Dos and Don’ts of Socially Responsible Investing

The Newday Team - Newday

Over $6.5 trillion is held in portfolios committed to socially responsible investing, which seeks to earn positive returns while positively impacting society. Joining these investors is fairly straightforward, as long as you avoid the pitfalls and follow industry experts’ advice. The following is a short guide detailing how to do just that.

What Is Socially Responsible Investing?

Simply put, socially responsible investing refers to the act of making and taking on investments that are both lucrative on a personal level and beneficial to the world at large, in either a social or environmental capacity. In an age in which the average person seems to be becoming increasingly self-interested, socially responsible investing is a nod to the days of yore in which people focused on self-improvement without sacrificing the needs of the collective.

Types of Socially Responsible Investments

Interested in making some socially responsible investments? Take a look at the different types of investments:

  • Community Investments: One option for socially responsible investing is to lend money to community organizations directly. This can be done via the use of an array of financial institutions, which can then help you loan out the money and serve as a line of credit for underfunded programs and initiatives. For instance, you could invest in your local community center and provide much-needed funding for things such as free lunch and after-school programs.
  • ETFs and Mutual Funds: There are hundreds of mutual funds or professionally managed investment funds that pool money from various investors in order to purchase securities, on the market. For example, Eventide Gilead is a Christian-based SRI.
  • Alternative Investments: Alternative investment is a term used to describe alternatives to traditional investments (i.e., property and/or hedge funds). For instance, the Vanguard FTSE Social Index, a company that helps companies keep up with drug and alcohol screenings, is an example of a socially responsible mutual fund.
  • Microfinance: Lastly, microfinance is a type of SRI that involves giving microloans to small startups and other underfunded companies and organizations that can use it most. For instance, you could give small loans to up and coming entrepreneurs from underprivileged areas as a means of making an SRI that firectly benefits you and your community.

Do’s and Don’ts of SRI

Now that we have learned about the different types of SRIs, let’s go over some do’s and don’ts:

  • Do Start with Sustainable Funds: Also known as environmental, social and governance funds (ESG) funds or environmental funds, sustainable funds allow for diversification without the need to police the politics and overall ethics of the companies and organizations.
  • Don’t Put All Your Eggs in One Basket: As with most other types of investing, diversification is the name of the game. Having too little diversification is a recipe for disaster.
  • Do Focus on Sustainability and Profitability: In addition to being sustainable, you must also make sure the companies and organizations you invest in are profitable. No matter how beneficial something may be to your environment if it is not making you money, it ceases to be an investment.
  • Don’t Lose Sight of Your Investment Goals: SRI can often play on our emotions as we are often trying to help causes near and dear to our hearts. However, you must always keep your eyes on the prize with regards to turning a profit. It can be easy to lose money when your emotions are involved and you are more focused on helping others than building your portfolio.

Overall, SRI simultaneously represents the past and future of investing. On the one hand, socially responsible investing is based on an almost antiquated tendency to focus on the good of the community over individual gains. On the flip side, it is also a forward-thinking concept as the notion of capitalism innately promotes turning a profit above all else, unlike SRI. Either way, becoming more socially/environmentally aware is one of the only things that can fix many of the looming global issues that stand to threaten humans as a whole. This is why many conscientious citizens embrace SRI.

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