*Ethical investing is a major trend within financial markets and people are making plenty of money investing in companies with green credentials.
Building wealth while maintaining a social and environmental conscience may seem implausible to some – but it’s not. While no investment is guaranteed, the performance of ethical funds has been shown to be comparative to that of traditional funds. In fact, in some cases, research indicates that ethical fund performance may be superior.
According to data by Morningstar, sustainable funds significantly outperformed traditional peers in 2019, with a whopping 66% ending the year with returns in the top half of their Morningstar categories.
I’m ready to invest ethically, where do I start?
The first thing to understand is that it’s not a black and white term, there are many different interpretations of ethical investing. What is ‘ethical’ to you may not be to someone else. So, it’s important to take the time to understand what you deem to be ethical and seek out funds or investments that share your values.
Here are five tips for investing ethically and responsibly:
1. Know what’s ethical to you. Take some time to outline what an ethical investment looks like to you. Do you consider an oil company ‘ethical’ if they are investing in environmental initiatives, or would you rule them out entirely? Knowing which industries you want to avoid, will help you select the investments that form your portfolio.
2. Switch your super. You may not be able to spend your superannuation until you retire, but in the meantime, you do have the power to choose who manages it for you. This simple choice is a powerful one because different super funds invest in different ways.
3. Find out how your bank invests your money. You have the power to question your bank, and if you’re not happy with their answer, you can move your money somewhere else.
4. Build your own investment portfolio. When it comes to building an ethical portfolio, you can choose to build it yourself by picking and choosing specific investments and monitoring them over time, or you can get some help. Think about the companies you feel have good ethical standards, and examine what makes them different, and whether they’re competitive in the marketplace. Check how employees rank the work culture with sites like Glassdoor.
5. Do your research. Investing your money ethically doesn’t mean having to accept low returns. If you’re interested in learning more, there are a number of free online resources like the ASX Investor Centre to explore.
Disclaimer:
This article is not intended as legal, financial or investment advice and should not be construed or relied on as such. Before making any commitment of a legal or financial nature you should seek advice from a qualified and registered Australian legal practitioner or financial or investment advisor.
*Source: Investopedia – Ethical investing is the practice of selecting investments based on ethical or moral principles.
