Over at the NRDC site, they have a very interesting article about socially responsible investing. Some might immediately think that you could never make as much money investing in “green” ventures as big bad companies, but as it turns out, you can come close. At the expense of possibly losing a percentage point or 2, you can invest in companies or funds that only invest in responsible companies; ones that have nothing to do with the oil companies or cigarette makers, leaving your fingers free of any “dirty money”. This is what the article says about those people who might be willing to lose a percentage point on their investments:
To some, knowing that the money earned on their investments hasn’t been gained at the expense of the environment, worker safety, or public health is worth a tradeoff in overall returns. Others believe that investing in companies that look beyond quarterly earnings to consider the impact their businesses have on the community, employees, and the environment will actually produce better returns. After all, companies that drill for oil in the pristine wilderness or market cigarettes to teenagers turn a profit by pushing the true environmental and health costs of their products on to the general public.
Whether you agree with socially responsible investing or not, there is something to it as these funds are gaining in popularity- with estimates that 9 percent of all investments are now made with social values in mind. It counts 151 socially responsible mutual funds with assets of more than $148 billion, up from $111 billion in 2001.
As for the real performance of these responsible funds, the information in the article seems to state that in certain industries, the funds are able to keep pace with others in the same arena. In general, looking at the entire market, regular old index funds do better by a few percentage points. But in areas such as technology, for the 10-year period that includes the dot-com boom, SRI funds are on pace. The technology companies they favor thrived, which narrowed the performance gap: SRI funds averaged 7.8 percent a year versus 8.6 percent for the S&P 500.
So, it really depends on what your goals are…if it’s only making money, then of course you should go with the industry, fund, stock, etc that produces the most for you. If you are concerned with the environment, this article points out that while you might lag slightly behind the overall market, there is money to be made in investing in responsibility. Of course, in this economy you never know what you are going to get from day to day. But I have definitely been looking into more socially responsible investing strategies for next year, as I believe that renewables and green power are going to become the norm rather than the exception in the years ahead.
If you have comments or have had any success investing in these funds, I would love to hear about it!