What is Ethical Investment:
Investing ethically means when you, as an investor, choose to invest in certain investments based on a personal moral code. Some examples of ethical investments can include investing in decreasing carbon footprint or green energy. However, not everyone has the same moral values.
Methods and Variations:
Two ways to invest ethically is by actively investing in investments that create a positive impact or purposely not investing in companies that impact the world negatively. Some people may only use one or the other method, while others like to use both.
There are also variations to ethical investing. It’s a broad name, as there are very similar variations. These variations include socially responsible investing, or investing in a way that “pays your due as a society member.” Another variation would be impact investing, where impact investors want to gain profit by investing in a positive environmental or social cause.
Profit:
You might think that investing in an ethical way may cause you to lose money on your investments. This is not true, as investing in ethical funds is virtually the same as investing traditionally.
Ethical investments may also be more sought after by investors because they tend to be less volatile in case of shocking news like scandals. Because of their lower volatility, this kind of investment may also carry less market risk which can be very crucial when sudden negative events occur.
Building an Ethical Portfolio:
First, you have to consider your involvement when figuring out what and where you want to invest. This means determining whether you will build your own portfolio or seek out help from brokerages and robo-advisors. Robo-advisors are cheaper since they are a computerized version of a financial advisor. Some robo-advisors may have limits on specific investments.
Next, you should figure out what ethics you value. For example, if a potential negative-impact company produces coal but also has environmental initiatives, would you consider this an ethical investment? Maybe you won’t invest since coal mining can be very harmful to the environment.
Lastly, you find investments that align with your values and goals. This can be from investing in individual stocks or other types of funds like mutual funds. It’s similar to traditional investing, but you should take into account the ethics of the companies you are investing in and if you like it or not.
Written by Allie Chang