When it comes to investing, there are generally two schools of thought: the first being that you should invest based on short-term performance and the second being that you should invest based on long-term performance.
Investors with a longer-term outlook tend to shy away from companies they perceive as unethical or those involved in industries they find morally objectionable. These investors prefer so-called ‘ethical’ investments instead.
But what exactly does ethical investing mean? And how can an investor take this approach when looking for opportunities to invest?
This article explores everything you need to know about moral investing and why you should consider moral ETFs as part of your strategy.
Know Your Moral Values
Investors often decide to invest only in companies that they view as ‘socially responsible’. But how do you know what is and isn’t a socially responsible company?
You need to know your moral values first. Some investors prefer to avoid investing in companies involved in the arms industry, tobacco, or any other industry they deem unethical. But others prefer to invest in these same companies, but with one key difference: they buy shares in companies that have a social or environmental mission.
Whatever your moral values are, it’s important to keep them in mind when selecting your investments.
How Much Money Do You Want to Invest
Once you know what you’re looking for in terms of ethical companies and industries, you need to decide how much you want to invest.
The first thing to consider is how much you have to invest in the first place. The bigger the amount you have, the more investment options are available to you.
If you have a small amount of money to invest, you may want to stick with a basic savings account. However, if you have a few thousand or even a few hundred thousand dollars to invest, you’re in a much better position to make a smarter investment decision.
What Are Your Investment Goals
Another thing to consider is your investment goals. If your goal is to earn interest on your money, you may want to look for investments that pay a higher interest rate. On the other hand, if you want to earn a high rate of return on your investment, you may want to invest in a company that’s expected to grow rapidly.
You also need to consider how much risk you’re willing to take on. All investments come with some level of risk. In fact, the more money you want to earn, the more risk you’re likely to take on.
Consider the ETF’s Management
When you’re picking out a particular moral ETF, you also want to consider the management of the ETF itself.
You may want to avoid a socially responsible ETF that is run by an individual or management team with a history of fraud or misappropriation of funds. But with that said, don’t assume every ETF associated with socially responsible investing is managed by a team of do-gooders. In fact, some of them are managed by investment firms with a questionable track record.
Look at the ETF’s Holdings
Now that you’ve considered the management behind the ETF, it’s time to look at the ETF’s holdings. It may seem like an unusual thing to do, but it’s important as well.
You want to make sure the ETF doesn’t own any companies with questionable practices. You may also want to consider investing in an ETF that only holds companies that are committed to long-term profitability or investing in companies with sustainable business models.
Final Words: The Bottom Line
If you’re considering investing in an ETF associated with socially responsible investing, it’s important to make sure you do your research.
Keep in mind that even if an ETF holds only companies you view as ‘good’, it doesn’t mean the ETF will be a good investment. That’s why it’s important to make sure you take the time to consider each ETF’s management and holdings before choosing the one you want to invest in.
