Alternatives to Investing in Socially Responsible Funds

socially responsible

In Investing in Socially Responsible Mutual Funds, I explained that most socially responsible funds provide subpar returns compared to traditional funds. I also talked about how you may not agree with many of these funds’ definition of socially responsible. If you’d like to invest only in companies you support or try to achieve better returns than the mutual funds, consider these alternatives.

Pick Your Own Stocks: To find socially responsible companies, you can start by perusing the lists of companies included in the various socially responsible mutual funds. You could also check out the Domini 400 Social Index made up of 400 companies that meet selected social and environmen


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9 Responses to Alternatives to Investing in Socially Responsible Funds

  1. nanamom says:

    I also only use socially responsible mutual funds. WE make sure they do not invest in companies or funds that have tobacco, gambling, pornography, or alcohol. We get less return if you look at the financial part but we are doing what we believe the Lord would have us do.

  2. Jason says:

    I feel that “Socially Responsible” investing was developed by financial advisors for the express purpose of tapping into the money that conservatives and environmentalists were keeping out of the market.

    People invest in these stocks, or funds, with some belief that their actions will help that company and hinder other companies, but the truth is, like you said, it doesn’t matter to the company. The truth of the matter is that vice is profitable and that the government’s attempts to regulate vice is counter to the founding principles of this country. If you are investing for your long-term future, then the best avenue for your investing is in “vice” companies such as Phillip-Morris. The fact of the matter is that they generate some of the best returns around.

  3. Debbie M says:

    Some of my least favorite companies appear in socially responsible funds in spite of things like monopolistic behaviors, so I don’t go there anymore.

    One advantage of those funds, though, is that they have clout when speaking to business leaders. The guys in charge of those funds can tell a company head that if only the company would stop or start doing something, the fund would love to invest in their stocks. And they get some real results this way.

    If you are buying your own stocks, you can also write to the company as a stock holder and request some changes. And as a stock holder you get voting rights, and if anything relevant ever comes up for vote, you can have some say.

    Mostly, however, I agree that the easiest and best ways to make a real difference are to research where and how to spend our money and how to donate our time and money.

    If people quit buying a company’s stock, the price will plummet, but that won’t drive the company out of business. It just means they can’t sell more stocks to get more money and that the bigwigs who get paid partly in stocks will get less money. And all of that is extremely unlikely because giant mutual fund companies and retirement fund companies will snap up whatever you won’t take.

    But if people quit buying a company’s products or services, that company will go out of business. And if you pay more for better products and services, more people will be willing to provide those.

  4. Georgia says:

    I think that avoiding the market all together is the best way if you want to be socially responsible or picking individual stocks you believe in.

  5. anonymous says:

    I agree with Jason. Sorry to be blunt, but SRI is a product invented by Wall Street to make money for Wall Street at the expense of naive investors.

    I object to this language: “If high returns are more important to you than investing responsibly, stick with the wide array of high quality traditional index funds that offer low expenses and sound returns.”

    As you’ve pointed out in this article, investing in socially “responsible” companies bears no relation to “investing reponsibly”. In fact, based on the diminished returns investing in socially responsible companies correlates more closely to investing *irresponsibly*. It would be irresponsible of a financial advisor to recommend these funds to their clients.

    You are far better off investing in an index fund and using the increased profits you reap over a SRI fund to buy products from socially responsible companies.

  6. Barry says:

    Study after academic study has proven that investing in socially responsible companies and/or mutual funds does not mean sacrificing returns. In addition, the screening out of irresponsible companies is only one small component of socially responsible investing (SRI). Positive screening, e.g. investing in alternative energy, organic foods, etc. is a very large and important component of SRI. Moreover, shareholder advocacy efforts by the SRI community have made significant inroads into changing corporate behavior, particularly in Europe. Finally, and maybe most importantly, SRI includes community investing/microfinance which provides needed capital to underserved communities and entrepreneurs both domesticallly and abroad.

  7. Lance Wilcox says:

    There are two assumptions at work in this article and the comments, both of which are simply false and need correction. (1) SRI was emphatically not invented by financial advisers to increase sales. They originally appeared in reaction to the divestment from South Africa in the 1970s and have gained adherents since, prompted in part by the egregious behavior of many American corporations (ExxonMobile, Wal-Mart, the tobacco industry as a whole) and, more recently, by concerns about the environment. Since most are no-load, in any case, most financial advisers gain nothing by them. (2) The returns from SRI are, as studies have repeatedly shown, entirely on a par with those of non-SRI funds. Morningstar has nothing but praise for Pax World Balanced Fund, giving it five stars. There are socially responsible ETFs, furthermore, with expenses around 0.5%. I would agree, however, that you probably have more direct social impact by placing your savings in community service banks, like ShoreBank of the Self-Help Credit Union, than in stocks or bonds as asset classes. I use SRI funds in part because the thought of paying for retirement by profiting off the likes of tobacco companies makes my stomach turn.

  8. Cliff says:

    Thank you for having this discussion.

    I have felt for over 15 years that it is important for people to align their money with their values from the way you shop to the way you invest. It helps create the kind of world you want to live in.

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