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PAX Financial Group Breaks Down 2 Forms of Social Investing

Financial Planning, financial advisor San Antonio Dec 8th, 2020 by: Darryl Lyons

Social investing, or Socially Responsible Investing (SRI), is a strategy that focuses on making investments in companies that avoid unethical behavior, consistently make socially responsible decisions, or both.

Also known as sustainable, green or ethical investing, social investing, under the broadest of definitions, aims to bring about a considerable financial return for your investment, while also fostering environmental improvement and/or encouraging social change.

Social investors expect businesses and companies in which they’re investing to promote social and environmental good; be a positive force for change; treat their employees well and pay them fair wages; honor racial and gender diversity; and make or sell safe and healthy products and services.

In other words, social investing is about growing your wealth with a clear conscience that allows you to sleep at night. It’s doubly rewarding to know that your investments may be adding zeroes to your retirement balance, while also promoting causes that are important to you, such as world peace, social justice or animal rights.

It’s important to note that social investing is not political, and while liberal and conservative investors are likely to choose social investments based on wildly different measurements, both would be considered socially responsible investors because they’re promoting social or environmental goals that are important to them. Faith-based investing is a type of social investing that focuses on one’s religious beliefs. Check out our guide to Biblically responsible investing here.

According to CNBC, social investing is a more than $30 trillion market and is expected to continue to grow to as much as $50 trillion over the next two decades. Social investing accounts for more than $12 trillion in assets under management annually.

Overall, there are 2 main ways to practice social investing: Avoiding specific companies that promote industries you don’t believe in, and including companies into your portfolio that promote causes you feel strongly about. Let’s take a look at both.

 

Want to change how you invest in 2021? Let’s talk! Contact PAX Financial Group to schedule a no-strings-attached conversation.

 

Avoiding Specific Companies, Such as Tobacco or Gambling

The first form of social investing is known as a negative-screening process. By avoiding certain companies, you invest your dollars in corporations that are committed to having nothing to do with certain industries that clash with your morals or beliefs. In addition to tobacco and gambling, these may also include other areas of concern, which some people refer to as “sin” stocks, such as adult entertainment, alcohol, nuclear power, fossil fuels and anything involving cruelty to or testing on animals.

If you find these industries objectionable, you can take a stand by withholding your investment money from any company that is involved in these industries. In choosing other companies to work with, you are essentially rewarding companies that you feel are doing the right thing, while punishing those who don’t. There are certain schools of thought that believe this will have long-term ramifications for both, and could eventually lead to significant social change.

Figuring out which companies to avoid can be an overwhelming process. PAX Financial Group can help.

 

Including Companies, Such as Animal Rights or Religious Beliefs

The second form of social investing is known as a positive-screening process. Environmental, Social Justice and Corporate Governance (ESG) funds are among the most common social investment approaches, although definitions of what constitutes an ESG are fairly subjective.

Where the first SRI strategy focuses mainly on not investing in companies in specific objectionable industries, this form of social investing concentrates on specifically including industries that do adopt ethical ways and practices.

In other words, just because a company doesn’t manufacture tobacco products doesn’t necessarily mean it treats employees well and is committed to being a good steward of the environment.

 

Which is Right for You?

As with any other investment strategy, there is no one approach that works for everyone, because each investor has his or her own set of values and wants to promote different social and environmental agendas. Someone who lost a parent to lung cancer and is adamant about not investing in funds that include tobacco companies, for example, may not feel as strongly about the gambling or alcohol industry as another investor does, and vice versa.

It is possible to research companies’ corporate social or sustainability responsibility reports and invest in those whose code of conduct indicate their practices most closely align with your moral compass. But it can be a lot of work. Some investors choose funds to invest in that have done the negative- or positive-screening process of the companies already. In this case, be very thorough when selecting a fund, because there’s no universal measure for what makes a company socially responsible. For example, Microsoft, which may be excluded from some SRI funds for certain reasons, is included in other funds, because of its sustainability practices and social and environmental commitments.

If you’ve decided to do the legwork yourself, don’t forget to also look at the returns.

Social investing is investing, so you’ll also want to make sure your investments perform well. A one-dimensional approach can limit the success of your financial returns and expose you to unnecessarily concentrated risk.

Fiduciary faith-based financial advisors can help. Talk to a financial advisor you trust about weaving a social investing strategy into your overall investment tapestry. A faith based financial advisor can help you choose your social and financial criteria and select socially responsible investments or funds that historically perform as well or better than traditional investments, so you’re not just making philanthropic donations.

With more than 100 years of combined experience, San Antonio, Texas-based PAX Financial Group is passionate about helping you live the life of your dreams. Locally owned and independent, our financial advisors are deeply committed to helping you achieve your vision of financial success. We offer holistic financial assessments, investment management and insurance all in one place, and are proud to embrace the social investing movement! Contact us to see how we can help.

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This material is provided by PAX Financial Group, LLC. The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. The information herein has been derived from sources believed to be accurate. Please note: Investing involves risk, and past performance is no guarantee of future results. Investments will fluctuate and when redeemed may be worth more or less than when originally invested. This information should not be construed as investment, tax or legal advice and may not be relied on for the purpose of avoiding any Federal tax penalty. This is neither a solicitation nor recommendation to purchase or sell any investment or insurance product or service, and should not be relied upon as such. All market indices discussed are unmanaged and are not illustrative of any particular investment. Indices do not incur management fees, costs and expenses, and cannot be invested into directly. All economic and performance data is historical and not indicative of future results.

 

Darryl Lyons

Darryl Lyons

CEO and co-founder of the PAX Financial Group, Darryl Lyons has been a licensed professional in the financial services industry since 1999. A lifelong Texan, Darryl began his career in the financial sector just one day removed from earning his bachelor’s degree in corporate financial management and accounting at St. Mary’s University. Throughout his career, he has won awards for recruiting and development from Fortune 100 companies. In January 2007, he chose to begin and develop his independent practice. He joined Andres Gutierrez and Joseph Schuetze to form the PAX Financial Group. Darryl also served as the Chairman for Brooks Development Authority. Shortly after his service, Mayor Julian Castro, named a park “The Darryl W Lyons Park” in honor of his service. He was named to the 2010 San Antonio Business Journal’s “40 Under 40 Rising Stars,” which honors people making a difference in business and in the community.