Uncomfortable with investing in companies for ethical reasons

[familymedicineresident]

I am a year from graduating from residency and earning an attending‘s salary. I have been reading about saving for retirement in the WCI book and Bogleheads guide to investing. I am convinced about indexing as the main part of saving. However I have run into a hurdle.

For ethical reasons there are many companies that I would not want to be connected with or profiting from - armaments for example. Thus having an index fund that will have hundreds of companies will almost certainly involve these companies. I am wondering if you have any suggestions about how to achieve the goals of using index funds while avoiding some companies.

Obviously people may disagree with the tenet that you should not profit from a companies whose practices you disagree with but this is very important to me. I realize this. I think it is a worthwhile discussion but not the question here

[rxor49]

You could check out Wealthsimple which offers a "socially responsible" fund which appears to be otherwise well diversified. The fees will be higher than total stock market funds, but it sounds like you may be willing to pay that price.  https://www.wealthsimple.com/en-us/socially-responsible-investing

[ITEngineer]

I think this is a nice thought in academia but incredibly hard to do in practice.

Would you not want Coke stock b/c of the sugary drinks they provide society? Tobacco companies? Gambling? Alcohol? Pornography? Defense contractors?  How much of a companies revenue would have to be derived from activities you do not agree with before you would not want to invest in that stock? Is it just gun manufacturers or any company that sells firearms? (Walmart, Dicks, etc)

That said, gun sales are such a small fraction of the USA Economy, you could go with an S&P500 fund and have no company in it that is a primarily a gun manufacturer. No it's not the total stock market, but it's close enough.

Here is my question to you. Would you not provide medical services to someone knowing that they were an NRA member? Or a Trump Supporter? Or a Bernie Supporter? Where do you draw the line?

 

[Zaphod]

Well, its more difficult and not likely useful overall unfortunately. A couple things that may help. First and foremost, while we say "investing" all the time, that is not what we are actually doing in the market. The market is simply savings, you are not providing the company with any funds for operation unless you're buying an IPO or secondary offering or inital bond offering. You are simply trading on the secondary market and the only money traded is between you and the other person.

Second, all companies do something terrible, if you look into them there will be many great reasons to avoid them, but in the end you are just hurting yourself. It wouldnt be terribly hard to make a portfolio that avoided a few key names, it just requires more work.

Lastly, some have made good arguments about taking their stock and (forgive me its been a while, but the gist was) basically depleting it of resources via need for shareholder remuneration. Maybe look for those articles as well. Really the best way to approach these things is with a boycott, that actually affects the company, even if its just you and yours. Enough similar minded people and it starts to make a dent.

[rxor49]

Zaphod wrote:

You are simply trading on the secondary market and the only money traded is between you and the other person.

Click to expand...

This is true, but more true for day traders buying the stock with intent to turn around and sell it back. Owning the stock makes you a partial owner of the company, which will be long term if you are using a buy & hold strategy. So this doc's ethical quandary is not totally unfounded.

But I agree that attempting to invest ethically is not very practical. Slippery slope?

[Lithium]

However noble the intentions, this is actively managed investing and subject to all of its pitfalls.  Perhaps because I'm a psychiatrist, I'm very wary of making any changes in my investment allocation because I don't know what unconscious motivations may be driving it.  Take your example of armaments.  We've had recent mass shootings and more pressure to restrict gun rights recently.  So someone with no ethical qualms about guns but who picks stocks based on the news may want to sell or avoid those stocks too.  Unless you live in a monastery with no media coverage you can't insulate yourself to the point of being oblivious.  Were you as uncomfortable with it five years ago?  What if public sentiment turned in the opposite direction, and more citizens felt that restrictions have gone too far?  You could make similar arguments about other socially "irresponsible" investments such as tobacco or soda.

[Zaphod]

rxor49 wrote:

Zaphod wrote:

You are simply trading on the secondary market and the only money traded is between you and the other person.

Click to expand…

This is true, but more true for day traders buying the stock with intent to turn around and sell it back. Owning the stock makes you a partial owner of the company, which will be long term if you are using a buy & hold strategy. So this doc’s ethical quandary is not totally unfounded.

But I agree that attempting to invest ethically is not very practical. Slippery slope?

Click to expand...

Not really. Its so small and through other custodians and legal wrappers, etc....that even with millions in a company you are a nobody. What you actually have a claim on are profits, earnings, and dividends, etc....

The main point is you arent giving them any operational money, in fact you are claiming some of it belongs to you. Many people think investing in the stock market means funding the companies.

[VagabondMD]

You could buy the total market and sell short the gun companies, if it will make you feel better. You could anticipate your ownership percentage and mathematically subtract them. I have never heard of anyone to do this, but it can be done.

Alternatively, there are lots of ESG-oriented investment products ( index funds, ETFs, and actively managed funds) that attempt to overweight companies with better environmental, social, and governance practices.

https://www.investopedia.com/terms/e/environmental-social-and-governance-esg-criteria.asp

https://www.marketwatch.com/story/your-401k-probably-has-gun-stocks-in-it-heres-how-to-get-rid-of-them-2018-02-23#false

It is probably easier than ever to avoid investments that contain gun manufacturers, per se. If you further generalize it and include large armaments (General Dynamics), fighter jets (Boeing), etc., or gun sellers (including Walmart) it is more difficult and more expensive, but still possible.

Or, you could use the money you save by investing in the lowest cost funds and support organizations that push back on the NRA (https://brokelyn.com/new-york-gun-control-groups-donations/).

[jz]

Facebook and Google are unethical digital advertising monopolies, but I'm plenty willing to financially benefit from second hand ownership.

[Hank]

If you feel uncomfortable about "supporting" defense companies by owning an S&P index fund, how can you reconcile yourself with paying federal taxes on an attending doctor's salary?  A fair bit of your federal taxes goes to DoD and onward to defense companies.

As for me, when I look up and see a nuclear armed bomber aircraft overhead, I'm thankful that it's one of ours.

[Zaphod]

Vagabond MD wrote:

You could buy the total market and sell short the gun companies, if it will make you feel better. You could anticipate your ownership percentage and mathematically subtract them. I have never heard of anyone to do this, but it can be done.

Alternatively, there are lots of ESG-oriented investment products ( index funds, ETFs, and actively managed funds) that attempt to overweight companies with better environmental, social, and governance practices.

https://www.investopedia.com/terms/e/environmental-social-and-governance-esg-criteria.asp

https://www.marketwatch.com/story/your-401k-probably-has-gun-stocks-in-it-heres-how-to-get-rid-of-them-2018-02-23#false

It is probably easier than ever to avoid investments that contain gun manufacturers, per se. If you further generalize it and include large armaments (General Dynamics), fighter jets (Boeing), etc., or gun sellers (including Walmart) it is more difficult and more expensive, but still possible.

Or, you could use the money you save by investing in the lowest cost funds and support organizations that push back on the NRA (https://brokelyn.com/new-york-gun-control-groups-donations/).

Click to expand...

I was thinking similar, but its complicated and expensive. One way to reduce expenses at the cost of increasing complexity would be to buy the total/sp type funds and short via options an appropriate number of contracts (a number of structures could reasonably approximate it). You could reup the contracts every other January as typical ones go 2 years.

The upside of that is it shows you how truly expensive and costly the behavior is and may help to reframe things.

[Donnie]

You can look up ESG funds and try to find a good one. DSI from Blackrock is a big one. It will definitively have higher expenses and likely have lower returns. My advice is to invest in index funds and to use your gains to support causes you believe in. That will have more actual impact than investing in socially responsible foreign funds. All you accomplish by investing in these funds is making your self feel good while simultaneously harming your expected future net worth.

[VagabondMD]

Zaphod wrote:

Vagabond MD wrote:

You could buy the total market and sell short the gun companies, if it will make you feel better. You could anticipate your ownership percentage and mathematically subtract them. I have never heard of anyone to do this, but it can be done.

Alternatively, there are lots of ESG-oriented investment products ( index funds, ETFs, and actively managed funds) that attempt to overweight companies with better environmental, social, and governance practices.

https://www.investopedia.com/terms/e/environmental-social-and-governance-esg-criteria.asp

https://www.marketwatch.com/story/your-401k-probably-has-gun-stocks-in-it-heres-how-to-get-rid-of-them-2018-02-23#false

It is probably easier than ever to avoid investments that contain gun manufacturers, per se. If you further generalize it and include large armaments (General Dynamics), fighter jets (Boeing), etc., or gun sellers (including Walmart) it is more difficult and more expensive, but still possible.

Or, you could use the money you save by investing in the lowest cost funds and support organizations that push back on the NRA (https://brokelyn.com/new-york-gun-control-groups-donations/).

Click to expand…

I was thinking similar, but its complicated and expensive. One way to reduce expenses at the cost of increasing complexity would be to buy the total/sp type funds and short via options an appropriate number of contracts (a number of structures could reasonably approximate it). You could reup the contracts every other January as typical ones go 2 years.

The upside of that is it shows you how truly expensive and costly the behavior is and may help to reframe things.

Click to expand...

Yes, you could buy way out-of-the-money puts, lose a little cash and feel good because you exerted a modest amount of downward pressure on these companies' stocks.

Or you could just support Everytown (or similar) and contribute to an organization that is actually trying to further the agenda.

[TheHappyPhilosopher]

Invest in what gives you the best risk/return with the lowest fees, then take the money you generate and do something with it that aligns with your values and personal morality. When you buy securities on the secondary market (IPO is different) you are trading money with other investors, not giving the company money. The stock will be worth what it is regardless of your decision not to purchase it. You have much more influence on the world by choosing what you spend your money on rather than which mutual fund you buy, but ultimately do what is right for you. Personally I think 'socially conscious' funds are a gimmick and wouldn't invest in them unless you somehow think the risk return is superior to other alternatives.

[RetiredERdoc]

If you start thinking about it, we do a lot of things in our daily lives that are ethically questionable. Buy a diamond engagement ring, contribute to war. Drive a car, contribute to global warming. Wear clothing, contribute to child labor. Water your lawn, contribute to water shortage. Buying an index fund seems like a much lesser sin.