Tuesday, September 9, 2008

Socially Responsible Investing

Socially responsible investing is kind of a catch all phrase that covers a wide variety of investing. However, in a nutshell the term socially responsible investing means to invest our money in companies and products that do not harm other people or the environment. These "sin stocks" can include anything from General Dynamics (military products), Anheuser Busch (beer), or Reynolds American Inc (tobacco). I am not going to debate whether these things are good or not - that could take days and we would never get anywhere. I am going to talk about the choice you as an investor need to make with respect to these companies.


The choice is yours and yours alone - do you invest in these sin stocks or not? This can be a difficult decision if an investor looks at the performance of the stocks that make up these so called socially irresponsible stocks. For example, a quick look at the performance of the VICEX, a mutual fund that invests in sin stocks, shows that these stocks can reward investors substantially above the S&P500.



Even with this performance, an investor needs to be comfortable with the investments they hold. If they are not, then irrational and emotional decisions can be made which is bad for a portfolio. If you are an index or mutual fund investor then avoiding these stocks can be difficult. Take a look at what securities make up that index or mutual fund - chances are some of these stocks are on that list. As an index or mutual fund investor you will need to resign yourself to the fact that your portfolio will hold these stocks.

However, if you invest only in individual stocks, then avoiding these stocks is easy. Just do not buy the companies. Here are some questions I put together in another post to help the individual investor make that decision on investing in sin stocks or not:

1. If you buy this stock, will you be comfortable with the business they are in?
2. If you buy this stock, will you be proud to own it?
3. Are you comfortable with the negative social stigma the company may have?
4. Does investing in this stock go against your moral or spiritual beliefs?

When you put your hard earned money to use, these questions are good to consider every time. Good luck in your decision!

This article was written by The Dividend Guy. You may email questions or comments to me at info@thedividendguyblog.com.

3 comments:

  1. I too stay away from certain sin stocks such as tobacco, sex, alcohol etc. It all depends on the person but since I don't really care about the companies and what effect they have, I would prefer to invest my money in "better" areas.

    Nice point to bring up.

    ReplyDelete
  2. Hmm, good topic.

    1.) Yes
    2.) Yes
    3.) Yes
    4.) No

    It's all in the eye of the beholder I suppose. Companies such as McDonalds, KFT, and KO can also deteriorate your health. Are they considered sinful?

    ReplyDelete
  3. Yes, knowing what we know about the junk that goes in McDonalds' food, I don't eat there, I wouldn't let my kids eat there - I wouldn't think it socially responsible to buy their stock.

    ReplyDelete

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