It seems as though everywhere you look, things are turning green. Terms like sustainable, environmentally friendly, and socially responsible have entered the national consciousness and are forming the basis for a growing number of personal investment decisions. For example, more than $1 out of every $10 under professional management in the United States is invested according to socially screened criteria.1
To be sure, many investment opportunities may appeal to your desire to do something socially responsible with your portfolio. And if you’re interested in steering your money toward a particular cause or away from organizations or practices that you disapprove of, that’s great. However, it’s also important not to allow this desire to outweigh the other factors that must be considered when making investment decisions.
Is It a Good Fit?
Investments that meet socially responsible criteria can be a positive addition to your portfolio as long as they are appropriate for your situation. For example, alternative energy is still a fairly young industry; many of the key players are start-ups that may not have a solid earnings record — or any significant earnings at all. These types of investments are generally more appropriate for investors with a high risk tolerance.
Like all investments, socially responsible investments entail risk, could lose money, and may underperform similar investments not constrained by socially conscious criteria. It’s important to consider your time horizon, net worth, and whether the potential return is worth the extra risk.
What Is It?
Billionaire Warren Buffett famously said that he invests only in companies that he understands. The universe of socially responsible investment opportunities is diverse, so it’s important to understand what companies are available and what their objectives are. Most socially responsible investments fall into one of these popular categories.
Green investments are associated with companies that develop products and services to help protect or improve the environment.
Faith-based investments tend to avoid companies with products, services, or practices that violate certain core beliefs or religious principles. Rather, they seek out companies that are more closely aligned with certain moral or ethical standards.
Community investing is focused on making loans and capital available to underprivileged communities for affordable housing, child and health care, and business start-ups.
If you are interested in socially conscious Naperville investment services, we can help make sure that your decisions are based not only on your beliefs but on sound investment principles as well.
1) Social Investment Forum Foundation, 2009
The information in this article is not intended as tax or legal advice, and it may not be relied on for the purpose of avoiding any federal tax penalties. You are encouraged to seek tax or legal advice from an independent professional advisor. The content is derived from sources believed to be accurate. Neither the information presented nor any opinion expressed constitutes a solicitation for the purchase or sale of any security. This material was written and prepared by Emerald. © 2010 Emerald.
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