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Want to Be a Socially Responsible Investor? Here's How. (Part 2)

Today’s “socially responsible” investors carefully screen companies and mutual funds to ensure that they invest only in companies whose business practices match their personal values. This is the second in a series of articles for investors who want to follow this trend.

Screening individual companies on a case-by-case basis can be challenging. To simplify the process of socially responsible investing, you may want to consider the wide range of available mutual funds that already screen investments according to certain socially responsible criteria.

Mutual Funds May Make the Process Easier

According to the Social Investment Forum, there are currently 230 socially responsible funds in the United States, so the chances of finding a fund that meets your requirements are probably quite good (source: Social Investment Forum news release, November 2001). Such mutual funds screen for a variety of different issues, most commonly excluding companies involved in tobacco, gambling and alcohol industries.

Some socially responsible mutual funds emphasize specific issues. A mutual fund oriented toward workplace equity issues, for example, might focus on investing in companies that are owned by women or are known for being proactive in promoting women to leadership positions. Similarly, humanitarian funds often support companies with policies that emphasize human rights and workplace diversity.

Start Slowly, Invest Responsibly

If you’re thinking about adding socially responsible investments to your portfolio, consider some key tips:

• Don’t go overboard. Shifting your investments to socially responsible companies and mutual funds doesn’t necessarily mean you should immediately make radical changes to your portfolio. Depending on your personal values the tax implications associated with changing your investment choices, there may be many socially responsible investments to consider. You might already be invested in equities that fit your criteria. Consider a strategy that gradually integrates socially responsible investments while slowly phasing out investments that don’t fit your personal values.
• Consider investing through a tax-deferred account. Making socially responsible investments through a tax-deferred account, such as an individual retirement account (IRA), through the workplace, your 401(k) or 403(b), can help you avoid the large tax bill that could result from switching investments in a taxable personal investment portfolio.
• Make sure each potential investment meets sound financial criteria. Buying socially responsible assets shouldn’t alter your overall approach to the investment process. Just because an investment is socially responsible doesn’t mean it will also meet your other financial criteria, such as your overall goals, investment timeline and tolerance for risk.

Creating a Financial Plan You Can Feel Good About

The world of socially responsible investing can be rewarding and it can also be complex. Before making any changes to your investments please consult a financial advisor or tax professional regarding your individual circumstances and objectives. For help in finding investments that fit with your personal and financial goals, consider meeting with a certified financial planner. Your financial advisor can work with you to help ensure that your investment portfolio meets both your financial goals and your personal values.

September 12, 2002

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