For all the wealth that the financial markets can create for long-term investors, there is one thing that I think has been lost: The idea of investing as ownership. Originally, many investors viewed their shares as a piece of the company, and they felt some connection to the company’s successes and failures that went beyond stock gains and losses.
Today, of course, many investments are bundled through mutual funds or ETFs or allocated by asset class through an investment firm, and most people view their portfolios as a number on a statement that grows or shrinks with the market. But what would they think if they knew more about the companies behind those numbers? Would they feel good about the impact their money is having on the world?
For people who seek to live their lives in accordance with their faith, taking some kind of “ownership” for their investments is an important step. But this kind of highly tailored, highly personalized investing traditionally has been time consuming and expensive. In the past, it could have also precluded an investor from earning a comparable return to that of an unrestricted portfolio.
Faith-based investing also wasn’t a large enough market to attract advisors, and so most people couldn’t even consider this kind of approach. However, with the rise of new faith-based investment strategies that use modern investing approaches, it’s possible to let beliefs and values serve as a guide for investing. That can be a very good thing for investors and advisors.
Understand The Different Forms ‘Faith-Based’ Investing Can Take
It has become clear that there is a need for more education about what constitutes faith-based investing. While it is by no means a comprehensive list, the following considerations can help investors navigate the faith-based opportunities available today to determine if an investment is right for them.
• Exclusionary screening: This is what most people think of first—purposefully not investing in companies in certain industries, such as tobacco, pornography, gambling, or other things that might fall under the heading of “vice.” In some cases, companies may be excluded because they provide support for abortion, embryonic stem cell research or other activities that do not align with someone’s religious views. But each fund will have its own definition of exclusions, so make sure you understand how it is being managed and whether that approach aligns with your values.
• Investing for purpose: If screening out avoids the bad, this approach supports the good. What positive change do you want to see in the world, and what companies are working towards that? It could be medical research battling disease, or companies that are taking steps to combat hunger, or that have a positive influence on local communities. Many “impact investments” specifically target such goals. Aligning your investments with positive action can be very fulfilling. If this is how you want to live your faith, be sure to ask if the funds you are considering take this approach.
• Sorting through the acronyms: Faith-based investing is a subset of what would be called “values-based investing.” Within this category you may hear about ESG (Environmental, Social, and Governance), SRI (Socially Responsible Investing), BRI (Biblically Responsible Investing) and many other subsets. All of these may align with a person’s values, but only those with a basis in religious or faith alignment would be considered faith-based. One challenge is that it’s easier to slap a label on a fund than do the work to make it align with specific values. Ask to see what is in a fund and how those investments are justified.
• Balancing values and return: At the end of the day, advisors also have a fiduciary responsibility to their clients, and fund managers and asset managers recognize this. There are ways to help maximize return, but you always need to understand any potential tradeoff and how a manager addresses risk and return. Another key point to remember is that even funds without the label of “faith-based” could be appropriate for a portfolio if they screen clean. As long as an investment meets the criteria you’re screening for, it may align with your values.
The Burden Of Knowledge And How It Affects Faith-Based Investing
Deciding what goes into a faith-based fund takes thoughtful consideration and what I would call “the burden of knowledge.” Sometimes situations change over time, or new facts come to light that force you to reconsider where your money is invested. In these cases, you might be forced to make a judgement call, weighing pros and cons.