ETHICAL INVESTING: INSTRUMENTS FOR ETHICAL INVESTING
The investment instruments available to ethical investors are similar to those available to all other investors, including bonds, exchange-traded funds, hedge funds, mutual funds, real estate, and stocks.
Socially Responsible Bonds
Some bonds are socially responsible. Ethical investors can consider corporate bonds or municipal bonds. One can invest in bonds through ETFs and mutual funds. Bonds help diversify a portfolio based on stocks and can ease fluctuations in its value.
Socially Responsible ETFs
Morningstar.com says it makes sense investors favor ETFs over mutual funds because expenses are the most trustworthy indicator of mutual fund performance. Socially responsible ETFs are collated together in a similar way as socially responsible mutual funds, but trade like stocks. Hence, an individual can begin investing in ETFs for as low as the cost of a stock, inclusive of trading commission. ETFs can also be more tax efficient than mutual funds, especially if investing beyond a retirement account.
These funds become an option if an individual is a SEC-accredited investor. Hedge funds frequently employ high-risk techniques, seeking to attain high returns. Certain funds concentrate on shareholder activism. If you are looking for the kind of strength in numbers which can convince a corporation to change its attitude, a hedge fund may be the answer. Hedge funds charge expensive management and performance incentive fees, though.
Socially Responsible Mutual Funds
This instrument will invest in any entity which meets some ethical criteria. For instance, if you only purchase one share of a mutual fund, you will own a small percentage of several stocks, unlike when you obtain a portion of a stock, you are only exposed to one firm. When investing in a socially responsible mutual fund, an investor either needs to trust the company’s word the fund meets the ethical criteria it says it does or research on the fund diligently. But it is advisable to research a few mutual fund firms thoroughly, and when you find one or more you can trust, let them do the work.
If you are meticulous about your investment choices, real estate may be a perfect option. The advantage of real estate investing is it gives you a huge control over the property to invest in and manage it. Especially for environmentally conscious investors, the investment can be a sensible choice. Owning a property allows you to make decisions encompassing the environment and won’t require you to contend with corporate governance or sweatshop labor. This investing also provides an avenue to support community development. But in some cases, government regulations get in the way of private property rights. Before acquiring a property, check its local, city, state, and federal regulations. Or, if the idea of property ownership is not appealing enough, or you have insufficient money to get started, you may invest in real estate stocks or real estate investment trusts.
Socially Responsible Stocks
A typical investor will review the firm’s annual reports and perform ratio analysis to figure out if a certain stock has profitability potential. He will also keep abreast of the entity’s current performance, as well as its new developments to find out if any changes confirm purchasing more stock or selling existing ones. Aside from the figures, an investor needs to get into all the details pertaining to a company.