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Money (Can) Matter: Socially Responsible Investing
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.
Money for something
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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