Ethical investments are increasingly popular. According to the Global Sustainable Investment Alliance, assets under management in sustainable and responsible investing have grown 26% in the last year alone. It’s one of the fastest-growing segments in finance today.
Similarly, ESG investing has also grown substantially over the past decade. Ethical or “socially conscious” investing is becoming more common for investors who want to align their portfolios with their social values. However, there are so many ethical investment funds out there that choosing which is right for you can be a bit overwhelming as an investor.
Here we will look at what you need to consider before choosing an ethical investment fund as part of your long-term financial strategy…
Consider Your Values and Investment Goals
One of the first things to consider when choosing a socially responsible investment fund is what issues are most important to you. This will help you determine the sectors where you want to invest and the values that you want to prioritize.
Social issues can include anything from climate change to women’s rights. Some socially responsible funds are focused on a specific cause, while others are more general.
You should also think about what your investment goals are. Ask yourself:
- Are you saving up for retirement?
- Is your goal to earn a steady income? Or do you want to grow your money as quickly as possible?
- What is the investment time frame? Short-term, mid-term, or long-term?
- Do you want to reinvest your returns?
- What is your risk tolerance?
- Do you have other types of investment instruments, like stocks and bonds, in your portfolio? How do they fit together with your goals and values?
What Companies Does the Fund Invest In
Another important consideration is the industries that the ethical investment fund invests in. First, look at the sectors of the economy that the fund invests in. Ethical funds tend to focus on industries in the “social good” sector, such as healthcare, technology, and financial services.
You can find this information in the fund’s prospectus or annual report. Next, check out the companies that the fund invests in.
Look at the Fund’s Management
Another key consideration is the management of the fund. You want to ensure that the fund is managed by a trustworthy and competent team.
A fund with a trustworthy management team will have policies to prevent conflicts of interest. That’s because many socially responsible funds are managed by investment managers who also invest in for-profit or conventional funds.
You also want to make sure that the managers of the fund don’t invest in companies in which they have a vested interest since it could seriously undermine the integrity of the fund.
Work with a Financial Advisor
Whether you’re new to socially conscious investing or a seasoned expert, you may want to work with a financial advisor who can help guide you through the process of choosing a socially responsible fund.
Working with a financial advisor can help narrow down your options and choose a fund that is a good fit for your investment goals. Additionally, financial advisors can help you assess the risk of any fund you choose. Ethical funds carry a certain risk considering they are often focused on emerging markets, technologies, or industries where there is more uncertainty in the short term.
In Conclusion
The socially responsible investing (SRI) movement is growing and gaining mainstream attention. While it’s not a new trend, the growing number of investors and corporations focusing on sustainability and social responsibility is undeniable.
SRI is a growing industry that gives socially conscious investors the ability to make smart, informed choices about their money. Investors can choose from various SRI funds, stocks, and other investment instruments.
Keep in mind that each fund has its own unique focus. Whether you are interested in ethical investing or sustainability-focused funds, there is something for everyone.