If you and your family live your lives according to firmly held beliefs, then the concept of ethical investments is something that you really need to think about. After all, one of the most common things you hear when it comes to important social or environmental topics is that as individuals, anything we do is like a drop in the ocean.
It is true, of course, that large companies can make far more of an impact, whether it is in terms of fair trade in developing nations or reducing their carbon emissions. However, if you think about it from an investment perspective, if we do not follow an ethical investment strategy, we can end up contributing more harm than good. After all, what is the point of cycling to work or buying fair trade coffee and at the same time holding shares in a company with shocking carbon emissions and that sources its materials from sweat shops with poor human rights records?
Ethical investment portfolios
If you hold a few stocks and shares, you probably have enough to think about checking the financial trends and indicators, without starting to delve into the company’s details to check their stance on the ethical topics that are important to you. Fortunately, you don’t have to. Investment brokers know what an important topic this is to everyday investors, and this website provides a range of financial products designed to meet those standards.
You will see that they offer a range of different investment portfolios depending on your particular ethical standpoint. For example, some focus on companies with an exemplary green record, while others use negative screening to exclude what are known as sin stocks. These include companies in the alcohol, tobacco, gambling or weapons industries, to mention a few common examples.
How do ethical funds perform?
That is a little like asking how long is a piece of string, and everyone knows there are no performance guarantees with any form of investment. The fact that you are excluding certain stocks from your portfolio – and potentially high-performing ones – can mean the returns are more modest. Also, keep in mind that the additional due diligence performed on the companies will inevitably mean higher admin costs.
The real question is whether you are prepared for the fact that investing ethically might result in a slightly lower financial return. Having said all that, the difference is unlikely to be dramatic, and by comparing the FTSE4Good with the overall FTSE index, you can get an idea of comparative past performance.
Going against the flow
It is worth keeping in mind that the majority of investors use financial and economic indicators to guide their strategies and nothing else. This can mean that ethical investors find themselves going against the market in some situations. That is not necessarily a bad thing, and can result in some lucrative results when others are struggling. Just keep in mind that when you are making your investment decisions against a different set of parameters to the rest, the information you need is not always so readily available. Working with a reliable and experienced fund manager that understands ethical investments is therefore a must.