Socially conscious investing is a personal choice. While investments are often made to maximize returns, there is a growing movement to have a socially conscious portfolio. Simply stated, it’s a portfolio that does not invest in companies that produce alcohol, tobacco, or any other products or services that don’t fit in to the ethical or moral fabric of the investor. While this kind of investment strategy should be applauded from an ethical standard stance or prospective, it is not an easy choice to make when looking at total returns. A recent article in the Wall Street Journal pointed out the impact to a pension fund that had decided to divest all of its tobacco holdings. It is estimated that over a 16 year period that pension fund missed out on $3 billion in gains. The article went on to look at the returns of tobacco versus consumer staples between 2005 and 2015. The tobacco index produced almost double the returns over that decade and when compared to large and medium sized stocks the return was almost quintuple, so perhaps it is easy to say that socially conscious investing is not the best choice for returns; however, far more goes into it than that.
When you invest in a stock you are essentially lending that company your hard earned money while the majority of investors look at the returns as the justification or their purchase and more importantly see the purchase as simply buying value in a stock ticker symbol, the socially conscious investor has a deeper tie to that investment and that money. If the investor is truly troubled by the production of tobacco, alcohol, firearms, or any service they deem questionable, they have every right with their money to forego possible returns for emotional well-being. This kind of investing should also be applauded but it’s not for everyone. Your portfolio should represent your goals. If your goals are to maximize returns, to reduce risk, to produce income, or to guarantee that your money is being used by companies that will put it to use in the way that you deem appropriate. It’s a personal choice.