We are coming to the end of this SRI series today with the ultimate question: as an individual investor; can you make socially responsible investing choices while making money? In order to answer this question, I had to go back and look at what we previously discussed:
– What is SRI means and biggest Social Investment Indexes
– Socially Responsible Stock List That Pays Dividend
– My Socially Responsible Stock Portfolio (averaging a 3.5% dividend return)
In my most recent post last Wednesday, I was able to create an interesting portfolio in terms of growth potential and dividend yield. In fact, I am sure that this portfolio could compete with another one that didn’t use any ethical factors to invest. The portfolio was well balanced, with a low payout ratio, dividend growth and an interesting yield.
So in the light of the portfolio I have created based on several socially responsible and ethical investing rules, I think that you can make money and invest socially at the same time.
HOWEVER…
– I did find that the definition of socially responsible investments can be bent both ways. The inclusion of some companies such as Nike (I’m not sure but I thought they were still hiring in third world countries), McDonald’s (I don’t find it very ethical to sell junk food and tell people it’s *good*) or Canadian Oil Sand companies (do I really need to go further on this one?) is debatable. Then, the way the index can be created and calculated could lead you to “on the line” businesses that may not be the *best* ethical investments. The other problem is that, most of the time, the index creators are left with what the companies want to give them and do not have the time nor the resources to investigate deeper.
– It requires more time but not more returns. This is a fact when you want to add any factor to your investment strategy; more factors to analyze = more time required to buy a stock. If you are adding the SRI to your investing factor list, you will have to have more time in your investment selection process. You may simply cross reference your original list with the indices, but then again, some *errors* may be found on those lists .To be honest, I withdrew a tobacco stock that had fallen (probably mistakenly while playing with excel) into the SRI list. So once you have made your cross reference, you will have to look deeper at each stock to ensure they are part of “the good guys”.
– The definition of SRI is also a matter of perception. Some people may say that some oil sand businesses are greener since they recycle their products, since they developed another way of extracting the oil sand that costs less energy and so on. Some others will claim that banks are making unethical profits or have unethical governance rules. Where do you draw the line as an investor? This is the question you need to ask yourself before starting your investing journey.
Should a dividend investor consider SRI in his investing process?
I think that one should not penalize himself and make less money than he could but at the same time, investing in sustainable businesses makes more sense to me. I don’t really like the tobacco industry, but it’s not only because they sell cigarettes, but much more because I don’t see much potential for growth and way more potential in extra costs (such as marketing or lawsuits).
In the end, with resources becoming scarce (both natural and human resources), I think that investing in a company that cares about its community, the resources it employs and the way it manages its money will be a good investment choice
Love that conclusion Mike. You’re right. There is not a clear line to draw in those matters, but still is worth at least trying to invest in sustainable businesses. Being Socially Responsible in Investment could also mean being guided by your best personal values.
Personally, I believe in being socially responsible when investing money. I understand some people are more concerned about the profits than ethics but I feel there should be a balance.
If you need assistance determining where to invest, Terror-Free investing, also known as a type of Socially Responsible Investing is a relatively new form of investing that excludes from portfolios those companies that have identifiable business activities in countries that support terrorism. Over 600 companies recently have been identified as conducting business in countries designated as sponsoring terrorism. To receive information contact a “Terror-Free” financial planner at http://www.terrorfreeinvesting.com.
I tried out a socially responsible investing website the other day focused on social responsibility that gave me the ability to check whether my mutual funds held any companies that didn’t reflect my values. I screened for environmentally harmful companies, companies engaged in the tobacco industry and companies involved in the Sudan. But I think they had another 10-20 screens. It was free. They just advertised to me. I love these guys!