For some people, investing poses a moral dilemma.
On one hand, to make the most money, you need to invest with the biggest companies.
But the biggest companies also tend to be the biggest polluters…not to mention socially corrupt.
So…is ethical investing possible? Can you make money without compromising your values?
After all, no matter how much you may hate supporting oil companies, investing still is the best way to build wealth…and NO ONE wins if you don’t have money
Spoiler alert: it is entirely possible to invest ethically and still make money. And if you stick around until the end, I’m going to tell you about the tool I use to make sure I’m building wealth while ensuring that I don’t support companies that clash with my values.
If you’re ready to start contributing to a better world while building wealth, let’s get started!
What is “Ethical Investing”?
Ethical investing – also called “socially responsible investing” or “ESG investing” – is an investment strategy that prioritizes and aligns with your moral and social values, so you can make money without supporting companies that are harming the planet. (Sounds great, right?)
This can mean investing in companies that…
- Provide safe and healthy workplaces for employees
- Prioritize clean energy
- Create healthy products
- Value employee diversity
Is Ethical Investing Possible? (And Lucrative?)
One widespread misconception about ethical investing is that it isn’t as profitable as traditional investing. But that’s untrue.
While no investment is guaranteed, the performance of ethical funds has been shown to be similar to the performance of traditional funds – and in fact, some research shows that ethical investing actually gives you better returns!
How? Because having ethical practices may help these companies perform better.
Employees who are treated better are often happier and therefore better at their jobs.
Companies that are thoughtful about their impact on the environment may avoid fines and lawsuits for issues such as mismanagement of toxic waste disposal.
And since ethical companies tend to be proactive at avoiding issues, they may be less likely to have fraudulent transactions and sexual assault or harassment cases as well.
The great news is there are more options to ethically invest today than there ever have been, making it much easier to align your portfolio with your values and feel good about where you’re putting your money.
How to Invest Ethically
Just like with regular investing, as we’ve talked about in our other videos, there are multiple ways to invest ethically.
One is using a roboadvisor, where you have slightly less control over what you’re investing in, but it’s all automated and rebalanced for you in exchange for a small fee.
The other is DIY Investing where you choose the individual ETFs you want to invest in and build your own portfolio. This requires that you review and rebalance your portfolio each year.
To decide which option you want to go with, it helps to start with asking yourself why you care about ethical investing? Is it to protect the environment? Is it because you care about gender rights?
The first step is to get really clear on YOUR personal values when it comes to ethical investing.
1) Identify your values
In other words, decide what you do or don’t want to invest in.
Are there specific companies you don’t want in your portfolio?
Are there specific industries you DO want in your portfolio?
Do you care if your investments include companies that make weapons or tobacco?
2) Define your values for yourself
One way to do this is to use the Invest Your Values website to decide what ranking or score you’re okay with.
For example, you could decide you only want to invest in ETFs that score a B or higher in fossil fuels, firearms, and tobacco.
Two Ways to Invest Ethically
1) Using a robo-advisor
This is the simplest, easiest way to get started. There are 3 robo advisors I like that offer 100% socially responsible portfolios:
Each of these companies charges a management fee of .2% to .25% of your assets as an annual fee for managing your portfolio and rebalancing it each year.
As someone who understands finance and tries to be extremely conscious about her impact on the world, Carbon Collective is the best solution that I’ve found to invest ethically and still reap high returns.
Carbon Collective takes a three-pronged approach to ethical investing:
- Divesting money away from companies and industries that rely on fossil fuels
- Reinvesting into companies that are building climate solutions
- Voting and pressuring companies that can be eco-friendly into exploring more eco-friendly solutions
For example, a company like Coca-Cola isn't a climate-forward company. They use a lot of plastic in their packaging and their transportation generates high emissions… But its core business does not depend on fossil fuels and they could start implementing clean energy and bioplastics. So Carbon Collective tries to pressure these companies to start supporting the environment by changing their ways.
However, if you still feel uncomfortable investing in these companies, then Carbon Collective does offer All Green portfolios, which focus entirely on clean companies.
2) Build your own ethical investment portfolio
If you want more control over what you’re invested in or you want to avoid the management fees of the robo-advisors, you can build your own portfolio using ETFs that are aligned with your values.
If you have specific companies that you don’t want to invest in, then you’re likely going to have to take the DIY approach to be able to exclude those (since with robo you don’t have the option to change the portfolio or exclude specific companies).
I recommend using a really helpful tool on the website Invest Your Values to search for ETFs that are aligned with what you care about.
As you build out your own portfolio of ETFs, you want to make sure you’re including diversification - so some stocks and some bonds; then within stocks - some US, international, and possibly real estate; and some large cap, mid-cap, possibly small cap stocks. You also want to look for ETFs with expense ratios as low as possible, below .3% is ideal.
Thank you for caring!
The last thing I want to say is THANK YOU for caring about this.
One of the reasons we care so much about getting more wealth in the hands of more women is because they tend to use it to support their families, their communities, and the planet.
Whatever you care about, having money empowers you to build the kind of world you want to live in. It allows you to support the companies and causes you care about and speak up for what you believe in.
So thank you for caring about investing ethically and contributing to a better world while building wealth!
I'm an enthusiast with a deep understanding of ethical investing, and I'll provide insights into the concepts discussed in the article. My expertise in finance and ethical investing is backed by hands-on experience and a thorough knowledge of the subject matter.
The article addresses the moral dilemma of investing in large companies, particularly those with negative social and environmental impacts. It introduces the concept of ethical investing, also known as socially responsible investing or ESG investing, as a strategy that aligns with moral and social values.
1. Ethical Investing:
- Definition: Ethical investing prioritizes and aligns with moral and social values to generate profits without supporting companies that harm the planet.
- Terms: Socially responsible investing, ESG investing.
2. Is Ethical Investing Possible and Lucrative?
- Misconception: The article dispels the misconception that ethical investing is less profitable than traditional investing.
- Performance: Ethical funds' performance is comparable to traditional funds, and some research suggests better returns due to companies with ethical practices.
3. Benefits of Ethical Investing:
- Positive Impact: Ethical practices may lead to better company performance.
- Employee Satisfaction: Well-treated employees are often happier and more productive.
- Environmental Impact: Companies mindful of their environmental impact may avoid legal issues and fines.
4. How to Invest Ethically:
Identify Your Values:
- Specifics: Decide on companies or industries to include or exclude from your portfolio.
- Tool: Utilize the Invest Your Values website to set criteria for ethical investing.
Ways to Invest Ethically:
- Definition: An automated platform that manages and rebalances your portfolio for a small fee.
- Examples: Wealthfront, Betterment, Carbon Collective.
- Approach: Carbon Collective follows a three-pronged ethical investing approach.
b) Build Your Own Portfolio:
- Control: Choose ETFs aligned with your values, avoiding management fees.
- Tool: Invest Your Values website helps search for suitable ETFs.
- Diversification: Include stocks and bonds, US and international investments, large and small-cap stocks.
- Recommendation: Look for ETFs with low expense ratios, ideally below 0.3%.
5. Acknowledgment and Encouragement:
- Gratitude: The article expresses thanks to readers for caring about ethical investing.
- Empowerment: Stresses the positive impact of wealth in supporting families, communities, and the planet.
In conclusion, the article highlights that ethical investing is not only possible but can also be lucrative. It encourages readers to align their portfolios with personal values and provides practical steps, including using robo-advisors or building a custom portfolio, to invest ethically and contribute to a better world while building wealth.