By Damon S. Winter
The late John Bogle, founder of Vanguard Investments, famously said that when it came to investment success, “Don’t look for the needle in the haystack. Just buy the haystack.” However, two recent studies suggest that spiritually minded investors may elect to skip the haystack and screen for the right needles instead to express their values – and keep their souls.
According to a Wells Fargo/Gallup Investor and Retirement Optimism study, 59% of upper-income investors now provide charitable gifts to faith-based organizations. And, beyond gifting, more individuals are investing their money where their religious principals are. Lipper reported that the faith-based universe has seen 33% asset growth over the past five years across 38 different fund categories representing most debt and equity classes.
Faith-based investing is as American as apple pie. Its roots run deep; from the earliest colonial days in America when well-to-do Methodists and Quakers first refused to invest in the emerging transatlantic slave trade. Just like those early citizens, growing numbers of the religious-minded today also view themselves as loyal stewards of assets meant to serve as a testament to their faith. Among some 250 U.S.-based socially responsible funds, about 40 fit into this religiously responsible investing category. If you’re moved to contemplate faith-based investing yourself, consider how these five steps might help.
Five Steps toward Optimizing a Faith-Based Strategy
- Know thyself. What’s your priority? How do you wish to balance doing good for others with doing well financially? Just because an investment passes the faith-based test doesn’t mean it will outperform the competition. Adherence to religious principles and financial gain though don’t have to be mutually exclusive. In addition to gauging the financial promise of an investment and its religious value, you’ll need to articulate just what you want your investments to achieve.For example, in the Jewish tradition of “repairing the world,” a successful faith-based investment can be good in itself even if it doesn’t offer a near-term financial reward.
- Determine your depth of commitment. Know your objectives. Are you looking to change a company? Or would you rather avoid companies that don’t align with your values? While some faith-based individuals wish to influence companies to become more ethical toward their employees, customers and communities, others prefer to screen out the companies that create products like alcohol or tobacco that may be harmful to their spiritual values.
- Define your belief criteria. Faith-based investing means using your religious beliefs to guide portfolio selections. Some Christians employ a Biblically responsible investing standard, an approach that defines investors as stewards rather than owners of their assets. This view resembles the secular fiduciary role that wealth advisors and trustees perform.In another example, since traditional Islamic law discourages interest charges on loans, devout Muslims will likely avoid investments that generate interest income.
- Do your due diligence. Faith-based mutual funds and ETFs offer access to companies and sectors through a single investment. Whether you invest in a fund or a company, always be mindful about the importance of reading company research and prospectuses carefully to confirm your assumptions about your candidate’s values and potential profitability.
- Consider working with a professional advisor. Somefaith-based investors conduct their own online research to find funds or securities that reflect their values. On the other hand, some investors may be uncomfortable with “selecting the right needles” without some discussion and validation from a licensed financial advisor.
As the number of faith-based investors grows, they gain more attention from asset managers and advisors who realize that the days of separating an investor’s financial security from their personal values may be drawing to a close. Regardless of religion or creed, the spiritually-minded expect the financial industry to respond to their principles and match their beliefs with the investments they need to achieve the values they cherish.
Damon S. Winter LUTCF®, CFS®, FSCP®, RFC® is co-Founder of OnMark Asset Management, LLC, a boutique financial planning firm in Lake Oswego, Oregon and is a subscriber to MyPerfectFinancialAdvisor