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Socially responsible investing good for soul, bottom line

By , - Last modified: November 6, 2017 at 12:04 PM

December is approaching and, for many, this is the time they start thinking about
end-of-year donations for philanthropic as well as tax purposes.

If you’re thinking along those lines, you also may want to consider

another way to support good causes: socially responsible investing.

Despite some people’s impression, investing to support social, political or environmental concerns doesn’t mean you have to forgo pursuing a return on your money.

Well-researched socially responsible investing may allow you to further both your own economic interests and support a good cause, however you define that term.

A wide variety of activities and investment products, including socially conscious mutual funds, has been developed to help people invest in ways consistent with a personal philosophy.

Here are examples:

< SHAREHOLDER ACTIVISM FOR INDIVIDUAL COMPANIES

Both individual and institutional shareholders have become increasingly willing to pressure corporations to adopt socially responsible practices.

In some cases, having a good social record may make a company more attractive to investors who might not have previously considered it.

Shareholder advocacy can involve filing shareholder resolutions on such topics as corporate governance, climate change, political contributions, environmental impact and labor practices.

< COMMUNITY INVESTING TO HELP INDIVIDUALS AND SMALL BUSINESSES

Another approach involves directing investment capital to nonprofit organizations that may have difficulty getting traditional financing.

Investors provide money targeted to help underserved populations gain access to affordable housing, find jobs and receive health care.

Community investing also can help small businesses operating in geographic areas that some mainstream financial institutions consider too risky.

< EXPLORING YOUR OPTIONS:

NEGATIVE AND POSITIVE SCREENING

Screening allows you to evaluate a company not only on its finances but also on its social, environmental and even corporate governance practices.

Screens based on specific guidelines may eliminate companies whose products or actions are deemed contrary to the public good or are reported to have a repressive work culture.

A recent example is the privately-held Uber, whose widely reported workplace problems prompted a shakeup at its top level. Despite the appointment of a new CEO, socially conscious investors may be less interested in Uber until it demonstrates it has resolved these issues.

Another option is positive screening, which identifies companies whose practices actively further a particular social good.

< ADDITIONAL OPTIONS: CAST A WIDE NET OR TARGET YOUR INVESTMENTS

A key question to ask yourself is whether to invest broadly or concentrate on a specific issue.

Each has pluses and minuses. A narrow focus could leave you overly exposed to the risks of a single industry or company, while greater diversification could weaken the impact that you might like your money to have.

Even if you choose to focus on a single social issue, you still may need to decide whether to invest in specific companies or invest more broadly through a mutual fund whose objective meets your chosen criteria.

Size of a company also is a factor. While small companies are attractive because they often have greater growth potential, large companies may have a greater global impact and less volatility than small companies.

< THE FIRST STEP: KNOW YOUR GOALS

It’s important to make sure your expectations are clear. The more realistic your goals, the better your chance of selecting appropriate investments.

Though past performance is no guarantee of future results, you should have a sense of what kind of return you might expect.

Many socially responsible investments produce solid financial returns, while others may not. (Before investing in a mutual fund, consider carefully its investment objectives, risks, fees and expenses.)

But don’t feel you have to accept mediocrity in order to support your beliefs. It’s important to monitor your investment’s performance, and be prepared to look elsewhere if it doesn’t continue to meet your needs, financially or philosophically.

If you don’t have time to do detailed research, you may want to work with an adviser who has experience in socially responsible investing and access to more information about your area of interest.

Advisers can find investments designed to support causes you feel strongly about.

Tim West is a wealth adviser for Tompkins Financial Advisors, Wyomissing, specializing in investment needs including retirement planning, college funding, asset allocation and estate planning. He can be reached at twest@tompkinsfinancial.com or 610-603-7210.

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