Putting Your Money Where Your Mouth Is

Lewis Schiff

Question of the week
I'm just starting to invest and feel very strongly that I want to invest in line with my own personal values. I've recently heard about socially responsible investing. Can you tell me what that's all about? --Maria H.

Dear Maria,

The Social Investment Forum, a trade group for the social investment industry, says that there are more than one hundred socially or environmentally responsible funds today, and that they include every type, from growth and value funds to bond funds and money market funds.

So you're clearly not alone in giving some thought to the impact your dollars have on the companies where you invest. When we asked members of the Armchair Millionaire community recently about their thoughts on the subject, we heard two very different angles:

Go socially irresponsible. "Even though I invest in the Vice Fund and Invesco Leisure fund, which both invest in gambling, alcohol and other sinful causes, I am not at all embarrassed. I feel as I am doing my part to get the economy back on track. I also look at it from the standpoint that people are going to smoke, drink and gamble whether I invest in it or not." --JP

Go socially responsible. "I have to believe that in some small way that the way you invest makes a difference ultimately. It's like voting--your one vote might not make a difference, but all together they do. At the end of the day, business only listens to one thing: money." --Jen

At the heart of it, socially responsible investing is making your investment decisions not just with a financial goal in mind, but a social or environmental one, as well. The easiest way to do this is by investing in socially responsible mutual funds, which use screens to either exclude or include particular types of companies. A "negative screen" will exclude companies for practices or products considered negative (for example, the sale of tobacco products), while a "positive screen" will include companies that are seen as taking positive actions, such as friendly environmental practices.

And while some believe that you have to give up performance to invest in a socially responsible manner, this isn't always the case. According to the Social Investment Forum, three-quarters of the socially responsible funds with at least $100 million in assets earned top marks from fund analysts Morningstar and Lipper for the one- and/or three-year periods ending June 30, 2003.

If you decide that mutual funds are the route you want to take to be a socially responsible investor, my guide will get you started.

The Armchair Millionaire Guide to Choosing Socially Responsible Mutual Funds

• How does it fit with your portfolio? Just because a fund invests according to your values does not make it an automatic choice for your portfolio. It still must fit into an asset allocation that is suitable for your goals, time horizon and risk tolerance.
• How does it screen? Some funds might use many screens, others only one. You'll need to choose according to what is most important to you. A fund that only invests in companies known for excellent labor relations for example, might still allow investment in other companies involved in activities you object to--for instance, animal testing. Bear in mind that when a fund has more stringent screening, the fund manager has fewer investments to choose from, potentially making it more difficult to deliver good performance.
• How long has it been around? Many socially responsible funds are relatively new on the scene, so check on how long it's been in business. Also, find out how long the current manager has been running the fund.
• If you need it, get expert advice. Some financial advisors specialize in socially responsible investments. You can find a directory of these advisors at www.socialfunds.com.

THE BOTTOM LINE: If you want to put your investing dollars to work at more than just achieving your financial goals, socially responsible investing is absolutely worth investigating further.

From "Ask the Armchair Millionaire" featured each week on CNNMoney

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