In the 1950’s, a convent of nuns wanted to invest a couple million dollars. They quickly discovered that they held personal religious commitments inconsistent with many of the industries they were looking at. Each business they considered, no matter how worthy, seemed to have some areas of conflict for them. For example, a major retailer might include cigarettes or liquor in its product lines. Energy companies, despite the necessity of their product, sometimes did not care about the environment as much as the sisters thought they should. The growing aerospace industry seemed like a worthy avenue, but in addition to benefitting the travelling public, they also produced planes and weapons of war. Everywhere the nuns looked they found conflicts. They began to think they should just leave the money in the bank, but then they wondered who the bank might loan their money to. They finally realized that finding an investment perfectly aligned with their personal moral commitments would not be possible.
Ultimately the sisters decided upon what they considered to be a reasonable compromise. They hired a money manager who agreed to assemble a portfolio that would exclude any company that was directly involved in the manufacturing of alcohol, tobacco and firearms. The manager warned the sisters that the very industries they were forcing him to exclude happened to be some of the most profitable of the day. The sisters accepted that their returns might suffer.
In the 90’s there was a movement known as Socially Responsible Investing, or SRI. Like the nuns, individuals wanted investments that were consistent with their personal beliefs. It was a noble goal, but the investors quickly ran into the same challenges as the convent, as they tried to determine and agree upon which businesses held exactly the same values as the investors. Much debate surrounded what SRI portfolios should and shouldn’t be investing in, and whether such investing would be profitable.*
Some investors today are particular about the types of industries they want their money invested in, while others view the investing process as more of a financial matter than a moral statement. Some don’t want any oil companies or banks or weapons manufacturers. Others are opposed to pharmaceutical companies. Some don’t want any international operations involved in unfair labor practices. These are noble goals, but how is it possible to know for sure? When I look at my high-tech cell phone with all its tiny parts and technologies that originate from countries all over the world, I realize I can’t possibly know the dealings of all the businesses involved in its production.
If you are interested in socially responsible investing then you must consider the many challenges that face assembling such a portfolio, the added cost of doing so, and that you will be limiting your investment options. Whenever you limit investment options, you have to accept, as the nuns did, that you may be limiting investment returns as well.
Hi, I'm Dan. I'm a CFP® Professional.
Securities and advisory services offered through Commonwealth Financial Network®.
Member www.finra.org / www.sipc.org , a Registered Investment Advisor. Wyson Financial, 1173 S. 250 W. Suite 505, St. George, UT 84770.
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