Looking for a Way to Invest According to Your Values?
Dear Carrie: I'm fairly new to investing and want to choose companies that support causes I care about -- such as the environment. Is this a good idea? -- A Reader
Dear Readers: As Kermit the Frog says, it's not easy being green. But for today's investors, it's easier than ever to invest green. That's because increased awareness and socially focused investments are giving investors the opportunity to support causes that are important to them through their portfolios. And it's not just the environment. Investors today can choose a wide variety of social issues to support -- from clean technology to racial equity to gender diversity and more. And it's an idea that's gaining traction.
Investing according to your values is broadly called socially responsible investing. You'll also hear it referred to as environmental social governance, social choice, socially conscious investing, impact investing and sustainable investing. For this column, I'm going to call it SRI.
But what it's called is less important than the fact that investors of all ages and economic levels, whether experienced or just starting out, can use SRI as a strategy to invest their money while making a positive difference. Here are some things to think about as you decide if this is the right approach for you.
SRI Goes Beyond Risk and Return
Traditionally, risk and return are key factors in choosing investments. And that still holds true for SRI. It's just that with SRI, the idea is to choose investments based on whether or not they align with your beliefs and values, in addition to considering risk and return.
So, you're still sticking with the fundamentals of investing such as looking at your time horizon, how you feel about risk, asset allocation and diversification and your long-term financial goals. You're just adding in another factor when considering which investments are right for you.
You Can Be Inclusive as Well as Exclusive
In the past, the primary motivation of socially aware investors was often to avoid investing in companies that conflicted with their values. For instance, they might actively choose not to invest in areas such as tobacco, gambling, firearms or alcohol. And that's certainly one way to go.
But now, many investors are also looking at what they can include in their portfolios. For example, they might want to target companies that fight climate change; preserve natural resources; provide opportunities for underrepresented populations; or have strong employment and community practices. And the good news is that now it's easier than ever to find such companies and support causes you care about with your investment dollars.