How to Invest Ethically (2024)

Not everyone invests with the intent to just make money.

As of late, ethical investing is on the rise. What is ethical investing? In short, it’s investing with your personal social, religious, labor, environmental, and other beliefs in mind. Other names for ethical investing include sustainable investing, impact investing, or socially responsible investing.

Essentially, when you practice ethical investing, you look at which companies you support because you believe in their cause. You also deliberately avoid investing in companies would you believe are harmful, or make a negative impact.

Historically, most investors simply wanted a strong return on their money. They didn’t stop to consider the ethical impact of the companies they were investing in.

Today, ethical investing has grown tremendously. In fact, according to the Forum for Sustainable and Responsible Investment, $8.72 trillion dollars were invested according to socially responsible investment strategies in 2016. If you’re looking to make the most of your investments and support companies whose visions align with yours, ethical investing may be for you.

What to consider when investing ethically

Everyone has different viewpoints on what they consider ethical or unethical. Some people are very for or against certain ethical viewpoints, while others have a more middle-of-the-road opinion. If you don’t already have priorities in mind, take time to explore how you feel on certain beliefs.

Perhaps you have industries that you simply cannot support. A common example of this would be the tobacco industry – many people believe smoking is incredibly harmful, and would not invest their money in a company that promotes the habit.

You can take ethical investing a step further by considering how companies are actually run. Maybe you aren’t necessarily against their product or service, but the company has a long history of making questionable decisions.

If you’re new to the idea of ethical investing, you will want to spend some time familiarizing yourself with companies whose values do or do not align with your own.

How to make ethical investments

Various funds aim to allow investors to make ethical investments, such as Vangard’s FTSE Social Index Fund (VFTSX) and Parnassus Core Equity Fund (PRBLX). While these types of funds are founded with the intention of giving investors options, you are limited to what the portfolio managers declare as ethical or unethical.

Some of these socially responsible funds invest in companies more subjectively. For instance, PRBLX avoids investing in alcohol, weapons, gambling, tobacco, fossil fuels, and nuclear power to name a few. They also do not invest in Wal-Mart, because they believe Wal-Mart has contributed to the demise of mom and pop shops across small towns in America.

Because of the additional work required to properly vet companies to include them in a socially responsible investment fund, these ethical funds are often times more expensive for individual investors.

Is it possible to make wise, ethical investments?

With all of this information, is it possible to make wise, ethical investments while still giving yourself the opportunity to make ample return? Well, with some smart moves and considerations, it is possible.

First, consider what you truly believe. Are there certain businesses you would never support? Are there businesses you would like to support? What is ethical or unethical to you?

Before you can make profitable, ethical investments, you need to discover what is ethical to you. From there, you can go ahead and financially support the companies who you align with financially and ethically.

But before you dive into the world of ethical investing, you still need to establish a plan. Unfortunately, ethical investments aren’t always profitable. You cannot forget to consider the risk and reward of your investments.

So before you invest in various ethical stocks, there are a few things you should keep in mind. First, keep a diversified portfolio. Like with any investments, don’t put all of your eggs in one basket.

Further, while it is possible to earn significant returns with ethical investing, you should always be prepared. Since ethical investing can have higher fees, it is important to accept the fact that you may have a lower return in the short-term.

But by choosing where to invest your money, you are making a very important personal decisions. It is incredibly possible to reach your financial goals, while only investing in companies you can morally support. All you have to do is decide what the word “ethical” means to you.

Related:

• Should You Invest When You are in Debt?
• Investing for Millennials: What You Should be Doing
• Not Investing At All? Here’s What You Are Sacrificing

Have you heard of ethical investing? Have you made ethical investments?