Investing in Your Beliefs
Friday, June 18th, 2021

Your financial goals are knocking at your door, whether they are short-term or long-term. Investing might seem like the perfect solution to your needs. But the gap between you and the companies you invest in might not be as comprehensive as it appears.

Companies sell shares to help raise money for new business initiatives. So, by purchasing a corporation’s stocks, you support their services and goods. As a result, many investors turn towards a values-based investing strategy to ensure their money and morals don’t conflict. But what is the significance of that?

Here is a rundown on the way beliefs tie into the stock market and how it may affect you.

It’s Not Uncommon

Many well-educated, socially conscious, and environmentally friendly investors wind up buying shares of companies whose beliefs and business practices are far removed from their own. Why? Several investors simply haven’t thought about merging their personal beliefs with their investment strategies. Some may not even be aware of where and how their money is invested. Alternatively, other investors don’t believe in combining personal lives and business practices.

Is That a Big Deal?

Only you can answer that. For some, it is, and for others, it isn’t. What matters to you may not matter to the next guy and vice versa. But consider this – when you invest in a company, you own part of that company. Some investors would prefer to separate themselves from their investments, but any shareholder cannot. So, based on the company’s services and how they conduct business, you need to consider whether you would feel comfortable being a partial owner of that company.

Voting with Your Wallet

How we invest or don’t invest our money can be a significant statement of our beliefs and personal principles. For example, if someone is strongly opposed to gambling or pornography, they could choose not to invest in any company contributing to those industries. If everyone who opposed those industries sold (or didn’t purchase) shares from those companies, that could potentially send a powerful message.

On the flip side, if someone firmly believes in eco-friendly alternative energy sources, they could choose to invest in wind farms rather than big oil (for example) as a way to show their support.

A Possible Solution

Society itself is expanding its social consciousness. Investors are no different; many now consider the financial and moral implications of their trades. The solution? A values-based investing approach, otherwise known as “impact investments” or “socially responsible investment strategies” (SRIs). Essentially, investors allocate their assets to companies that align with their ethics. So, their investment strategy accommodates their belief system, whether it’s animal welfare or social values.

While this isn’t exactly brand new, it continues to gain traction. According to a 2019 Morgan Stanley survey, interest in sustainable investing grew from 75% of individual investors in 2017 to 85% in 2019. In addition, Morningstar reported an increase in available sustainable funds in recent years. Options increased from 138 in 2015 to 400 in 2020.

The Tradeoff

Investing according to your beliefs and convictions can affect your rate of return. Whether the effect is positive or negative depends upon the investments you choose and the performance of those investments. But it is entirely possible, and perhaps probable, that at some point, you could face a situation where you feel the best return on your investment would come from a company that is absolutely contrary to what you believe. In that case, what do you do? No one but YOU can answer that question. You must decide for yourself which is more important – your convictions or your potential financial return.