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January 28, 2020

What is Ethical Investing?

What would you do if you found out that the fund you have money in is invested in companies that produce morally divisive goods? Goods such as tobacco, gambling, weapons, and even sugary drinks can be morally questionable for some people.

Today we talk about what ethical investing is and how you can invest your money with a clear conscience.

Do You Know What You’re Invested In?

A lot of us are invested in funds. It is, after all, a great shortcut for diversification. You don’t have to put in the time to look into individual companies to invest in nor do you have multiple stocks to watch closely.

Let’s say you decide to invest in an index fund like the S&P 500. In one transaction you’ve invested in 500 companies split across multiple sectors that have been studied and hand-picked by professionals.

Other funds have a larger collection of companies going into the thousands. And herein lies the problem:

With these massive numbers of companies in individual index funds, do you actually know what you’re investing in?

Is your money funding something that’s against your beliefs?

Money Is NOT The Root Of All Evil

Money is a tool. A means towards an end. It has no moral stand since it has no opinion, to begin with. But money can finance activities that can cause harm to others. Just like any tool, it can be used to either harm or benefit others.

In the context of investing, each dollar is a vote for the company that you put it in. For every stock of a company that you buy into, you fuel the activities that make that business survive and grow.

As more people buy into a company’s stock, it’s like the market is telling that company to “Keep doing what you’re doing. We’re supporting you!” People are now using this dollar voting power to invest in things aligned with their beliefs and, according to their personal morals, do more good in the world.

What Is Ethical Investing?

Ethical investing is letting your personal ethics and beliefs guide your investing decisions. Rather than prioritizing getting the maximum profits, you’re aligning your strategies with your personal values.

Ethical investment strategies may be rooted in beliefs around religion, the environment, politics, business practices, sustainability, equality, and society in general.

This is very different than just investing for profit or investing for retirement.

Ethical investing is also the hot, trendy new item these days. More and more fund providers have been getting on the bandwagon with the emergence of funds, which often have labels like “responsible,” “green,” “ethical,” or ESG (Environmental, Social, Governance).

Why Ethical Investing?

  • To Take A Stand

A dollar is a vote and pouring your dollars into a company is a good way to ensure the growth of that company. By choosing specific companies to support, your investments allow you to make a stand for what your beliefs are and what businesses and business practices you think should continue.

  • To Avoid Harming Others

When you invest in an ethical or responsible farm there’s a lower chance that your money will cause harm to others. By selecting investments that avoid sin stocks, for example, fewer people will be getting into debt, affecting their own health, and getting shot.

  • Being Hip

Let’s face it, being socially, environmentally, and politically conscious is in. It’s no longer a niche and that’s a good thing. You can be with the in-crowd and be proud that you’re investing in socially laudable things.

How To Ethically Invest

First, you have to define what you believe in and what you’re against. Ask yourself how you want your money to affect the world and what types of goods and services you want to avoid supporting.

Then you can start picking individual companies or you can select ethical funds.

Picking Individual Companies

This means buying stocks of individual companies.

Look for publicly listed companies that align with your personal values. Look for companies that produce goods and services that are ideal. Check their mission statement, publications, and environmental impact reports, if any. Also, look at recent news and development around the actions of that company.

It pays to dig in a bit deeper because a company’s self-promotion is not a great source of truth. Look for third party information.

If you find a company that aligns with your beliefs then, congratulations, you can start ethically investing!

Picking Funds

There are different types of funds that you can invest in.

  • REITs & Asset Class Funds

These funds invest in specific types of assets like real estate, biotechnology, etc. They don’t necessarily invest in company stock but may invest in the assets directly themselves.

DiversyFund’s Growth fund is a great example of this. The fund is used to buy properties that the company then improves the properties, which raises the value of the asset and the location it’s in.

Some funds invest in the stock of companies that are within that asset class. So if you’re interested in improving agriculture, for example, find a fund that specializes in that asset class.

  • Mutual Funds

Mutual funds are comprised of companies that are handpicked and managed by the fund manager.

The good thing about these is that a fund manager’s ethical funds are usually easy to find if they have one. They will be explicitly labeled as an ethical fund.

  • Index Funds

It would have been difficult to invest ethically in index funds a few decades ago since you had to dive deep and research the underlying companies in each fund. That can range from researching hundreds to even thousands of companies.

Today, it’s a lot easier with popular platforms like Vanguard and Schwab that have dedicated pages for funds for ethical investing.

Letting Your Beliefs Guide You

Investing can be a wonderful way to ensure a brighter future for yourself and your family. By investing ethically and being more strategic about what you place your money in, you’re building a more ideal world and effecting change on a much larger scale.

DiversyFund’s Belief

At DiversyFund, we believe in equal investment opportunities for all. Alternative investments in real estate have historically only been available to accredited investors or large financial institutions. We changed that. We brought everyday investors the opportunity to create wealth and live a better life through investment. Providing Americans with access to opportunities, education, and resources to build their wealth is why we created DiversyFund.

Our mission is to empower everyday investors by giving them the same wealth-building opportunities available to the 1%.