Socially responsible investing isn’t all peace, love and hugs—these companies and funds pace (and can often beat) broader-market returns. The strategy, which dates back hundreds of years, considers how a company’s business practices affect society as well as what it nets financially. Intrigued? Here are two ways to get started:
Join a group
Socially conscious mutual funds pool securities that meet certain criteria around practices such as product safety, corporate governance and workplace conditions. Many exchange-traded funds (ETFs) track industries in the same manner. Look to The Forum for Sustainable and Responsible Investment, which can help decipher what sorts of “sin investments” various funds do or don’t contain.
Keep in mind: While you can choose your funds, you can’t choose what’s in them. That means you’re buying into someone else’s view of what “socially responsible” means. Creating your own mix (see below) can grant you greater flexibility. Also, be aware that these funds can carry higher transaction fees.
Choose your own mix of stocks
Negative screening can be a good place to start. This is a process of avoiding any investment in a company that’s engaged in a practice you may see as undesirable, such as selling tobacco. Conversely, positive screening is actively investing in companies you feel are doing good work, like those in the green-energy space. Doing a little Googling about lawsuits or work conditions can help you dig up dirt on a company’s practices.
Keep in mind: It might be tough to reconcile “good” and “bad” companies. Some organizations have their hands in a lot of different industries. Others might have a blip on an otherwise good record. Your selection of companies and stocks should ultimately come down to which beliefs matter most to you.
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