Financial Fitness: Socially responsible investing

If you’re concerned about social and ethical issues, why not speak out with your investment portfolio? Through socially responsible investing, your portfolio can reflect your values.

As an investor, you can support businesses that are doing their part to make the world a better place. Socially responsible investing, also known as ethical investing, is a good way to invest in companies with social, ethical, or environmental policies you support.

For example, you can invest in businesses that have good environmental track records, or that make environmentally friendly products. You can choose companies that refuse to do business with oppressive governments, and avoid those that do. Or you can steer clear of companies whose products pose health threats. Everybody has their own definition of “socially responsible” and your take on the subject will guide your strategy.

You should think of socially responsible investments as one part of a portfolio that includes a balance of different investment types. Because the universe of socially responsible investing is still relatively small, focusing exclusively on these types of investments is too limiting for most investors. A narrowly focused portfolio can leave you vulnerable to the ups and downs of one investment group, while you miss out on investment opportunities elsewhere.

One of the challenges of socially responsible investing is that it can be hard to find acceptable investments on your own. Screening companies to determine whether they meet your criteria can be difficult and time-consuming.

You may have to examine a corporation’s structure, its business practices, its history and where and with whom it conducts business.

A much easier route is through mutual funds. Canada has a growing selection of funds that seek out
socially responsible, ethical and environmental investments. These funds do the screening for you, by picking investments that meet their criteria. Plus, you’ll get the typical benefits of mutual funds — such as ease of investing, professional management, and diversification through the selection of individual investments held by each fund.

When choosing a fund, be sure its objectives match yours. What’s deemed socially responsible can vary from fund to fund. For example, some funds might focus on companies with an innovative environmental approach. Others may avoid companies connected to industries such as tobacco or gambling. And, as you would with any mutual fund investment, pay attention to the fund’s performance record, its management style, level of risk and other factors that will determine whether a fund has a place in your portfolio.

It’s a good idea to meet with an investment professional before making socially responsible investments. Your advisor can help you determine which investments fit with your objectives.

Deborah Leahy is an Investment Advisor with Edward Jones, Member Canadian Investor Protection Fund.

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