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Money (Can) Matter: Socially Responsible Investing

By Aimee Whitenack

Some call it a fad, others say socially responsible investing is here to stay. Would you invest in a company because it treats its employees exceptionally well? Or not invest in a company that manufactures toy pistols?

If companies see doing more responsible things as a way to make more money, and that's what motivates them, that's fine with me. -Ann Cherin

So maybe, just maybe, E*trade's billboards (and your coworkers' boasting) have finally convinced you to join the fleet of young investors. But where are you going to put your cash? Perhaps the idea of expressing your personal values in your investment decisions holds some appeal. It's time to learn about socially responsible investing (SRI), a method of investing that attempts to provide solid returns while supporting your social and political values.

With the Vanguard Group's addition of a socially responsible mutual fund, SRI has become more mainstream. SRI used to mean simply avoiding "sin stocks," such as pesticide, weapons, or tobacco manufacturers, but it's meaning has expanded to include a spectrum of considerations, from environmental practices to workplace diversity to a company's child care policy. As Evan Roth, a chartered financial analyst and cofounder of BBR Partners, an investment advisory firm for high-net-worth investors, explains, "It's kind of an ambiguous term because every investor considers what is socially responsible a little bit differently." Nevertheless, the number of funds advocating a socially responsible strategy is growing; in the United States it is estimated that one in eight dollars under professional management is part of a socially responsible portfolio. So are you going to join the fray?

Money for something
Ann Cherin, 26, began actively investing during college. "I'd always been interested in environmental issues, social justice, that sort of thing," she says, "so as soon as I started thinking about taking a more active role in my investing planning, I went to socially responsible funds. Hearing about these funds may have even triggered my interest in investing." For Cherin, socially responsible investing means seeking out companies with clean environmental records and good labor practices. "I'm less concerned about what's produced than I am about the way things are produced," says Cherin. "If companies see doing more responsible things as a way to make more money, and that's what motivates them, that's fine with me," she says.

A socially responsible investor, like any investor, is first and foremost looking to make money. "For a while, the socially responsible funds weren't doing that well, so a lot of people were looking at them like charity funds," says Cherin. "They're starting to perform better, and they're becoming popular even to people who aren't into social investing." In fact, many socially responsible funds bring in substantial returns.

Despite her growing nest egg and warm fuzzies from responsible investing, however, Cherin admits that SRI is not without its complications, "I think a lot of people are frustrated because they don't want to invest their money in companies that they're personally against, like Wal-Mart or Home Depot, but in the end, given the realm of choice you have, [these companies-often included in social index funds] may be a lesser evil."

Roth feels that socially responsible investing is tricky because deciding how to screen companies can be an arbitrary task. "For example, somebody who believes in socially responsible investing is a vegetarian, so they won't buy companies that deal in pork or meat, but how far do they take it? Do you not invest in American Airlines because they serve meat on their airplane? As you drill down into a company, something about the company will violate your social comfort level." Furthermore, Roth believes that any time you limit the pool of companies you can invest in, you diminish your chances of making money. "I think the key is performance," says Roth. "At some point, what most investors will do is continue to give to the community in other ways, join organizations that will put shareholder pressure on companies to change their practices, for example."

Asked if she would hold onto funds that weren't bringing substantial returns, Cherin says it would depend how badly the funds were doing: "If they're tanking out, there's no point. Frankly, I'm doing this so I don't have to work as much, and will have more time to volunteer. My goal is to make money on this. I don't see it as my great contribution to society."

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