David Paul Morris | Bloomberg | Getty Images
Most retail investors – 67% – believe they are responsible for investing money in companies that have a positive impact on the world, new research shows.
That doesn’t mean that they necessarily act on the feeling.
While more than half (51%) of retail investors avoid investing in certain stocks because of moral or ethical concerns about a company’s business, only 32% say they actively invest in at least one socially responsible stock or fund, according to a MagnifyMoney survey .
More from a portfolio perspective
Here’s a look at other stories that impact portfolio planning and retirement planning:
Socially responsible investing generally involves helping companies engaged in things like green sustainability, alternative energies, or clean technologies and avoiding those that contradict your personal values, with tobacco companies being high on the avoidance list.
This type of investing – as well as similarly named strategies – has exploded in recent years. In 2020, approximately $ 51.1 billion went into funds that apply environmental, social and governance principles, more than double the $ 21 billion in 2019, according to Morningstar.
And apparently there are more investors who want to participate.
In the MagnifyMoney survey, 30% said they would like to practice socially responsible investing but have not yet applied the strategy, and 20% said they would only invest this way if the returns were comparable to other strategies. Only 18% are not interested at all.
For investors who want to make value-based investments, there are various ways to get involved.
“You can find out which topics are important to you and look at the companies that are really trying to solve those problems with their products or services,” said Craig Seidler, portfolio manager and director of public investments at BSW Wealth Partners in Boulder. Colorado.
You can also look at mutual funds or exchange traded funds that review their holdings against various socially responsible metrics.
“There is a whole ETF universe that is coming onto the market with topics such as ‘driverless cars’,” said Seidler. “There are a lot of different flavors … of mutual funds and ETFs.”
The cost of socially responsible investing through funds depends on how they are constructed. For ETFs – baskets of stocks usually based on an index – the average expense ratio for audited funds is 0.40%, according to ETF.com. For mutual funds – many of which have professional managers who have handpicked their investments – the average cost is higher, ranging from 0.60% to 1.2% on average, depending on what type of stocks or bonds they hold, according to Morningstar.
Despite interest in socially responsible investing, the almighty dollar still weighs heavily: About two-thirds (67%) of investors in the MagnifyMoney survey said they would rather invest in an oil company that will return $ 1,000 in five years than a solar energy company that would generate a return of $ 500 over the same period.
However, various research has shown that investors using verified funds generally perform as well as if they had invested in funds that do not use socially responsible screening. For example: “There is no evidence that the choice [socially responsible investing] Funds put investors at a disadvantage in terms of risk or return, ”according to a study by Charles Schwab that examined Morningstar data.
“We find empirically that you do not really do without returns,” said Seidler. “And in many cases your risk profile is lower than the market for long periods of time.”
Comments are closed.