Want to Better the World? Try Socially Responsible Investing

By Markets LearnVest

Recycling, donating to charity, eating organic, signing petitions—there are many ways you make a difference. But none of them was ever this profitable.

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Welcome to socially responsible investing, a growing trend in which investors only buy investments that align with their values.

That way, you can feel good about your money being used for good and not for evil (or gambling, or polluting, or child labor, or … ).

Nearly one out of every eight dollars managed by professional investors today is involved in socially conscious investing—and every investor is different. That’s why, from green funds to “no-cigarettes-or-alcohol-allowed” policies, there’s a type of social investing for every persuasion: liberal or conservative, rich or modest means, active or passive.

So if you’re ready to get your investments lined up with your life, read on to find out how you can become a socially responsible investor.

Choosing Companies You Respect

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At its most basic form, socially responsible investing means making sure you agree with the practices of every company in your portfolio. Hypothetically, if you were the kind of investor who holds individual stocks (and we don’t recommend you become one), you would, when choosing stocks, consider the “triple bottom line”: people, planet, profit.

That means you would ask yourself not only how profitable the company might be, but also whether it treats employees and the community well, and whether it refrains from polluting or producing dangerous products, among other considerations.

Say you were considering a cigarette company, an oil company and a personal care product company for your portfolio. All things being equal, if you are a socially responsible investor, you would probably go with the personal care product company. However, we don’t recommend that LearnVesters invest in individual stocks because it’s risky. Anyway, there’s a much easier way to get in on this game …

Our Favorite Way to Consciously Invest

We recommend investors lower their risk and diversify their investments by buying shares in mutual funds or ETFs. And just as there are socially responsible companies, there are mutual funds that invest only in such companies. Many socially conscious funds avoid the trifecta of alcohol, guns and cigarettes. Others invest in companies that are working in green tech and/or alternative energy. There are even funds that will match up to your religion.

If you are investing through a brokerage, you can easily find socially conscious funds listed right alongside conventional funds. And Morningstar, a trusted source on mutual funds, has a lot of information on socially responsible funds and rates them just like others so you can make an informed choice.

What About Performance?

You are probably wondering whether socially responsible funds and companies do as well as their less deliberate counterparts.

One way to measure is by comparing the performance of the KLD 400 Social Index Fund, which tracks 400 socially responsible companies, to the S&P 500. Though past performance doesn’t guarantee similar future performance, in the past five years the KLD has actually outperformed the S&P 500. So, investing with an eye toward your values doesn’t mean you’re giving your money away to charity–it can still be a wise financial move.

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