Help with Starting Socially Responsible Investment

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mrengy
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Help with Starting Socially Responsible Investment

Post by mrengy »

I just landed my first full-time job and am starting out with investing.

28
single
salary = $55k
MA resident, but soon moving to RI.
I rent my apartment.
Have $86k to pay off for borrowed money for college (from my mom - no interest).

company offers a SIMPLE IRA (match up to 3% of salary).
about to open a Roth IRA with Vanguard.

I have read a few books on the Bogleheads list - they offer good background info and some example portfolios.

But I am interested in socially-responsible investing. It is important for my values to invest in companies that have a less-harmful or beneficial social and environmental impact. I have seen a few green funds through Vanguard and a few piecemeal recommendations, but I have generally had a hard time searching for them.

Does anyone have a good resource for portfolio construction using socially responsible funds?
infecto
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Post by infecto »

In my opinion most of the socially responsible funds are just high ER crap. I think most people would be better off just investing in normal index funds and then donating money towards whatever they enjoy. After all, you are not benefiting any socially responsible companies when you buy these funds.

The best place I know of is Social Investment Forum which has a decent chart of funds.
http://www.socialinvest.org/resources/m ... mf_expense
dcd
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Post by dcd »

My son has a Roth IRA invested in CREF Social Choice. ER is .41 and the asset allocation is 60% stocks and 40% bonds. It's a decent choice for a social fund. http://www.tiaa-cref.org/public/perform ... /1005.html
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saurabhec
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Re: Help with Starting Socially Responsible Investment

Post by saurabhec »

mrengy wrote:But I am interested in socially-responsible investing. It is important for my values to invest in companies that have a less-harmful or beneficial social and environmental impact. I have seen a few green funds through Vanguard and a few piecemeal recommendations, but I have generally had a hard time searching for them.
Socially responsible funds are a marketing scheme masquerading as do-gooders. Their sole purpose is to extract wealth from the pockets of the uninformed, the holier-than-thou, and the trendy into the pockets of investment managers lacking in talent. The superficiality of this label need not be addressed further than to note that plenty of these funds were overloaded with BP stock because of the image they had of being "greener" than the other dirty oil companies.

That said if you are hell bent on exercising your freedom to pour money into high cost marketing schemes, a simple Google search should surface many managers of money who supply product to meet your needs. Domini Funds is the oldest of such marketing schemes that I am aware of:
http://www.domini.com/
BenAiken
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Post by BenAiken »

I read this article about corporate governance however I have yet to see a fund that invests in it. I'm sure if there was it would be expensive.

Firms with the greatest shareholder rights outperformed firms with the fewest shareholder rights by a risk-adjusted 8.5% per year (0.29 - - 0.42 = 0.71 x 12 = 8.52%)


CORPORATE GOVERNANCE AND EQUITY PRICES, [Quarterly Journal of Economics 118(1), February 2003, 107-155]. By Gompers, Ishii, and Metrick
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House Blend
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Post by House Blend »

mrengy,

Welcome to the forum.

Every time someone raises questions about Socially Responsible investing here, there is no shortage of over-excited Bogleheads wanting to stifle the idea. I don't own any SR funds, but I also don't see the need to use sarcastic attacks on those who peddle them or those who buy them.

I recommend this calmer and more nuanced article by Henry Blodget in the Atlantic:
http://www.theatlantic.com/magazine/arc ... stor/6192/

FWIW, it does come down on the side of the not-worth-it camp.

BTW: CREF Social Choice is not available to the public--you have to meet their eligibility criteria even in the case of an IRA. But TIAA-CREF also has a 100% stock SR-guided mutual fund, TICRX. Retail share class has an ER of 0.63% (0.61% after waivers). I would also note that it is benchmarked against the Russsell 3000 (a Total US Market index), but IMO this is inappropriate, because the fund prospectus says that it can invest up to 15% internationally.
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Noobvestor
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Post by Noobvestor »

My 2 Cents: don't try to do it with your whole portfolio. As these guys point out, there are a lot of ways to try that won't help you or anyone else the way you might hope. Sad but true. Personally, I think options like Kiva and (to a lesser extent perhaps) Lending Club are places you can, on the side, invest money where you can expect your principal and perhaps even interest to come back to you, while also helping out others. *shrug*
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dm200
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Re: Help with Starting Socially Responsible Investment

Post by dm200 »

mrengy wrote:I just landed my first full-time job and am starting out with investing.

28
single
salary = $55k
MA resident, but soon moving to RI.
I rent my apartment.
Have $86k to pay off for borrowed money for college (from my mom - no interest).

company offers a SIMPLE IRA (match up to 3% of salary).
about to open a Roth IRA with Vanguard.

I have read a few books on the Bogleheads list - they offer good background info and some example portfolios.

But I am interested in socially-responsible investing. It is important for my values to invest in companies that have a less-harmful or beneficial social and environmental impact. I have seen a few green funds through Vanguard and a few piecemeal recommendations, but I have generally had a hard time searching for them.

Does anyone have a good resource for portfolio construction using socially responsible funds?
I am in favor (in theory) of "socially responsible" investing, BUT there are so many problems (in my view) that I have not been able to reconcile my views with any "socially responsible" funds that exist. Without getting into my particular views, let me list some of the kinds of challenges someone might face.

Tobacco companies are usually viewed as "bad", yet many such companies have divisions that have perfectly good products.

Overuse of alcohol is not socially responsible, but it is 100% legal and, most believe, is not harmful when used in moderation. Is this "socially responsible" or not?

The typical "socially responsible" investment advocate would stay away from nuclear power, BUT such power is not a fossil fiel and does not contrinute to carbon dioxide buildud and global warming. Which is the "socially responsible" side?

Defense and arms manufacturers are usually viewed as not "socially responsible", yet these companies often have a large segment in civilian products and we might be better off and safer if we can fight the bad guys.

Drug companies, pharmaceutical companies, etc. do things that save millions of lives, but may do things that are not good for "life" as some see it.

Some companies and organizations are viewed as not socially responsible because they deal with meat production (animals), while some companies are viewed as socially responsible by many promote abortions, which is not "socially responsible" by many.

My bottom line: TOO complicated to figure out.
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nisiprius
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Post by nisiprius »

mrengy, here are some thoughts from someone who used SRI funds as a meaningful fraction of his portfolio for many years (but gradually drifted away).

I've used four SRI funds: Pax World Balanced (PAXWX), Domini Social Equity (DSEFX), Vanguard FTSE Social Index (VFTSX), and CREF Social Choice (an "account," not a mutual fund).

As to how to use them in portfolio construction, all of the ones I've listed attempt to be very broad, diversified funds that are basically everything with the socially irresponsible companies screened out. So the assumption is that the balanced funds (Pax World Balanced, CREF Social Choice) can be used the same way you'd use any other 60/40 balanced fund like Vanguard Balanced Index; while the stock funds, which are both large-cap, (Domini Social Equity, Vanguard FTSE Social Index) can be used the same way you'd use an S&P 500 fund. The charts I'm going to show bear that out. The general behavior of the SRI stock funds is similar to their index counterpart, and the general behavior of the balanced fund is similar to its index counterpart.

It would be a good idea to read the chapter on SRI funds in The Only Guide to Alternative Investments You'll Ever Need: The Good, the Flawed, the Bad, and the Ugly, by Larry Swedroe and Jared Kizer. They classify SRI as "flawed," and my now-hazy recollection is that it was a very even-handed presentation.

There are two reasons people oppose SRI funds. One is that they are ideologically opposed to the very idea. I flatly reject that view but won't go into details, too close to the borderline in this forum.

Another is that they are diehard Bogleheads! From that point of view, SRI funds are sort of "meh." They just don't work very well. They are no worse than lots of other funds and better than many, but often flawed by active management and/or high expense ratios. The growth charts tell part of the story. Here are the two SRI stock funds and good old Vanguard Five Hundred index (VFINX) over the time period in which VFTSX has existed.

Image

Past performance is no indicator of future results, but, on the face of it, during the time period all three funds existed, if you started with $10,000, you "paid" $641.53 for your principles with DSEFX, $2097.93 with VFTSX. Is that too much to pay? $2,000, I say hell yes. But would it be better to have invested in VFINX and donated $641 of the proceeds to charity--and would you really have done that?--or to have invested in DSEFX? That's not a question anyone else can answer for you.

Over the full period of time DSEFX has existed, the growth charts look like this. Up to maybe 2003 you could kid yourself into believing that DSEFX was essentially interchangeable with an S&P fund, that the SRI didn't cost you a dime. But that was an illusion from the tech-boom days, because the social screens tended to let the tech stocks through.

Image

But over about 19 years, you ended up with about 10% more using VFINX than DSEFX; about 0.5% more per year. Is that negligible? Is that huge? Only you can judge.

PAXWX, which is a very venerable fund by the way, I'd compare to Vanguard Balanced Index. The chart shows only the time period in which Vanguard Balanced Index existed. They are the orange and the blue lines respectively, and sometimes orange is winning, sometimes blue is. Right now PAXWX is behind, but it's pretty respectable considering PAXWX has almost a 1% expense ratio. But, ah. PAXWX is an actively managed fund, so maybe it should be compared against everyone's favorite active fund, Vanguard Wellington, the green line.
Image

Only you can make the decision. Do not assume SRI comes for free. In my opinion, yes, all four of the funds I've mentioned are meaningfully inferior to Vanguard's mainstream index funds (VFTSX proves that just having the word "index" in the name and a low expense ratio isn't enough!)

P. S. And do read the material on how the fund does its screening. Their judgement of what is "socially responsible" may not be the same as yours.
Last edited by nisiprius on Tue Oct 19, 2010 11:44 am, edited 5 times in total.
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centrifuge41
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Post by centrifuge41 »

Here's the top 10 holdings in the Vanguard FTSE Social Index:
Apple
Proctor & Gamble
JP Morgan Chase
Bank of America
Wells Fargo
Cisco
Intel
Oracle
Google
McDonalds

Here's the top 10 holdings in the Vanguard Total Stock Market Index:
ExxonMobil
Apple
Microsoft
Proctor & Gamble
Johnson & Johnson
IBM
GE
JP Morgan Chase
Bank of America
AT&T

I'm not sure how they determine what makes a company "good" or not? Are the big name banks "good?" Is ExxonMobil "bad"? Is Microsoft "bad"? Is J&J "bad"? Not sure if there are clear-cut answers, but the diminished performance of this pick and choose "good/bad" seems to have led to clear underperformance thus far.
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Post by Opponent Process »

McDonalds is good for cardiologists.
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infecto
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Post by infecto »

My issue is, it does not help responsible companies by investing in said fund. All you are doing is throwing money away imo.
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Post by flyfisher_work2 »

start your own socially responsible company and invest in that.
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Post by tetractys »

We're all members of one global family, and investing in the world market as a whole is one way to acknowledge that. Just as well, we're all responsible for the world, and there's no shelter in attempting to dump that responsibility on someone else.

But, there are a few companies that are obviously evil, using their revenues to publicly and directly fund genocide. These companies are so bad that shareholders of even some big fund houses, like TIAA-CREF and American Funds have voted and eliminated these companies from their funds.

I'm sad to say that Vanguard shareholders and board are still largely gutless wussies on this point. They would rather see their money used to slaughter innocents en masse, than veer one iota from a perfect index or investment principle. -- Tet
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Post by nisiprius »

infecto wrote:My issue is, it does not help responsible companies by investing in said fund. All you are doing is throwing money away imo.
You are entitled to your opinion. I would submit that if the FTSE4Good committee talks to Xerox and tells them what they need to do to get listed in the index, and if Xerox does it, and they get listed, and Xerox issues a press release proudly announcing the fact, that is at least a scintilla of a suggestion of a trace of an iota of weak evidence that FTSE4Good's jawboning of companies might not be 100.00000% ineffectual.

But the original poster wasn't asking "should I?" He was asking "how do I?"
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Post by dm200 »

There are two reasons people oppose SRI funds. One is that they are ideologically opposed to the very idea. I flatly reject that view but won't go into details, too close to the borderline in this forum.

Another is that they are diehard Bogleheads! From that point of view, SRI funds are sort of "meh." They just don't work very well. They are no worse than lots of other funds and better than many, but often flawed by active management and/or high expense ratios.
I reject them primarily for the reasons in my longer post above -- MY definition of "socially responsible" is sometimes different (or VERY different) than the definition used by the folks who run the funds and those who invest in them. If there was a fund that matched my definition of "socially responsible" much more closely, then I would consider such an invrstment.
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Post by Opponent Process »

tetractys wrote: They would rather see their money used to slaughter innocents en masse, than veer one iota from a perfect index or investment principle. -- Tet
it would be impossible to limit your investments to countries that haven't slaughtered innocents en masse. switzerland, maybe?
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Post by dratkinson »

I don't remember where I learned it, but long ago (before finding the BHs) decided that SR investing was not worth it as you earned less than the market. (May have been the annual June Money Mag mutual fund issue. SR funds underperformed TSM.)

Try this instead. Invest in the whole market per BH guidance. Accept the excess return over SR investing and contribute the excess to your favorite charity. I see this as win-win-lose---(1) you earn more, (2) your favorite charity receives more, and (3) you restrict your wealth grow to the same level as if you invested in SR funds.

Just my 2 cents.
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tetractys
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Post by tetractys »

Opponent Process wrote:
tetractys wrote: They would rather see their money used to slaughter innocents en masse, than veer one iota from a perfect index or investment principle. -- Tet
it would be impossible to limit your investments to countries that haven't slaughtered innocents en masse. switzerland, maybe?
Opponent Process,

It's clear my post is in present tense, referring to a few companies openly funding genocide with large revenue streams right now, and to large fund houses banning those few egregious companies from their funds right now. I think you know that, yet you spit out a remark that makes absolutely no sense. -- Tet
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Post by infecto »

nisiprius wrote:
infecto wrote:My issue is, it does not help responsible companies by investing in said fund. All you are doing is throwing money away imo.
You are entitled to your opinion. I would submit that if the FTSE4Good committee talks to Xerox and tells them what they need to do to get listed in the index, and if Xerox does it, and they get listed, and Xerox issues a press release proudly announcing the fact, that is at least a scintilla of a suggestion of a trace of an iota of weak evidence that FTSE4Good's jawboning of companies might not be 100.00000% ineffectual.

But the original poster wasn't asking "should I?" He was asking "how do I?"
And I provided a great link with a list of most SR funds and their various metrics. The point stands, investing in SR funds serves no benefit for the company, the investor or the planet. It only serves to fatten fund manager pockets. I am not going to just answer someones question if I feel there is more to be said.

If you want to do socially responsible investing just buy a total market index. At the end of every year calculate the return difference between total market and XYZ SR Fund and donate it.
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Post by nisiprius »

infecto wrote:
But the original poster wasn't asking "should I?" He was asking "how do I?"
And I provided a great link with a list of most SR funds and their various metrics.
You're right, I see now that you did.
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mrengy
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Post by mrengy »

Thanks for the thorough responses, all. Indeed I can see that "greenwashing" is a factor, and it will be important to thoroughly research a fund's screens and holdings to see behind the label of "socially responsible". I had heard before, as saurabhec pointed out that
plenty of these funds were overloaded with BP stock because of the image they had of being "greener" than the other dirty oil companies.
. To me, even if an SR fund is not perfect though, I would accept lower returns for omitting ExxonMobil and the like from my portfolio. Although its holdings may be arguable, the fact that it is "better" is an argument for choosing it.

As a new investor, it's a bit disheartening that the area of SRI is not more developed with better metrics and standards. Of course, that begs the question of how to measure social / environmental impact. It seems that the only metric that is clearly and objectively defined is performance.

Yes, originally I was asking "how to" rather than "should I", but it is helpful to hear people's thoughts as to whether "one should" and alternatives to SRI such as investing primarily in the market and on the side
Kiva and (to a lesser extent perhaps) Lending Club
.

I'll have some homework and a bit of soul searching to do.
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Post by NSW »

Consider that perhaps the most socially responsible thing you can do is take care of yourself and your family so no one else has to.
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Post by White Coat Investor »

mrengy wrote:Thanks for the thorough responses, all. Indeed I can see that "greenwashing" is a factor, and it will be important to thoroughly research a fund's screens and holdings to see behind the label of "socially responsible". I had heard before, as saurabhec pointed out that
plenty of these funds were overloaded with BP stock because of the image they had of being "greener" than the other dirty oil companies.
. To me, even if an SR fund is not perfect though, I would accept lower returns for omitting ExxonMobil and the like from my portfolio. Although its holdings may be arguable, the fact that it is "better" is an argument for choosing it.

As a new investor, it's a bit disheartening that the area of SRI is not more developed with better metrics and standards. Of course, that begs the question of how to measure social / environmental impact. It seems that the only metric that is clearly and objectively defined is performance.

Yes, originally I was asking "how to" rather than "should I", but it is helpful to hear people's thoughts as to whether "one should" and alternatives to SRI such as investing primarily in the market and on the side
Kiva and (to a lesser extent perhaps) Lending Club
.

I'll have some homework and a bit of soul searching to do.
You do realize the money you're paying for the stock doesn't go to the company, right? It goes to the investor who owned it before you.

The best you can hope for by not buying this stock is that the stock price drops and someone else buys it (maybe all of it). As near as I can tell, SRI INCREASES the returns on non-SR companies' stock.

What impact were you hoping this investment decision would have?
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Post by beardsworth »

mrengy (original poster),

As your post initiating this thread was your first post ever on the bogleheads forum, I cringed when I saw that the very first reply labeled socially screened funds as "crap," and the third reply labeled them as "a marketing scheme masquerading as do-gooders [whose] sole purpose is to extract wealth from the pockets of the uninformed, the holier-than-thou, and the trendy." You'd already made clear that social considerations were important to you, so I thought: Well, that's a hell of an introduction to this forum. I'm glad you later got some more tactful and on–target replies.

You are caught in the dilemma of all of us who have wrestled with this issue:

•To the claim that socially screened funds may not perform as well as their all–market counterparts which don't screen, the response may be that the screens themselves are the reason, i.e., that one can indeed make more money with an all–market fund than with a socially screened fund––but only by investing in companies that do all sorts of crummy things, the avoidance of which is exactly what drew you to socially screened investing in the first place.

•And, as you have seen in this thread––and as happens just about every time someone starts a new thread here about socially screened investing––some people argue: invest in the whole market, even the companies whose activities you find most objectionable, and then donate part of your earnings to worthy charities of your choice. This goes to the question: Is it OK to make money in any way possible, and then try to ameliorate the side effects later, or is it important to also make one's money in the least damaging/most "ethical" way possible––however each of us conceives those terms? As you see from this thread and others, it's a question that matters a great deal to some people, and not much to others. (I simply say that as an observation, not a "judgment.")

I've never had a firm answer. When I look down the "holdings" lists of various mutual funds I've owned or considered, I always see the names of companies which are acting in ways I consider disgusting––and I feel rather queasy thinking that they justify their crummy actions (whether it be abuse of the environment, or devastating my wife's small home town by firing thousands of people and outsourcing their jobs to the Third World, or whatever) "to benefit our shareholders Mr. & Mrs. MarcMyWord." I would rather they not do those things (and in fact we don't own any fund containing the stock of the company that economically destroyed my wife's home town). . . . The problem is that every time I've ever looked at the holdings of any socially screened fund, I also see some company names where I wonder How in the world did they ever get on that list?

So, if a person is going to invest in stock–holding mutual funds at all, it's probably impossible to do it without investing in some things which offend the person's claimed "values" in certain ways––but some socially screened funds may offend less. . . . It also doesn't help that most such funds concentrate on domestic stocks, which isn't helpful to anyone wanting a substantial foreign component in the portfolio. . . . I personally haven't made the leap to socially screened investing. And, as you see from my thread, I deliberately use the term "socially screened," not "socially responsible," because I doubt that any mutual fund can truly deliver the latter. The ideal answer might be buying the individual stocks of companies of which you approve, but that's very cumbersome compared to the convenience of a mutual fund.

Best wishes in your search for answers that work for you.

Marc
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Post by nisiprius »

EmergDoc wrote:What impact were you hoping this investment decision would have?
That the index managers go out and jawbone the companies involved--and that the companies involved believe there's some public-relations benefit to being listed.

See my posting above, re Xerox.

I think that if the managers of, say, Pax World Fund, with $1.8 billion assets under management. ask to talk to company management, they probably can get an appointment and a respectful hearing--which is more than I could get by myself.
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Post by infecto »

EmergDoc wrote:
mrengy wrote:Thanks for the thorough responses, all. Indeed I can see that "greenwashing" is a factor, and it will be important to thoroughly research a fund's screens and holdings to see behind the label of "socially responsible". I had heard before, as saurabhec pointed out that
plenty of these funds were overloaded with BP stock because of the image they had of being "greener" than the other dirty oil companies.
. To me, even if an SR fund is not perfect though, I would accept lower returns for omitting ExxonMobil and the like from my portfolio. Although its holdings may be arguable, the fact that it is "better" is an argument for choosing it.

As a new investor, it's a bit disheartening that the area of SRI is not more developed with better metrics and standards. Of course, that begs the question of how to measure social / environmental impact. It seems that the only metric that is clearly and objectively defined is performance.

Yes, originally I was asking "how to" rather than "should I", but it is helpful to hear people's thoughts as to whether "one should" and alternatives to SRI such as investing primarily in the market and on the side
Kiva and (to a lesser extent perhaps) Lending Club
.

I'll have some homework and a bit of soul searching to do.
You do realize the money you're paying for the stock doesn't go to the company, right? It goes to the investor who owned it before you.

The best you can hope for by not buying this stock is that the stock price drops and someone else buys it (maybe all of it). As near as I can tell, SRI INCREASES the returns on non-SR companies' stock.

What impact were you hoping this investment decision would have?
+1

Not sure why anyone would have a dilemma about this. The world keeps turning as it has, regardless if you put your money in VTSMX or some SR fund. The clear problem with all SR funds is you are not benefiting anyone but the fund managers. I am not sure how to make it any more clear. Unless you have A LOT of money, there should be zero concern about SR investing.

Picking out a handful of companies (XOM) will just end up being hypocritical imo. There is no such thing as a SR corporation.
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Post by lorneabramson »

Here's an article I wrote on socially responsible index/passive asset class funds, for what its worth:

http://finance.yahoo.com/news/Investing ... 0.html?x=0
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Post by SP-diceman »

In my investments I try and steer clear of utility, natural gas,
oil, energy, tobacco, defense, conglomerate, drug, retail,
technology, telecom, fast-food, agriculture,
gun manufacturing, airline, automobile, financial, banking,
and education stocks.

While this may seem like a daunting task, it became much easier
after I stumbled on the:

Companies I Like Fund.

I would wholeheartedly recommend it to everyone.
(well, as long as you agree with me)



Thanks
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Post by Frugal Al »

My definition of Socially Responsible Investing is investing such that you're not a burden on the government, your parents, or your children. I'm sure you could find some wind farm projects that would be glad to accept your money, but I'm not certain they'd meet my definition. With all due respect to Henry Blodgett, I still like saurabhec's succinct, although acerbic, answer the best. Edit: and diceman's, and NSW's, too.
Last edited by Frugal Al on Wed Oct 20, 2010 11:16 am, edited 2 times in total.
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Barry Barnitz
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Post by Barry Barnitz »

mregny,

For what it is worth, we have a wiki page on Social Responsibility Indices.

Please see Social Responsibility Indices on the Bogleheads Wiki.

regards,
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Post by Valuethinker »

infecto wrote:In my opinion most of the socially responsible funds are just high ER crap. I think most people would be better off just investing in normal index funds and then donating money towards whatever they enjoy. After all, you are not benefiting any socially responsible companies when you buy these funds.

The best place I know of is Social Investment Forum which has a decent chart of funds.
http://www.socialinvest.org/resources/m ... mf_expense
I even supported the Green Party at the last election (and they won their first seat-- Brighton Pavilion is now represented by Caroline Lucas, MP Green! ;-)).

Having said that, I would argue for Infecto's approach.

Investing as broadly as possible in low cost index funds.

Setting aside a sum of cash, and distributing it to ethical campaigning groups such as Greenpeace, WWF, Sierra Club etc.

your leverage on that money is likely to be far greater in terms of what it achieves for the world.

Note one poster here said US WWF bombards him with so much paper he'd never give again. Something to research.

The market is not a good moral discounting mechanism. Unless a green investor is prepared to actively engage in proxy wars etc. they are unlikely to achieve real change in companies, and to do that they need big money, and big shareholdings.
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Post by Valuethinker »

BenAiken wrote:I read this article about corporate governance however I have yet to see a fund that invests in it. I'm sure if there was it would be expensive.

Firms with the greatest shareholder rights outperformed firms with the fewest shareholder rights by a risk-adjusted 8.5% per year (0.29 - - 0.42 = 0.71 x 12 = 8.52%)


CORPORATE GOVERNANCE AND EQUITY PRICES, [Quarterly Journal of Economics 118(1), February 2003, 107-155]. By Gompers, Ishii, and Metrick
There are various institutional products.

Oddly, it's generally easier to be an activist investor in Europe than the US, believe it or not-- Delaware company law is a big obstacle.

Robert Monks, the doyen of US corporate governance monitoring, is associated with a fund in Europe not AFAIK in America.

Bill Pershing I think does quite a bit of activist investing in the USA-- not quite the same thing but headed down that trail.
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Post by Valuethinker »

mrengy wrote:Thanks for the thorough responses, all. Indeed I can see that "greenwashing" is a factor, and it will be important to thoroughly research a fund's screens and holdings to see behind the label of "socially responsible". I had heard before, as saurabhec pointed out that
plenty of these funds were overloaded with BP stock because of the image they had of being "greener" than the other dirty oil companies.
. To me, even if an SR fund is not perfect though, I would accept lower returns for omitting ExxonMobil and the like from my portfolio. Although its holdings may be arguable, the fact that it is "better" is an argument for choosing it.

As a new investor, it's a bit disheartening that the area of SRI is not more developed with better metrics and standards. Of course, that begs the question of how to measure social / environmental impact. It seems that the only metric that is clearly and objectively defined is performance.

Yes, originally I was asking "how to" rather than "should I", but it is helpful to hear people's thoughts as to whether "one should" and alternatives to SRI such as investing primarily in the market and on the side
Kiva and (to a lesser extent perhaps) Lending Club
.

I'll have some homework and a bit of soul searching to do.
I went down this route, mentally, with a background in finance.

That colours my views.

But I concluded it was more important to put hard cash into the hands of organisations like Greenpeace, which campaign on environmental issues, than to have at best a marginal contribution via SRI investing.
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Post by nisiprius »

I don't know why opponents of SRI are so insistent in saying that it must have absolutely zero effect, zippo, nada.

Corporation executives want to think of themselves as moral people. They don't want to think of themselves as socially irresponsible. They want good PR, they don't want bad PR. SRI is just part of the complex social process why which we establish societal consensus as to what is and is not acceptable.

If someone says "Nestle kills babies," their response is not going to be "So? We don't care as long as it makes money for our shareholders," their response is going to be "We do not neither kill babies."

I'll bet that after William Vanderbilt said "The public be damned" he wished that he hadn't said it in front of a reporter, and started wondering what was the simplest, cheapest thing he could do that would get the whiners off his back.

It's a balancing act. There's a difference between saying SRI doesn't have enough effect to justify the costs of taking the fund manager's eye off the ball, and between saying it has no effect whatsoever.
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Post by beardsworth »

One socially screened fund I've been watching––because, unlike most, it doesn't lean so heavily toward U.S. stocks––is Northern Global Sustainability Index Fund (NSRIX).

It originally used an index from FTSE/KLD (i.e., Domini, the noted social screening firm), but last month changed to a similar index from Morgan Stanley/MSCI (the same firm which furnishes indexes for many Vanguard funds). The fund is heavy on large–cap companies, and in this case "global" is limited to developed markets.

The expense ratio so far is reasonable (0.65%), and Northern allows the opening of an account in most of their funds with an up–front lump sum of only $250 if the customer also enrolls for automatic additional purchases.

I have no personal experience with this fund, or with Northern Funds generally, but am posting the information in case anyone else is interested.

http://individual.northernfunds.com/pws ... /NSRIX.xml

http://portfolios.morningstar.com/fund/summary?t=NSRIX

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Post by newport1 »

centrifuge41 wrote:Here's the top 10 holdings in the Vanguard FTSE Social Index:
Apple
Proctor & Gamble
JP Morgan Chase
Bank of America
Wells Fargo
Cisco
Intel
Oracle
Google
McDonalds

Here's the top 10 holdings in the Vanguard Total Stock Market Index:
ExxonMobil
Apple
Microsoft
Proctor & Gamble
Johnson & Johnson
IBM
GE
JP Morgan Chase
Bank of America
AT&T

I'm not sure how they determine what makes a company "good" or not? Are the big name banks "good?" Is ExxonMobil "bad"? Is Microsoft "bad"? Is J&J "bad"? Not sure if there are clear-cut answers, but the diminished performance of this pick and choose "good/bad" seems to have led to clear underperformance thus far.
It seems to me that Exxon Mobile (which it appears to have been determined to be a socially irresponsible company) has created more good for mankind that all of the social do-gooders combined. This social responsible investing stuff seems to be based on very shallow thinking.
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Post by LikeYouImagine »

NSW wrote:Consider that perhaps the most socially responsible thing you can do is take care of yourself and your family so no one else has to.
Taking this idea one step further:

Consider that once your portfolio is large enough, you can spend your time as an activist for various causes without worrying about working full time.
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Post by Wide Right »

nisiprius wrote:I don't know why opponents of SRI are so insistent in saying that it must have absolutely zero effect, zippo, nada.

Corporation executives want to think of themselves as moral people. They don't want to think of themselves as socially irresponsible. They want good PR, they don't want bad PR. SRI is just part of the complex social process why which we establish societal consensus as to what is and is not acceptable.
...
You're assuming the "socially irresponsible" company has some control over its inclusion on an SRI blacklist. This isn't always the case.

Take firearms manufacturers for instance. Under what circumstances could a publicly held gun company work its way off an SRI blacklist and have its stock purchased by an SRI fund? I say there are none.

And why are firearms manufacturers included on such lists to begin with, when the data shows that defensive gun uses far exceed crimes committed with firearms? Not to mention the other positive uses of firearms, including their use in hunting and and in sporting events.
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Post by nisiprius »

Wide Right wrote:
nisiprius wrote:I don't know why opponents of SRI are so insistent in saying that it must have absolutely zero effect, zippo, nada.

Corporation executives want to think of themselves as moral people. They don't want to think of themselves as socially irresponsible. They want good PR, they don't want bad PR. SRI is just part of the complex social process why which we establish societal consensus as to what is and is not acceptable.
...
You're assuming the "socially irresponsible" company has some control over its inclusion on an SRI blacklist. This isn't always the case.

Take firearms manufacturers for instance. Under what circumstances could a publicly held gun company work its way off an SRI blacklist and have its stock purchased by an SRI fund? I say there are none.

And why are firearms manufacturers included on such lists to begin with, when the data shows that defensive gun uses far exceed crimes committed with firearms? Not to mention the other positive uses of firearms, including their use in hunting and and in sporting events.
Are you arguing that investing in SRI funds is useless because it has no effect whatsoever--an opinion, expressed by some posters in this thread, which I was countering?

Or are you making the quite different argument that it has a bad effect because they use screening criteria you think are dysfunctional and counterproductive?

I think it goes without saying that one should read the prospectus, understand the fund's screening and "engagement" policies, and not invest in the fund if you don't agree with those policies.

"I am angry at the screening criteria used by SRI funds" is quite different from "Even if you agree with the screening criteria SRI funds are a total waste because they have no effect on corporate behavior."

OK, that's my last post in this thread. (For the record, I've pretty much discontinued SRI investing myself--someone made a posting asking everyone to calculate the absolute number of dollars they were paying in each of their funds, and as a result I made a deeply conscientious decision that PAXWX's 1% ER was just too high).
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Post by BruceM »

My short view:

SRI is like religion: its a matter of personal belief and an expression of that belief. To some, this is important. To others, it is not relevant.

My owning shares/not owning shares of MO has little to nothing to do with their ability to be profitable or unprofitable, which is also the case with WFMI or any other publicly traded stock....buying their products has everything to do with making them profitable. But in holding shares of MO, through their dividend and growth in share price, I am sharing in their profitability.

If sharing in the profitability of a company causes you mental angst, then you should probably not go there. But, for many (most) investors, MO, PM, BA and others marked as 'socially irresponsible' (or whatever avoidance term is correct) are perfectly legitimate and legal companies that fill a need in the marketplace...a need that is voted into existance with consumer/government dollars. If the market elects not to use tobacco products, MO will either go out of business or find another product line the market wants.

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Post by dm200 »

In my opinion, this discussion/debate shows the difference between an ownership interest in a publicly traded, large company and direct ownership (and operation) of a company. In theory, I think, owning 100 shares of Mirosoft makes us like 1 millionth (or whatever the math shows) of Bill Gates. In reality, it is close to zero in impact on Mcrosoft.

One of the theories of socially responsible investing is that we should not invest in a corporation unless we would operate that cmpany ourselves morally and ethically, however profitable such an enterprise might be.

Would we manufacture firearms, build nuclear reactors, distil and market whisky, grow tobacco, raise chickens in cages, perform abortions, make cigarettes, own a house of prostitution where it is legal, and so on?

Resolving this dilemma, on many levels, is a challenge.
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Post by Frugal Al »

Interesting excerpt from the Domini Social Equity Fund Prospectus
Supplement dated May 21, 2010, to the
Prospectus dated November 27, 2009, regarding the
Domini Social Equity Fund®
Institutional Shares
(top of page 43):

"Domini’s standards currently prohibit investment by the Funds in
U.S. Treasuries, the general obligation securities issued by the U.S.
government. While Domini recognizes that these securities support many
public goods essential for our society, it has adopted this policy to reflect
serious concerns about the risks posed by our country’s nuclear weapons
arsenal and continuing large military expenditures."

How many Bogleheads would agree with a portfolio management that would take this stance? We already know that portfolio managers can't pick winning stocks when they say they can. What would qualify them to arbitrate what constitutes social responsibility? Social Responsibility Investing is purely for marketing to a subset of investors that want to feel all warm and fuzzy. And I'm not trying to belittle anyone, we all WANT to feel this way, but it isn't practicable.

There is not a mature corporation, or country for that matter, that hasn't at one time or another been lacking in "social responsibility," whether purposeful or incidental. It would be a small investing universe if I had to choose only the sweet and nice companies, or countries.
Last edited by Frugal Al on Wed Oct 20, 2010 3:18 pm, edited 1 time in total.
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Post by SP-diceman »

Frugal Al wrote:
"Domini’s standards currently prohibit investment by the Funds in
U.S. Treasuries, the general obligation securities issued by the U.S.
government. While Domini recognizes that these securities support many
public goods essential for our society, it has adopted this policy to reflect
serious concerns about the risks posed by our country’s nuclear weapons
arsenal and continuing large military expenditures."

When you rule out weapons and miltary's, you rule out most world GDP's.
Oooops, I see, its only America they hate.


Thanks
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Post by Opponent Process »

Frugal Al wrote:There is not a mature corporation, or country for that matter, that hasn't at one time or another been lacking in "social responsibility," whether purposeful or incidental. It would be a small investing universe if I had to choose only the sweet and nice companies, or countries.
exactly. if not for social irresponsibility we'd still be swinging from trees by our tails. IMO it's just a little silly to occupy a position of privilege due to past social irresponsibility and, while sitting pretty on top of the stack of dead bodies, try to shame others for attempting the same. I'm hanging on to my blood-soaked US treasuries.
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Post by Noobvestor »

Socially responsible investing. Fascinating thread. How about this: don't buy a car, buy a bike. Don't shop at the store, grow your own groceries. Quit your job (which is part of the global economic landscape regardless of what you do) and hand-craft tools, weapons, etc... In short, live in a shack and don't interact. Otherwise ... invest in the markets like the rest of us, index broadly, keep expenses low, donate time and money to good causes. The end.
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Post by beardsworth »

The amount of black–and–white, either/or, nuance–free thinking on this thread is pretty amazing.
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Post by leonard »

Even if a company some how meets a "socially responsible" standard, it is simply impossible that the entire web of stakeholders in that company - vendors, employees, owners, also meet that standard. So, even if you choose to invest in a socially responsible company, you are still involved with a lot of non-socially responsible activity. even if the company is only indirectly supporting that activity.
MarcMyWord wrote:The amount of black–and–white, either/or, nuance–free thinking on this thread is pretty amazing.
If it is still grey, you just need more light.
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Post by Noobvestor »

leonard wrote:
MarcMyWord wrote:The amount of black–and–white, either/or, nuance–free thinking on this thread is pretty amazing.
If it is still grey, you just need more light.
I second that. What people don't realize is that unlike making a personal choice to, say, recycled or not drive a car, any participation in the market is going to have complex consequences that are incredibly unpredictable.

Think of the inefficiencies of most charities (Bono's supposedly only puts 1% to actual good use - the rest is overhead) then multiply that by, well, the whole planet. Teasing out threads is essentially impossible.

Let me use my favorite LEED building guideline example. You get a point for using 'recycled material roof tiles'. Great! Let's do it! Only thing is, you could have used local non-recycled tiles, but to get those recycled ones you need to ship them halfway around the world from China. It still *looks* sustainable on paper, but in reality you just hurt the environment even more.

There is no way you are going to be 'sustainable' in your market investments - and, in all likelihood, you will not only fail if you try but ultimately line the pockets of someone who preys on people who labor under a false beliefs about autonomy of entities within a global market. I am open to other opinions, but ... it looks pretty black and white to me.
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Re: Help with Starting Socially Responsible Investment

Post by Noobvestor »

mrengy wrote:
But I am interested in socially-responsible investing. It is important for my values to invest in companies that have a less-harmful or beneficial social and environmental impact. I have seen a few green funds through Vanguard and a few piecemeal recommendations, but I have generally had a hard time searching for them.

Does anyone have a good resource for portfolio construction using socially responsible funds?
In short: what you are seeking to do is not possible. The kinds of funds you are looking for do not exist. Sorry :/
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