social investing

Ethical Investing

Any investment philosophy that recommends investment decisions based upon a decision's ethical implications for individuals and companies. For example, an individual may have a moral objection to smoking, and therefore refrain from investing in tobacco companies. Ethical investing may be both positive and negative; that is, it may inform where an individual makes investments (e.g. in environmentally friendly companies) and where he/she does not make investments (e.g. in arms manufacturers). Some mutual funds, and even whole subdivisions of companies, are dedicated to promoting ethical investing. See also: Green fund, Islamic finance.

social investing

Limiting one's investment alternatives to securities of firms whose products or actions are considered socially acceptable. For example, an investment manager might decide to eliminate from consideration the securities of all firms engaged in the manufacture of tobacco or liquor products. Also called ethical investing. See also green investing.Investing in socially responsible mutual funds: Is performance usually sacrificed for the sake of ideology?

No, it appears that mixing money and ethics is not lethal to your financial health. One indication is that the Domini 400 Social Index, a broad-based equity index of socially screened corporations, showed a five-year return of 18.08% versus 18.33% for the Standard & Poor's 500 (for the period ending 2000). Perhaps more important, as socially responsible or ethical investing has become a growing factor in the mutual fund business, this sector's performance has come to mirror the rest of the mutual fund industry, dominated by the talents (or ineptitude) of individual money managers and market sentiment toward a particular investment style. No question, investors now have plenty of choice among socially responsible mutual funds, ranging from money market funds to international equities. Socially oriented mutual funds typically use a set of financial and social concerns to exclude certain kinds of investments: no defense companies, tobacco sellers, or gambling enterprises, for instance. Other ethical investing funds generate additional criteria for picking companies that further valued social goals, such as environmentally conscious firms or companies with strong community relations.

Christopher Farrell, Economics Editor, Minnesota Public Radio, heard nationally on Sound Money®