Don: Okay, my name is Don; my first question is regarding ethical investing. It seems like it should be an easy thing to do, but it has gotten very, very difficult. Do you have any advice on a simple way to invest ethically?
Chris Farrell: Don, I hate to say this, but it is complicated. Now it's partly terminology "Ethical Investing." Most people don't like the implication that what they are doing is unethical, then they are the stereotypes that social-responsible investing is only open to ageing hippies and tree huggers; but the biggest rap against the movement is that it cuts into your investment returns.
It used to be simpler two decades or so ago when funds use a negative screen to pick stocks. No tobacco companies, no defence manufactures, and no nuclear power. These days, many people want their money to be for social change.
Now a growing number of funds look for companies that are environmentally conscious, promote women, and work with labor unions. Recent study suggests there is a very little difference between investing to make money and investing to make money and express your values. The hard part maybe finding which values you want to express and then matching those values to a particular fund.
Many socially conscious funds love Starbucks, I know I do; but some reject it because its name is on a coffee liquor, some funds embrace Wal-Mart because it's going green, other funds won't go near it.
More and more companies these days claim to be sustainable, but how is an investor to know which claims are true? Well a good place to start figuring out what works for you is this website socialinvest.org. Here, you can compare mutual fund performance and see what they invest in. You can find financial planners and banks that care about the same thing you do. And you could probably find some new ideas. For example, there are resources to figure out the best way to invest in your local community.
Community banks like this one in St. Paul, Minnesota lend for affordable housing, make small business development loans, and help support local nonprofits. Your deposits are insured by the FDIC, the Federal Deposit Insurance Corporation; but more of your savings gets recycled back into your local community. There are banks like this all around the country.
Two final thoughts; on the negative side, fees tend to be higher on socially- responsible mutual funds than their non-socially responsible peers, so it pays to shop around. But on a more positive note, over time you will learn how to better match your personal values with your investment goals.
So, good luck, and have fun along the way. For Marketplace Money, I am Chris Farrell.
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