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Tuesday, November 6, 2012

Do You Care Where Your Money Is Invested?

If you care about social issues and such as it relates to investing, there are two basic schools of thought.  One is to do the best you can investing and then donate to the causes that are meaningful to you, and the other is to invest in socially responsible companies.  The first approach is obviously easier but may cause you to toss and turn as you see visions of companies producing cigarettes, military hardware, and engage in practices you view as destroying the planet and even unethical.

The second approach is a bit more challenging.  The easy way out is to use a socially responsible fund. By googling "social responsible funds," you can get a wealth of information on funds meeting various criteria.  They have periods where they outperform the market but, in general, have underperformed a bit.  One reason is that they tend to be high-priced in terms of expense ratios - understandable in that they require quite a bit of research and fairly intensive screening.

There are other ways to approach the problem, for those willing to do their own research, and they are laid out neatly in the book Low Fee Socially Responsible Investing by Tom Nowak.  The book recommends different approaches for various size accounts as well a screening approach.  Useful, also, are a databases for screening criteria.  The book can read in a weekend.

Here is a podcast of an interview of the author Tom Nowak by Jim Ludwick of MainStreet Financial Planning, Inc.


  1. I have often struggled with this. I don't invest in Dow Chemicals, yet have no problems investing in PM. Can't give a logical answer why - I have some companies blacklisted on personal preferences. I try not to rationalize this.

  2. Socially responsible investing is always an interesting topic to debate.

    My view is that if socially responsible investors systematically avoid socially irresponsible companies, then the effect should be that the cost of capital for these irresponsible companies will rise relative to other more responsible companies.

    This cost of capital effect may provide an incentive for companies to behave responsibly...but, it comes at a cost for the socially responsible investor since cost of capital is closely tied to expected returns. There will be a "sin premium" for less scrupulous investors who are willing to invest in irresponsible companies. In fact, there is some evidence of this in the recent historical data:

    IMO, I like your first approach. Keep costs low, invest as best you can, and donate to causes that are meaningful to you.

  3. Of course I do care where I invest my money. I make sure that there is ROI and it will greatly benefit me in the future. I'm still new in stocks so I just opted for mutual funds and I bought bonds as well. I'm also open in donating to causes that are close to my heart and really in need of help. I don't mind sharing what I've earned as long as the recipients deserve it.
    In line with investing, I'm also looking into insurance. For me, it's wise to prepare for your future and find a coverage that will handle my health and long term care needs sooner or later.
    It's a bit expensive but I hope this can help me bring down my premiums and enjoy more benefits, rates of ltci