start a Socially Responsible Investment Portfolio
For some of us, anything that even has to do with the idea of investing is pretty scary. Sometimes, just keeping your money in a shoe box in your closet (or invested in the buying of the shoes themselves) can seem like an easier solution. But learning to invest is important and fun — especially if you can invest in the things you are really passionate about.
You may have heard the term ethical or socially responsible investing. The idea is simple: putting your money into companies that adhere to your personal moral code. In practice though, how do you go about figuring out which companies those are, and whether they'll be profitable?
Luckily, whether you care about the environment, animal rights, labor, or really, any cause, there are resources which screen companies for corporate governance policies, environmental records, and workplace standards. Your main goal with this kind of investing is to look for companies or mutual funds that align with your ethics.
step 1: do your research
First things first, ask yourself how you define “socially responsible” investing. Ethical, sustainable, environmental and socially responsible investing covers a broad range of very different investments, so do some research and decide on your personal priorities.
Once you've whittled down your list of possible funds to invest in, visit the individual companies' sites to learn how they've voted on the issues you care about. As English points out, "a company can make ecologically sound products but they can engage in shady business practices. For example, look at American Apparel, the company uses domestic labor and pays its workers well and has supported a number of environmental causes...but the (former) CEO Dov Charney wasn't exactly ethical."
The solution? Do your research. "Unfortunately, few companies have the full package when it comes to running their business, but terms like ethical investing or socially responsible investing (SRI) have become marketing terms for a lot of mutual funds," English says.
step 2: Be clear about your financial goals
Perez notes that it’s important to be clear about what you want to achieve financially as well as ethically, just as you would for any other type of investment. A lot of people use mutual funds known as socially screened funds in order to find the more SRI-friendly companies. However, those funds only account for less than one percent of the fund industry, according to the Social Investment Forum. To help you, Macleans ranks the top 50 socially responsible companies every year, and Zacks also ranks the top SRI funds.
step 3: Remember, this is an investment
Even though you may be investing in a company that is right in line with your values and that you think is great, keep your business attitude in check. Manage your asset allocation carefully, and maintain a close eye on costs. A super simple, low-cost portfolio that matches the performance of the benchmark will put you ahead of almost everyone else. Personal finance tools like Mint can help you compare your portfolio to market benchmarks, and instantly see your asset allocation across all your investment accounts.
step 4: Factor in costs
Some ethical investment funds charge higher fees since the investments are more complex and require more research. Perez suggests using an independent financial adviser who will help you to match your financial and ethical goals with the most appropriate investment options. The more they know about your objectives, the better the recommendations will be.
step 5: gather your resolve
In review, here's what you need to do to get started:
- Define what matters to you (eco-friendly, labor practices, women-run, etc.)
- Start with products/brands you know and do research (website, regular news, Yahoo Finance)
- Google top SRI funds and delve deep.
And remember, you're doing this extra work for a reason: You don't want to invest your money in something you don't believe in. "Don't let ethical investing be just a marketing term, make it mean something," English says.
Ethical investing is a great way to launch your investment career. Women and millennials are leading this charge of thoughtful investors, so why not join in? It basically guarantees you good karma (and a healthy bank account too).