A Look at Socially Responsible Investment Performance

Socially responsible investment options can perform as well as any other investment on the books. However, the benefits from these investments may partly depend on the quality of the market at the time they are made. Generally speaking, social responsibility is most popular when economic times are profitable. Socially responsible companies take their biggest hit when the economy sinks, as customers and investors alike see profit as more important than social impact during a recession.

Socially Responsible Investment Options

Socially responsible investments can take a wide range of forms. In fact, it is the individual investor who decides what is "socially responsible." Some will consider emerging market investments responsible, while others will favor investments in green technology. The main factor determining whether the investment qualifies as responsible is the ultimate purpose. If the purpose is both to gain profit and to impact a change the investor deems positive, then the investment qualifies. For example, an investor may find any investment into a promising small business venture socially responsible if that particular investor believes the development of small business has a positive impact on society.

Socially Responsible Fund Performance in a Bear Market

Unfortunately, all the good intentions of social responsibility can quickly be lost when the market turns sour. It is much more popular to invest in charities, arts and social development when you have excess profit. Non profit organizations are some of the worst impacted during a recession. At times when profits are narrow, more customers and investors will put their money into a profit-generating platform. For example, less companies will spend the extra money to purchase recycled paper in a recession than would purchase the paper if they had extra profit in a booming economy. This means the recycling company and its socially responsible investors may lose money.

Sin Stocks in a Bear Market

Often, the exact opposite performance arises out of sin stocks in a recession. Sin stocks include investments in any area seen as a vice, such as alcohol, tobacco or firearms. The investors in these stocks are simply looking to turn a profit, and it is often easier for them to do so when the economy is suffering. Profits on bars and alcohol sales remain consistent or often rise during a weak economy.

Managing Expectations on Socially Responsible Fun 

Essentially, a socially responsible investment can be just as profitable as any other form of investment. The investor must take into account the economic tides that are occurring on the general market to get an idea of the profit expected on the investment. An education company aiming to assist low income families, for example, will never gain as high a profit as an education company selling services to the children of the wealthy. However, the socially responsible company can still turn a profit, and this is what the investor should be looking for. Further, socially responsible investors who are looking for two results, profit and social change, should measure success based on the attainment of both these factors. 

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