One of the more interesting investing strategy ideas to come to light recently is the idea of ethical investing. Many people are no longer satisfied that their personal finance planning is built upon companies with questionable practices. Ethical investing is a trend that is becoming especially pronounced in the area of Christian financial planning and investing. However, one does not have to be Christian to be interested in building a financial future based on companies that follow good practices. The Comox Valley Record explains the basis of ethical investing:
This type of “ethical” investing has gained so much traction it has been given its own name: Socially Responsible Investing (SRI), and these days, it’s getting plenty of attention as investors increasingly search out socially responsible investment alternatives.
SRI is simply the integration of your personal values with your investment decisions.
In addition to the profit potential of an investment, you also consider the investment’s impact on society and the environment.
How to start in ethical investing
There are a couple different ways that you can become involved in ethical investing. One is to find indexes and mutual funds that are committed to screening for ethical investing opportunities. You can even talk to your personal finance planner about such mutual funds.
Another thing you can do is your own research. Determine what your values are, and then look at company practice to decide whether or not individual companies are desirable. For example, are you interested in investing in environmentally responsible companies? Do you want to encourage alternative energy by investing in biofuels? This is only one aspect of ethical investing. Other things to keep in mind include whether or not a company has practices that encourage human rights, or companies that practice policies that are in line with your view of morality or social justice.
Things to keep in mind about ethical investing
Ethical investing can be a great way for you to feel better about your investing strategy. However, you should realize that often these ethical investing options are more volatile than the giants of industry that have been around. Wal-Mart (WMT) stock is much more stable than stocks of smaller companies that engage in “fair trade” policies. Exxon (XOM), a company that refuses to follow environmentally friendly practices and invest in alternative energy, garners more stable returns than most biofuel companies.
However, if you have the risk tolerance for more volatility in your stock portfolio, ethical investing could be for you. The future earning potential of ethical stocks is fairly good, and the returns on these stocks, since they are more volatile, offers good opportunities. Make sure, however, that you balance your investment portfolio with diversity; even within your ethical investing there should be a measure of diversity in companies and sectors.
Disclaimer: I am not an investment professional. All investment carries the possibility of loss. Consult with an investment professional and/or do your own research before making any investment.