By Lee Sherman
Investing in “Saint Stocks,” also known as socially responsible investing (SRI), green, or ethical investing is the mirror opposite of the topic we covered last week. This investing strategy is one that brings together a desire to invest in companies that will benefit the social good with those that also provide strong financial returns. Yes, it is possible to have it both ways.
First popularized in the 1960s, during a turbulent time when many activists called for boycotts on companies they felt were profiteering from the Vietnam War, were anti-union, or were negatively impacting the environment, these stocks included such things as alcohol, tobacco and fast food consumption, gambling, pornography, weapons, or fossil fuel production (see “Investing in Sin Stocks”). Saint stocks vary depending on your cause but are generally related to the environment, social justice, and corporate governance.
It may seem hard to avoid stocks that you find objectionable. Big tobacco, alcohol, oil, and pharmaceuticals remain good investments. Often these are part of a particular fund so unless you are picking and choosing individual stocks, you may be unable to avoid them. And you can’t escape such industries as banking and real estate where you may or may not agree with their business practices. But with a little extra effort, you can build a strong portfolio and still manage to sleep at night.
Your financial advisor can recommend mutual funds or ETFs that have been screened according to the socially responsible cause that you feel most strongly about. It may come as a surprise but many of these funds can provide a return on investment that is equal to or greater than what can be achieved with more established but questionable stocks.
According to a report published by the Morgan Stanley Institute in 2019 which compared the return and risk performance of SRI funds against traditional counterparts from 2004-2018, there is “no financial trade-off in the returns of sustainable funds compared to traditional funds and they demonstrate lower downside risk”. Perhaps even more telling, it went on to say that there was “strong statistical evidence” to suggest that SRI funds are more stable during a period of extreme economic volatility.
More time will tell but saint stocks may in fact be more future proof than older more established stocks. As the world shifts from fossil fuel consumption to green energy for example, companies like Tesla who are pioneering electric cars and space travel (and perhaps more importantly battery technology) are in the vanguard. If anything, the recent coronavirus pandemic has shown that our patterns of consumption may need to shift and with them your investing strategy.
SRI can be thought of as mindful investing. It is appropriate for those people that want more of a personal connection to the companies they invest in and the outcome of their financial decisions. While this investing strategy might require you to be more hands on, the dividends you’ll reap will be more than just financial.
Lee Sherman is a contributing writer to MyPerfectFinancialAdvisor, the premier matchmaker between investors and advisors. Lee is an experienced journalist and editor with over 30 years of expertise with a significant history of writing in the personal finance and technology arenas.