Investing in Your Values with Socially Responsible Funds

Many investors turned off by the questionable business practices that made headlines during the financial crisis are seeking to align their personal values and their retirement savings by making “socially responsible” investments.

So-called socially responsible mutual funds have been around for a while. Typically, they don’t invest in companies that create products or have practices deemed undesirable. In some cases, that may mean avoiding companies that manufacture alcohol or tobacco or are involved in gambling; in other cases, it may mean avoiding companies with poor pollution records or those involved in nuclear energy.

After those criteria are met, these funds typically screen for companies in the same way other funds do – by looking for strong balance sheets and good growth prospects. They may also consider factors such as workplace diversity and environmental impact.

In the past, socially responsible funds were primarily available to individual retail investors. But today, more investors are demanding – and getting – these funds as options in their retirement plans. The question is, will socially responsible funds outperform the market any better than traditional funds? That remains to be seen.

If you think the governance offered by socially responsible funds is good for your portfolio, you may want to speak to your financial advisor. He or she can help direct you to a fund that meets your values as well as your investment goals and risk tolerance.