When I was a young undergrad, I had an investing-savvy friend named John. John and his then-girlfriend got into a tiff about his investment in Philip Morris stocks. That’s right, the evil tobacco company. “Hey, it’s making me money,” John reasoned. “Isn’t that the entire point?”
Back then, I was more concerned with my financial aid package than with the stock market, so I nodded and smiled politely. Investing was simply a concept that was way over my head. But now that I'm older and have gotten my feet wet by investing through both retirement funds and individual stocks, I’m far more aware of where my money is going.
Aside from fees and stock performances, have you ever considered exactly what companies you’re investing in? What their ethics are?
Here’s the conundrum: while robo-advisors and low-fee wealth-management services tout investing in a basket of stocks such as ETFs (exchange-traded funds), if you want to be a conscious capitalist, are there other ways you can truly get into ethical investing (or investing for impact)? How can you put your money somewhere that it not only grows, but that’s in step with your personal values?
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Here are some ideas on how you can go about investing ethically:
1. Motif Investing
I first heard about Motif Investing a few years back, and since then, I’ve been curious about how it works. Their motto is “invest with impact.” You can choose an impact portfolio with a theme like “sustainable planet.” This portfolio is made up of companies that focus on reducing a carbon footprint and sustainability. There are also “fair labor,” “battling cancer,” and “good corporate behavior” portfolios.
You can invest in both retirement and non-retirement funds, and it costs $9.95 a month to open a trading account. Motif helps you figure out an asset allocation model based on your target date, comfort with risk, and so forth.
2. Stash Invest
Like other investment apps, Stash Invest lets you invest on the regular for as little as $5 at a time. And like robo-advisors and other wealth management services, you invest in ETFs, which keeps your fees low. You can set it up to invest on regular intervals, or to invest roundups on transactions from your bank account.
Stash is more about having a portfolio that reflects who you are. While not all of them are socially conscious, they have portfolios designed for “the activist,” in which you invest in a basket of “clean and green” stocks; as well as ones for “the trendsetters,” in which you invest in social media and communication. Stash Invest gives you one month free, and then charges a fee of $1 per month. If you have over $5,000 in your account, there’s an additional 0.25-percent fee every year. So if you have $5,000 socked away, it will cost you $12.50 a year.
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3. Do Your Homework
A fine artist I know, Katherine Kean, has been investing ethically for decades and was able to retire early because of it. She has pulled out of mutual funds completely because she didn’t want to invest in certain agricultural and pharma companies with morally questionable business practices.
Kean suggests asking for a company report and reading up on a company’s history before investing.
You’ll want to dig a little deeper to see what other companies that corporation owns and to learn about any fishy business practices. After all, by purchasing stock, you have a stake in the company. And if you want to invest ethically, you’ll want to make sure that their values align with yours.
4. Strike a Compromise
If you’re on the fence about completely pulling out of investing in mutual funds, then maybe you can agree to donate a portion of your returns to causes you care about. To get started, check out websites like Charity Navigator to review non-profit organizations you can donate to.
Of course, you can also invest in individual stocks. While you can pick and choose which specific companies you want to put your beans into, it’s far riskier to do so. You’ll have to keep a watchful eye and be mindful of fees, rebalancing, and so forth. This is a personal choice, and while some people prefer to go this route, others would rather not.
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The Risks of Investing Ethically
If you’re concerned that your investments may underperform because you're investing in social causes, think again. While there's a level of risk you have to bear with any investment, and there are no guarantees, you’d be surprised at how well some of “impact portfolios” perform.
Case in point: Motif Investing has a section that shows top performers for certain “themes.” The last we checked, that “battling cancer” portfolio had a 69.5 percent one-year return (though keep in mind these numbers change frequently). The “socially responsible” investment theme had a one-year return of 7.5 percent. Of course, this may not be the case for all “impact themes,” so you’ll have to do your research. Just know that investing ethically doesn’t necessarily mean that you’ll be losing on stocks. Interested? Go ahead and try your hand at investing for impact. Happy hunting!