One of the most difficult ethical issues people face today is what to do with their money.
Should you invest in companies that support causes you believe in? Or should you take the less-than-ideal but more lucrative opportunities other businesses offer?
To help you navigate this complex issue, here’s an overview of why ethical investment funds may be a good option for some people and how to evaluate them.
What do ethical funds invest in?
Ethical investment funds are typically screened to exclude investments in considered unethical sectors, such as tobacco, weapons, gambling, and pornography. The screening process may also exclude companies that do not meet specific environmental and social criteria. For example, most ethical funds will screen for companies that do not contribute to the UN Sustainable Development Goals.
Some common sectors in which ethical investment funds may invest include renewable energy and water infrastructure services. Ethical investors often favor companies with a low carbon footprint because of their potential to reduce climate change-causing greenhouse gas emissions. Ethics aside, some people opt for ethical investments because they feel these types of investments offer higher yields than other types of funds.
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Is this fund sustainable?
The fund aims to perform better than the S&P 500 index. It seeks to invest in companies committed to doing well for their shareholders, employees, customers, and the environment. The fund invests in many companies with a high ESG rating. To evaluate a company’s high ESG rating, it consults ESG ratings from MSCI Social Indexes and FTSE4Good.
The fund also avoids investing in tobacco companies or other unethical industries such as firearms or gambling. The idea is that you can have an ethical investment without sacrificing performance by investing in this fund instead of the S&P 500 Index Fund, which may invest in questionable companies or industries.
How does it make money?
Ethical investment funds balance environmental, social, and corporate governance factors to create a more sustainable portfolio. This means that if you invest with an ethical fund, your money will go towards socially responsible and environmentally friendly companies.
The people managing the fund must adhere to the guidelines of the fund’s strategy, ensuring that it is being handled responsibly. This can make a big difference in how you feel about investing because your money won’t go towards arms manufacturers or fast food chains.
Who is managing it?
Investment managers manage ethical investment funds in companies that align with the company’s values. This means that you can have your cake and eat it too! You get the best of both worlds: good investment returns, and you’re supporting companies that align with your values.
Is this the right fund for you?
To be a successful investor, it is important to have an understanding of the various types of funds that are available and what their specific objectives are. If you are looking for a low-cost, self-managed way of investing in stocks, you may consider using exchange-traded funds (ETFs). ETFs represent baskets of stocks that track an index or particular sector.
They generally have lower annual costs than mutual funds and provide diversification across many different industries. ETFs also can be traded throughout the day with no commission charges on most platforms. However, one downside is that they do not offer any income distributions, so they are inappropriate for people who need current income from their investments.
Clearly, the world is changing, and so are our consumption habits. We must be mindful of what we buy and support, both as individuals and as a society. Choosing ethical investment funds is one way to do this.
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