How to Invest Responsibly

All investors want their money to perform well, and until recently, that was the only thing that mattered. Now, many people want to invest in ways that contribute positively to the world, or at least in ways that do not harm others or the environment. Based on a 2005 study by The Social Investment Forum, $2.3 trillion fell into the category of Socially Responsible Investing (SRI), or about 13 percent of the total market. Here are three popular ways to invest in a socially responsible way.

Instructions

Difficulty: Moderate

1. Decide what is important to you, and then screen companies for similar attributes. You might screen for things like human rights, the use of nuclear power, ethnic and gender diversity, or alcohol and tobacco products, among others. Screening is by far the most popular way for investors to approach socially responsible investing.
2. Set out to have your voice heard. For example, if you feel strongly that the automobile companies should devote more of their resources to increasing gas mileage, buy shares in one and actively campaign for changes as a shareholder.
3. Support your local community by investing in companies that have an impact on your life. Let’s say your local utility company is on a mission to reduce the amount of pollution it generates. Not only is it good business in the long term, but it will positively affect the quality of your life and that of your neighbors.
4. Do well financially and still pick companies that are aligned with your views. Your success depends on the investments that are selected and the economy. Some investors believe that by avoiding companies with questionable practices, they can avoid losing money. A company that pollutes, for example, can be hit with large fines. And those fines can impact the bottom line and drive down the stock price. As with all investments, research is very important.

Tips & Warnings

• Socially responsible investing (SRI) is no longer a curiosity; it has become a mainstream investment opportunity. In fact, major investors like pension funds are proactive in this area, so it’s not just a group of social investors deciding to work this way. There are about 200 SRI-focused mutual funds. SRI funds list their screens, so you can consider ones that match your personal values.
• Be sure to read mutual fund prospectuses carefully, and understand all risks and fees before you invest.