I am very well aware of the arguments for investing in low cost Vanguard funds, and especially TSM, which I am currently doing. However, I am having some second thoughts about holding mutual funds as opposed to individual stocks that I am sure others here have also grappled with. The problem for me is that the indexes contain quite a few stocks whose business model depends on selling products that harm people--stocks whose management actively works to hide and deprecate just how dangerous their products might be. I'm primarily talking about tobacco, junk food, and Big Pharma
I was recently looking at the holdings of a fund I own which has performed very well for me, and was disturbed to see that it held a significant position in Amgen. For those who don't follow drug news, Amgen was recently convicted of a criminal count of marketing a drug off label to cancer patients which increases their chances of dying. The company knew that this drug was killing people, but continued to market it aggressively. This is not rumor. I have a personal contact who was in the room (guarded by armed guards) back when the news came out that this drug was killing people, where the company's top executives instructed their sales people on how to defuse doctor concerns about the reports of deaths associated with the offlabel use of this drug so as to keep them prescribing it. After being convicted of a criminal offense, Amgen paid a fine that was a tiny fraction of the profits it had made from this off label marketing. It was not barred from doing business with Medicare nor were any executives given any kind of punishment. In short, they killed people, took a slap on the risk, and continue to be very profitable.
This is very similar to what happened with Lilly who marketed a drug, Zyprexa, off label, though it has the ability to make people permanently diabetic. This happened to the teenaged daughter of a friend who was prescribed it for an off-label use.
So it's understandable that I don't want to share any of the profits Amgen earns, nor do I want any part of the profits of several other drug companies who are aggressively marketing drugs I have reason to believe are equally dangerous. Unfortunately, TSM and just about every other Vanguard Large Cap fund I can find holds significant holdings in the companies that make these drugs, too.
So I am asking myself, why is it that decent people who would risk their lives to save an old person in a burning building are willing to fund their retirements with the profits from companies that earn money by hastening far too many older people to their deaths? Is it any different letting an index fund buy the shares and share the profits, than it woudl be if I bought the stock myself?
And why is it that people who are very careful to watch their own health and to reach out to others to help them live healthier lifestyles have no compunctions about sharing the profits of companies like Coke, Pepsi, and Altria (Phillip Morris and chewing tobacco.) You wouldn't turn a neighbor on to heron, but when your index fund buys companies that sell addictive substances--often with strategies that sneakily target teens--it gets a pass.
I recognize that the companies that profit in ways that disturb me aren't the companies that profit in ways that may disturb you, but the point I'm getting at is that when we buy funds and particularly index funds, we end up sharing the profits of companies that we would never personally want to be associated with--companies that in many cases have a business model that requires them to sell products that harm people or violate our deeply held moral beliefs.
There are funds that supposedly invest in "socially responsible" companies but when I look into their holdings I see that they hold many companies that might recycle their garbage, and limit their use of fossil fuel, but sell products that kill people. Amgen is a top ten holding of the Calvert Equity Fund, which is supposed to be one of the top 5 socially responsible funds.
What are your thoughts on this issue. Does your own need for money as you get older justify turning a blind eye to exactly what is producing the profits of the companies that fill your index funds?
This sometimes makes me wonder whether, even though it isn't anywhere as effective an investment strategy, it might be more ethical for me to invest in 50 or more individual stocks whose business model does not disturb me, rather than putting my money in an index fund and linking my fortunes with companies whose business model depends on harming others and whose executives persist in marketing harmful products long after their harm has become apparent.