Earth Day is an annual reminder of things we can do as individuals to help preserve our habitat and the resources that sustain us.
When we think about living green, recycling, buying locally, or trading in the SUV for a Prius usually come to mind. Not coincidentally, these green practices may result in having more green of another kind…the money saved by reusing products and reducing consumption.
But there’s another way to influence your environmental footprint that gets less press: how you invest.
According to the Forum for Sustainable and Responsible Investing, one out of every 10 dollars are invested in socially responsible funds, a sum totaling over $25.1 trillion.
Socially responsible investing is a wide umbrella, but it usually means avoiding the stocks of companies in vice industries like gambling, tobacco, or firearms, or companies with dubious business practices like poor factory conditions or a spotty environmental record.
A variant of socially responsible investing, green investing strives to limit investments in environmentally irresponsible companies and seek out companies that take proactive environmental measures or are involved in eco-friendly businesses like renewable energy.
Getting Started With Green Investing
I don’t recommend average investors pour money into individual stocks. But without stock picking, it can be difficult to avoid stocks that don’t meet socially responsible criteria. Major mutual funds (like those in your 401k) invest in dozens of companies and are frequently trading. And one of my favorite types of investments, index funds, follow entire markets comprised of hundreds or thousands of stocks, including plenty that are not socially responsible.
What’s an eco-conscious investor to do?
Choosing investments is tricky business. Among thousands of investment choices, many can help you reach your goals, but choosing the wrong investments can be devastating. High fees and investing objectives misaligned with your goals will cause your money to go nowhere fast.
When you incorporate values into your criteria for choosing investments, the field of eligible investments shrinks but picking the right investments gets harder. Many socially responsible investments, for example, have higher expenses than average; something I caution investors to avoid. Many green investments also have loads (sales charges, or commissions, of four or five percent)—a no-no for most investors.
Five Green Mutual Funds
As an example, here are five socially responsible mutual funds with no sales charges and minimum investments under $5,000. I like the Vanguard Social Index as a low-cost index fund and the TIAA-Cref Social Choice Equity fund for its low expenses and low minimum investment.
Natural Investing, an investment advisory company focusing on green investing, provides a 5-heart rating system for the social responsibility of the funds’ investments. Note that the rating considers only how socially responsible the investments are, not the fund’s financial performance.
|Vanguard Social Index Fund||VFTSX||0.29%||$3,000|
|TIAA-Cref Social Choice Equity Fund||TICRX||0.41%||$250|
|Green Century Equity||GCEQX||0.95%||$2,500|
|PAX World Global Green||PGRNX||1.40%||$250|
|Domini Social Bond||DSBFX||0.95%||$2,500|
If you’re interested in green investing, there are plenty of communities and publications to help you learn more. The Forum for Sustainable and Responsible Investing offers lots of information, and the Green Money Journal is a quarterly publication providing well-written features articles and lists of mutual funds and green investing events. Annual subscriptions are $25 and many articles are available online for free.
What about you? Do you incorporate green values into your investing strategies? How do you do it?
Photo credit: Ironrodart.
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