You should have heard people talking about voting with their wallets, which generally refers to ethical investing. However, there is more than that; there are different types of ethical investments and various ways we can practice ethical investing.
First, you need to understand the reasons for choosing an ethical investment strategy and how to do it. Ethical investing is an investment approach whereby an investor decides to invest in those companies that align with their moral codes.
Companies that practice the concept of ethical investment mainly focus on high standards in how they confront the destruction of the environment, how they treat their employees, and the type of products and services they offer.
Other than choosing the ethical investment strategy, investors should also pay close attention to the principles of investing to ensure that their investment strategy is beneficial and appreciated over time. Below are the five ways in which investors can invest to benefit humankind.
Partnering with Firms that Help Humankind
Firms that focus on humankind usually use the indexing approach to achieve the fund’s investment objectives. The fund does not try to outperform the index it tracks but employs an investment management strategy corresponding to the general performance before expenses and other fees.
The fund’s investment strategy in humankind profitable companies is consistent and creates an optimum social and economic outcome. This is achieved through investing in issues that provide societal value, investor value, employee value, consumer value, and humankind at large.
These are mutual funds, but they are now graded according to ESG principles. Therefore, ESG funds usually invest in companies that aim to attain sustainability and positive societal impact. For instance, companies with diverse leadership boards and low carbon footprints are listed under ESG funds.
It is also important to note that ESG funds are not the same as individual stocks; they are a group of collections of stocks. This grouping is essential in focusing only on ESG firms but is also very important in lowering investment risks through diversity. Therefore, if one of the companies listed in the fund underperforms, the effect on your returns is lower than when you invest in a single stock.
Investing in Individual Stocks
Suppose there is a company you think its growth will perform better over time in terms of environmental, societal, and governance areas. In that case, you can diversify a portion of your portfolio with individual stocks. Many humankind-helping companies provide reports that can give insights into their sustainability efforts and how societal and environmental matters have been addressed.
Investing in Mutual Funds
Mutual funds are one of the growing fields in ethical investment and an easier way to diversify your portfolio. These funds follow an investment strategy based on the criteria implemented by the fund manager and, therefore, an excellent way to invest ethically. Choosing the funds that align with your ethical investment strategy is straightforward if your broker provides a screening tool.
Investing in Socially Responsible ETFs
The concept of socially responsible investing is rising in the world of investment, which has led to the growth of socially responsible ETFs. Socially responsible investing has intersected with exchange-traded funds(ETFs), yet another branch of investment growing rapidly. It now offers investors a chance to positively impact the world while generating profits through socially responsible ETFs.
Summary
There are several ways in which an investor can practice and participate in helping humankind. Some of these ways include partnering with humankind-focused firms and investing in ESG funds. You can also invest in individual stocks if there is that one company you are sure it is doing better for humanity. You can also choose to invest in mutual funds and socially responsible ETFs.
