Socially Responsible Investing: Balancing Risk and Reward

Socially responsible investing in the practice of choosing securities based on the company's social impact. Socially responsible investors want to support businesses whose values mimic their own; for example, they may invest in green technology companies, non profit organizations, or those organizations that have a good record of contributions back to the community. When you invest with these goals in mind, you are often willing to compromise some degree of fiscal reward for the reward of engaging with ethical companies.

Risks of Socially Responsible Investing

Socially responsible companies may post lower profit margins than similar companies with less concern for their social impact. In fact, there is a practice opposite to responsible investing called "vice" stocks. These include companies engaged in firearms and weaponry, alcohol and tobacco and gambling. These companies tend to have very high profit margins, and vice investing can be extremely profitable. Particularly in a slow economy, socially responsible companies may lose some steam as contributions and community support wavers. Vice stocks tend to thrive even in slow economies. Therefore, when you invest with social responsibility, you have to be prepared to turn away from the "profit at all costs" agenda.

Rewards of Socially Responsible Investing

Thankfully, when you invest with a socially responsible agenda, you are not only concerned about profit. There are less tangible benefits to the practice. For example, you can effectively influence social change by putting your money only into companies that reflect the changes you would like to see. You are "boycotting" those companies that do not share your values. Socially responsible investors believe money is a powerful force, and they use this force to promote change. Further, you have the benefit of knowing your dollars will not be spent in a way you would see unfit.

Selecting Socially Responsible Securities

If you are interested in socially responsible investing, you can ask your broker about recommended securities. You can also choose an industry of interest and begin reviewing potential companies. For example, you may look into health care, education or green technology industries to search for companies listed publicly. To take the investment a step further, you may even research start up companies in these areas in need of seed capital. This is taking a step into venture capital, and these choices are often best handled by a venture capital firm. You can select a venture capital group that engages in the industries you find appealing.

Buying into Socially Responsible Mutual Funds

For the investor with lower capitalization, venture capital funds may not be accessible. Mutual funds are a great alternative. You can ask a mutual fund provider if the group has a socially responsible fund. Looking at the prospectus for this fund, you will be able to learn if the types of investments fit your definition of social responsibility. Of course, it is also wise to take a look at past earnings and performance of the fund. You can find all of this information in a prospectus or pitchbook and make your decisions accordingly.

blog comments powered by Disqus
Scottrade