Ethics and investment
I am a young man who has recently reached a point of financial stability. I'm starting to think about long-term plans which may one day buy a home, or provide for myself in old age.
This raises the question of savings and investments, which causes me some ethical concerns.
I don't have an issue with investment in its basic form. Providing people money to help them do business, allowing it to grow and gaining interest in gratitude is not an issue for me.
The problem comes when we realise that a lot of the most financially successful businesses succeed due to addiction in their customers. Alcohol, tobacco, gambling, pornography, high interest financial services, and a number of others all rely on customers becoming dependent, unable to keep from buying their services. Because of this dependency, a lot of money is made in ethically questionable businesses, and professional investors (whose job is only to make as much money as possible) will choose to put money into these businesses.
The alternative would be to look in to investing myself. Although without some good practical knowledge, this would resemble gambling, throwing my money at whatever business takes my fancy, hoping for the best.
Being concerned about ethics, how can I go about investments and/or savings? Are there businesses which professionally invest ethically?
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There are a number of mutual funds which claim to be 'ethical'. Note that your definition of 'ethical' may not match theirs. This should be made clear in the prospectus of whichever mutual fund you are looking at.
You will likely pay for the privilege of investing this way, in higher expenses on the mutual fund.
If I may suggest another option, you may want to consider investing in low-fee mutual funds or ETFs and donating some of the profit to offset the moral issues you see.
Avoiding tobacco, etc is fairly standard for a fund claiming ethical investing, though it varies. The hard one on your list is loans.
You might want to check out Islamic mutual funds. Charging interest is against Sharia law.
For example: www.saturna.com/amana/index.shtml
From their about page:
Our Funds favor companies with low price-to-earnings multiples, strong
balance sheets, and proven businesses. They follow a value-oriented
approach consistent with Islamic finance principles. Generally, these
principles require that investors avoid interest and investments in
businesses such as liquor, pornography, gambling, and banks. The Funds
avoid bonds and other conventional fixed-income securities.
So, it looks like it's got your list covered.
(Not a recommendation, btw. I know nothing about Amana's performance.)
Edit:
A little more detail of their philosophy from Amana's growth fund page:
Generally, Islamic principles require that investors share in profit
and loss, that they receive no usury or interest, and that they do not
invest in a business that is prohibited by Islamic principles. Some of
the businesses not permitted are liquor, wine, casinos, pornography,
insurance, gambling, pork processing, and interest-based banks or
finance associations.
The Growth Fund does not make any investments that pay interest. In
accordance with Islamic principles, the Fund shall not purchase
conventional bonds, debentures, or other interest-paying obligations
of indebtedness. Islamic principles discourage speculation, and the
Fund tends to hold investments for several years.
There are the Dow Jones Sustainability Indices. I believe the reports used to create them are released to the public. This could be a good place to start.
Markets are amoral. If you don't buy stock in a company that has high growth/earnings, someone else will. By abstaining you will actually make it cheaper for someone else who is interested in making money.
Investing in "socially responsible" funds will only ensure that you have less money to make a moral difference in the world when you decide to transition from working to philanthropy.
Edit to clarify -- You aren't interested in buying individual stocks directly, that leaves you with two general options:
Buy one of these "socially responsible" funds that will eat your gains away with their relatively high management fees.
Invest in index funds which may catch a few marginally ethical companies in their net but that will give a you a reasonably diversified investment in a particular market sector without paying a high fee for that privilege.
You can make a statement with your investment now, or you can take the better returns and make a difference with your money later.
Are there businesses which professionally invest ethically?
Yes. The common term for this is "socially responsible investing". Looking at that page and googling that term should provide you with plenty of pointers to funds to investigate.
Of course, the definitions of "ethical" and "socially responsible" vary from person to person and fund to fund. You'll have to take a look at each fund to see which ones match your principles.
Peer to peer lending such as Kiva, Lending Club, Funding Circle(small business), SoFi(student loans), Prosper, and various other services provide you with access to the 'basic form' of investing you described in your question.
Other funds:
REITs
Commodities
Country indexes
Bond indexes
Currencies
You may find the documentary '97% Owned' fascinating as it provides an overview of the monetary system of England, with parallels to US, showing only 3% of money supply is used in exchange of goods and services, 97% is engaged in some form of speculation.
If speculative activities are of concern, you may need to denounce many forms of currency.
Lastly, be careful of taking the term addiction too lightly and deeming something unethical too quickly. You may be surprised to learn there are many people like yourself working at 'unethical' companies changing them within.
Domini offers such a fund.
It might suit you, or it might include things you wish to avoid. I'm not judging your goals, but would suggest that it might be tough to find a fund that has the same values as you. If you choose individual stocks, you might have to do a lot of reading, and decide if it's all or none, i.e. if a company seems to do well, but somehow has an tiny portion in a sector you don't like, do you dismiss them? In the US, Costco, for example, is a warehouse club, and treats employees well. A fair wage, benefits, etc. But they have a liquor store at many locations. Absent the alcohol, would you research every one of their suppliers?
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