How to Invest "Ethically"?

[TopHatFox]

I almost submitted my Roth IRA application with Vanguard last weekend, almost placing $5500 in Vanguard's Total Stock Market Index Fund...but I saved the application and X-ed out since this fund includes companies like Coca-Cola, Exxon Mobil, and other companies inconsistent with many principles of ERE (and my own principles), including unprocessed food, alternative energy, etc.

Have any of you thought about investing "ethically" while also making a profit? Ethically to me means investing in companies that farm organic local food, practice fair trade, promote animal rights, treat their workers humanely, produce predominantly alternative energy, and many other criteria.

At the moment, I'd feel inconsistent--hypocritical--if I avoid processed foods, animal products, and fossil fuels in my own life, but then I invest in the very companies providing these things.

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What do you all think? Is it justifiable to invest in companies who's products you avoid in your own life? Is it possible to invest in "ethical" companies and still make a profit? What are some quality resources you've found useful in learning how to invest "ethically"?

[teresajs]

If you Google "ethical index funds" you should be able to find some mutual funds to look into. Another option would be to purchase stocks in individual companies that meet your criteria. Make sure to compare the fees and returns though.

Personally, I've kept my investments in the Total Stock Market Index and 500 Index. Costs are low and profits mirror the market. I may not agree with all of the sheeple who stand on queue to buy the latest technology the same day it's released, but I'm not ashamed to profit from their poor choices.

[DutchGirl]

I try to invest ethically.

I live in the Netherlands. My money is mostly with the ASN bank, and their investments funds focus on avoiding companies that use child labor, and disregard human rights, and/or the environment.

I also have some money in the Triodos Bank, but they are based on Rudolf Steiner's thinking, and I think some of that is idiotic, and actually they fund some companies that I disagree with, so most of my money is with the ASN bank.

I put some money in local wind electricity societies; most are started and run by volunteers. The organisation has for example one or two windturbines and their members can put in money and get annual dividend. I've got 4 x 1000 euros in four different organisations.

Then finally I also invest in a Vanguard fund, the Vanguard SRI Global Stock Fund, based in Ireland; this fund focuses on Socially Responsible Investing (the SRI abbreviation). I think it's less strict than ASN bank is, but more so than other index funds. It was the best option for my retirement investing.

So this is what I do. You could try to find similar "ethical" banks / investment institutions / investment options in your own country. Or of course, if you have enough money, you could also pick your own companies and buy shares in them. The ASN Bank has a list of companies that it invests in, plus more information on "why" - this is in Dutch of course, google translate could help. http://www.asnbank.nl/particulier/wat-d ... fonds.html

[arrrrgon]

I enjoy drinking soda. I know it's horrible for me. I still enjoy it. People enjoy Coca Cola, so the Coca Cola stock has been a great investment for the past 50 years. I don't see how it's unethical or even hypocritical to invest in them. Coke has never claimed that they make a healthy product, nor have they forced anyone to drink their soda. Soda is meant as a treat. If people choose to drink it to the point that it makes them sick that's their choice. (I didn't research whether or not Coke is made with unfair labor conditions)

Also...Pepsi is better (for drinking that is)

[DutchGirl]

Hmm, arrrrgon, I think your reasoning is lacking. It seems like you just don't want to think about the consequences of you investing in a particular company or product. You want the profit, and you don't want to think about what you're doing to get that profit.

[arrrrgon]

I disagree DutchGirl. It's well within his rights to invest in any company he chooses. There are plenty of things that I consider unethical, but sugary drinks are not one of them. I'm simply saying that Coca Cola sells a treat. It should be treated like a treat. Also, if I choose to invest in a company I choose to know everything about that company. I would never turn a blind eye on any part of that company. If I'm morally/ethically opposed to something then I wouldn't invest in it either. I was just pointing out why I disagree on processed foods. It's just my opinion.

[bike_the_world]

I have debated this with myself for a long time. On one hand, how one makes a dollar can be seen to be moral or ethical (or not), and how one spends a dollar can likewise be seen to be moral or ethical (or not). My not lining up to buy a certain stock likely could slightly depress its share price (ever so little), but have no effect on the dividend it pays out. How we live our own lives often has little effect on how others decide to live their own. My riding a bicycle doesn't prevent another person from driving a Hummer, anymore than my not deciding to buy a stock is likely to have a meaningful impact on that company or other potential shareholders.

In an idealistic world, I try to imagine that the initial capital investment of buying shares in a company (take tobacco, soft drinks, alcohol, big oil sands) that yields a dividend that is NOT DRIPped back into said company, might be one way to redirect money out of the cycle that promotes the growth of said industry. It is also hard to imagine sitting happily and watching an industry like that crumble or recede (which would be the desired endpoint if it bothers you). That is a pretty hard thing to enjoy. If such practices took place on a large scale would it have any impact? Probably not, as substitution in any market seems probable.

On the other hand, each of us has much more control over how we spend each dollar as opposed to how each dollar we earn comes about (whether via taxation as a government employee, as an employee of big liquor, or as a shareholder). The ethics of spending to me seems much more tangible and measurable than any 'ethical investing', especially given the level of control.

If anyone can provide a decent set of guidelines, I would love to see them.

[anomie]

Hi,
For reference information, there are other threads in the forum on this very important topic.

For starters just in July this year:

"Ethical aversion to the market?"
viewtopic.php?f=3&t=5294

(I have no good response to this issue. Is a source of personal moral discomfit for me as well.)

[Dragline]

Neither do I, but like all ethical considerations, it comes down to a matter of personal preference, or choice of your ethics, if you prefer. Actual effects are more likely to be internal to the chooser rather than the world at large. For example, our local drugstores recently stopped selling tobacco products. Tobacco business at the local convenience stores is booming.

What an ethical quandary to some is a meaningless gesture or perhaps an opportunity for others, and vice-versa. The history of charging interest (or not) for ethical reasons provides an interesting example, and a whole sector of alternative financing arrangements exists on "no interest" principles.

The implementation of any such strategy requires research, but that should not be that hard in the days of the internet. You would probably need to invest in individual stocks and mono-line businesses though.

[Sclass]

Back in about 2000 I got scolded by coworkers for investing in Altria and Yum Brands. It was pretty beat up at the time and I thought it was a good speculation. I'm an ex smoker so I know the grip of that trash. I was also 40lbs heavier and addicted to trash food.

One outspoken guy said he wanted to invest in things that he can feel good about and that will make the world a better place. Great guy.

To that I answered I want to invest in what I think will go up. If you want to save the world, go and do it. Make a donation to a non profit like the American Heart and Lung Association. But if you want to invest, your goal is to make money.

So these guys who didn't like my investing ethics still work for HP. Hard working idealists in their 40s trying to sell their obsolete skills for an hourly wage. Indebted and frustrated, doomed to a high tech treadmill till their management discovers their ineffectiveness. They probably still don't get it. I bankrolled crack and I retired early.

My personal feeling is you have to keep these things separate in your head. I own big oil. Tobacco. Fast food. Big Ag. Mining. Coal fired generators. Payday lenders. Big pharma. Defense. I hate all that trash. I know it's our undoing. It's crack but it made money (I'm in no way recommending any of this now because it may have already seen its best days like Coke). Please, if you want to make money invest in what goes up. Look how hard it is to pick winning investments...do you think you're increasing the probability of success by adding a feel good constraint?

Figure out how to fix things when you have more money and power...if there's anything left to fix. Basically do what the Koch brothers do (except do good things) after you win.

[BeyondtheWrap]

Landlording is the obvious answer, but it's not as passive as other ways of investing.

P2P lending is another one.

[Chad]

I'm with Sclass on this. In reality, the vast majority of people don't have enough money/influence to move the needle on any large unethical stock or even on smaller companies. This means all you are doing is preventing yourself from making money, which hurts your cause.

Now, if you are these guys/gals your investment decisions matter a little more.
http://www.nytimes.com/2014/09/22/us/he ... .html?_r=0

[Dragline]

Yes -- the other big impact players are large institutions, such as universities, who can not only "put their money where their mouth is", but also draw attention to their chosen issues.

This was a big issue back when I was in school with respect to investments in South Africa before the end of apartheid.

[Sclass]

This was a big issue back when I was in school with respect to investments in South Africa before the end of apartheid.

Whoa...that was awhile back. Now that was when you wanted to buy Coca Cola. "New Coke"! I can remotely recall the debate on the High school campus whether students should drink Coke or not because of Apartheid.

[jennypenny]

When I buy individual stocks, I don't invest in any companies that make me uneasy. That said, I'm a total hypocrite since I sometimes indulge in things like Fritos and even the occasional cigarette.

I also invest in Vanguard index funds which, in turn, invest in all kinds of evil companies. It's convenient because they make me money but give me enough ethical breathing room to say "Well, I wish Wellington didn't invest in such companies, but what can you do?" It's so much easier to pay Vanguard to shoulder the guilt for me.

[GandK]

I prefer to grow my money in the most effective way, then use it ethically for purchases when it is withdrawn. Through index funds I won't own enough stock to change the world, but if I build up a fortune and then deploy it into areas I want to support, I might make a difference. There's also a joy in taking profits from a company that produces things like oil or cigarettes and spending those profits on improving the lives of others.

[Ydobon]

Landlording is the obvious answer, but it's not as passive as other ways of investing.

P2P lending is another one.

That might be the case in some countries with relatively cheap land (for example, the USA), but I definitely wouldn't feel like I was making an ethical choice becoming a landlord in the UK. A national fascination with 'buy to let' is one of the factors that has helped to push house prices here up to levels that are completely ridiculous. As an example, we paid c. £136,000 for a large (but old) 2 bedroom flat/apartment in a reasonable, but slightly down-at-heel area. The deposit for our home would have bought me a house outright in parts of the USA, I blame landlords for some of that.

For people discussing ethical index investing, I am sure that there is convincing evidence that it's not significantly less effective than 'more inclusive' index investing. I'll post a link if I can find it when I get home.

[almostthere]

Depends on how you define ethical of course. Individual stocks as mentioned previously.

There was a great example in YMOYL about someone only buying munibonds from their home state of vermont.

I bet if you learned enough about it, there might be some ways to to get deals in the market for munis. From what I understand, the quants and computers have not made it perfectly efficient yet.

Another market with nutty inefficiencies are closed end funds. The morningstar CEF board has some folks that seem to have interesting strategies for trading that market.

(An aside, I was playing with some code this morning looking at the correlation of my munibond cef with the rest of my portfolio, wow, it had nothing to do with anything else).

After every bonds scare, open ended funds end up selling at bad times, and I always read about people with cash loading up on individual bonds.

Bonds pay income too. Mmmm...so nice to get a monthly check. Gives me something to look forward every month.

[jacob]

Inconsistent with ERE principles? Wait, what? As far as I know there aren't any ERE principles when it comes to investing other than: Be at least somewhat informed about what you're doing! That [lack of principles] goes for what and what not to invest in and how to run a company for that matter. Just to make that clear. Some day I might write an investment book, but until then there are no [official] ERE principles.

[theanimal]

Joshua talked about socially responsible investing on today's Radical Personal Finance podcast. See:http://radicalpersonalfinance.com/75/