Investing With Your Values

Photo: Andy Smith

If you care about the environment, you’d probably never throw something in the trash that could be recycled. But do you invest in companies that trash the environment? If spiritual matters are important to you, your faith probably influences many aspects of your life. But do you invest in companies that produce products or services that violate the principles of your faith?

Today there are more values-based investment products than ever. However, finding those that line up with your exact values, and that strike the balance between doing good and getting a good return, can be a challenge. (See also: Giving to Charity Is Great. But How Do You Pick One?)

Defining Your Values

The best-known approach to values investing is Socially Responsible Investing (SRI), which is also known as Sustainable and Responsible Investing. Under its broad umbrella you’ll find mutual funds, exchange-traded funds, and investment advisers that aim to generate profitable returns from investing in companies that are not involved in certain activities and/or are involved in others.

For example, today’s SRI investors can choose funds that exclude companies that make tobacco products, alcohol, or weapons; those involved in the gambling industry, hurt the environment, mistreat workers or animals, or infringe on the rights of indigenous peoples; and a host of other issues. By the same token, SRI funds often seek to invest in companies that excel in their employment and environmental practices, contribute to the good of the communities where they are based, or promote social and economic justice.

Choosing a Values-Based Fund

According to the Forum for Sustainable and Responsible Investment, a trade organization for the SRI industry, there were 250 SRI mutual funds in 2010 — up from just 55 in 1995. Its Socially Responsible Mutual Fund Charts can help you find an SRI fund that meets your criteria.

Social Funds, which describes itself as the largest personal finance site devoted to socially responsible investing, also has a free tool that sorts SRI funds, including numerous religious funds.

A Fund for Your Faith

An offshoot of Socially Responsible Investing is Faith-Based Investing. There are mutual and exchange-traded funds that follow the tenets of certain religions or have their roots in certain denominations, including:

How Responsible Is Responsible Enough?

Just because a fund claims to be socially responsible doesn’t mean it includes or excludes investments in industries you may care about, or that it defines the issues as you do. You have to read the prospectuses closely.

There are free online tools that can help you analyze funds based on various social screens. Calvert Investments, which offers 40 SRI mutual funds, has a tool called Know What You Own. Just enter the name of a mutual fund, and you can see what companies held in the fund do not meet Calvert’s sustainability criteria related to the environment, governance, social issues, and more.

Vanguard’s FTSE Social Index Fund, for example, says it screens investments based on certain social, human rights, and environmental criteria. However, running it through Calvert’s Know What You Own tool finds that the fund holds investments in more than 20 companies that Calvert finds objectionable.

With Invested Interests’ Dashboard (you have to provide your e-mail address to use this tool), you can research mutual funds based on 19 issues. I used it to analyze the Domini Social Equity Fund, which says it invests in companies based on their social and environmental priorities. If you invested $5,000 in the fund, the tool says nearly half of the money would go toward companies that fail Invested Interests’ environmental screens.

Maximizing Your Values-Based Investments

As with any type of investing, in order to get the most from values-based investing you need to make sure you have the proper asset allocation for your age and goals.

You should also avoid paying too much for your investments. That can be especially challenging with values-based investing because such funds tend to have fairly high expense ratios. Still, if you want to put your money where your values are, perhaps that’s a price worth paying.

How do your values guide your investment decisions?

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Guest's picture

This is a really timely article for me! We are starting a retirement with a new financial adviser. He asked if there was anything I didn't want to invest in and I said tobacco and oil--and I was told that it was basically impossible. It never occurred to me that it would be difficult to live my values financially, when I try hard to stay true to them throughout the rest of my life. Thank you for offering some information on this topic.

Matt Bell's picture

Glad to hear that it was helpful, Emily. I'm surprised to hear that your advisor wasn't aware of ways to invest according to those particular values. I'd love to hear about the next steps you take. Are you thinking about talking with another advisor or at least talking with your current advisor about some of the tools in this article?