Larry Swedroe on the price paid for Socially Responsible Investing

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nedsaid
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Re: Larry Swedroe on the price paid for Socially Responsible Investing

Post by nedsaid » Tue May 16, 2017 10:07 am

Wow. I have wasted my time on small-factor tilting. I should have a vice/sin tilt. Turns out sin is very profitable but only in this life. I can imagine the academics going crazy over this. Enquiring minds want to know, does sin work better for large caps or small-caps? I think Larry said that sin had better value than virtue. I guess the ultimate diversifier would be a low cost sin/small-cap value ETF.

My guess is that sin has value characteristics in that it doesn't do so well in hard times. As the preacher man said, when sinners stop sinning, you know times are tough out there. :wink:
A fool and his money are good for business.

Independent George
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Re: Larry Swedroe on the price paid for Socially Responsible Investing

Post by Independent George » Tue May 16, 2017 10:23 am

Socially Responsible Investing always seemed like shallow virtue-signalling to me.

1. People will (and do) pay a lot of money to signal virtue.
2. If sin were not profitable, neither saints nor sinners would put any money into it.
3. Likewise, if virtue is profitable, sinners will be just as eager to invest as saints.
4. My ideas of sin and virtue do not necessarily align with that of others.

aristotelian
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Re: Larry Swedroe on the price paid for Socially Responsible Investing

Post by aristotelian » Tue May 16, 2017 10:31 am

Article conveniently does not mention effect of excluding oil. FTSE Social Index (VFSTX) has actually outperformed S&P/Total Stock and crushed Energy sector in 5 year time frame. Social Index is slightly behind Total Stock over 10 years.

bhsince87
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Re: Larry Swedroe on the price paid for Socially Responsible Investing

Post by bhsince87 » Tue May 16, 2017 1:50 pm

aristotelian wrote:Article conveniently does not mention effect of excluding oil. FTSE Social Index (VFSTX) has actually outperformed S&P/Total Stock and crushed Energy sector in 5 year time frame. Social Index is slightly behind Total Stock over 10 years.

I believe VFSTX includes some oil and gas. But no nukes.
BH87

Vanguard Fan 1367
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Re: Larry Swedroe on the price paid for Socially Responsible Investing

Post by Vanguard Fan 1367 » Tue May 16, 2017 2:40 pm

I played with a socially responsible Fund a number of years ago. They didn't keep track of my reinvestments, didn't perform well
etc. and it was a good thing I only invested one grand just to see what would happen.

Later I heard about "the perfect stock" Phillip Morris. PM I did ok investing in that although the wife wasn't too excited about that.

Uniballer
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Re: Larry Swedroe on the price paid for Socially Responsible Investing

Post by Uniballer » Tue May 16, 2017 3:12 pm

I'm afraid there is some confusion showing between Vanguard FTSE Social Index Fund Investor Shares (VFTSX) and Vanguard Short-Term Investment-Grade Fund Investor Shares (VFSTX).

FinancialDave
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Re: Larry Swedroe on the price paid for Socially Responsible Investing

Post by FinancialDave » Tue May 16, 2017 4:52 pm

All I can say on this topic is "Not all Socially Responsible Funds are created equal."

I can back this up with my own real life experience which now has about 10 years under it's belt in my granddaughter's 529 plan. When I originally set it up about 10 years ago I put one lump sum into it and have not added to it since, nor changed the allocations, so the total returns of the two comparative funds TIEIX and TISCX, both Large-cap Blend funds should tell the story.

Morningstar reports the TIAA Equity Index at a 10 year return of 7.16% and the TIAA Social Choice fund @ 6.83%. Almost exactly 1/3% lower for the Social fund, which is actually much better than I expected and much better than the article suggests.

It also appears that about 1/2 of the difference can be explained by the higher ER of the Social Choice fund.

Dave
I love simulated data. It turns the impossible into the possible!

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bertilak
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Re: Larry Swedroe on the price paid for Socially Responsible Investing

Post by bertilak » Tue May 16, 2017 5:00 pm

Independent George wrote:Socially Responsible Investing always seemed like shallow virtue-signalling to me.
...
4. My ideas of sin and virtue do not necessarily align with that of others.
See my sig below: "I have a strong moral sense - by my standards" (as of this posting).

The trouble is, only I know what those standards are. The fund managers certainly don't know!
May neither drought nor rain nor blizzard disturb the joy juice in your gizzard. -- Squire Omar Barker, the Cowboy Poet

Lars_2013
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Re: Larry Swedroe on the price paid for Socially Responsible Investing

Post by Lars_2013 » Tue May 16, 2017 5:16 pm

Socially responsible investing as virtue signalling doesn't make a lot of sense if nobody knows how you're invested. For example, my spouse insisted that we use a socially responsible fund for his IRA, but nobody knows this except us (and, now, you all). And, yes, I told him that they tend to get somewhat lower returns than index funds and that it's not clear how much of an impact on the world that choice makes. (I've chosen to invest in total stock market / total international for the stock portion of my investments.)

In terms of a match to a socially responsible fund that fits your values, I think that is possible for many people. For example, my religious congregation's investments are invested in mutual funds with a (nonprofit) investment management company that was created to serve institutions in our denomination. Its funds (I think there's only four of them) have social screens that match our denomination's historical values. The expense ratios are higher than Vanguard, but lower than many actively managed funds. And the investment company does engage in shareholder advocacy, I'm sure much to the annoyance of company management and other institutional shareholders. More to the point, I suspect that if asked to choose between investing in a non-socially responsible fund and not investing at all, my congregation would choose not investing at all. So the existence of socially responsible funds allows us to at least be investing.

mantaray
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Re: Larry Swedroe on the price paid for Socially Responsible Investing

Post by mantaray » Tue May 16, 2017 6:26 pm

Returns are not guaranteed to be worse. VFTSX has done very well in recent years, beating out Total Stock Market and S&P500.

I personally don't really mind tobacco, alcohol, or firearms, which has caused some second thoughts when I see Budweiser or Philip Morris doing well. But being overweight on technology and underweight on fossil fuels doesn't seem like the worst idea for long-term investing.

There's also the guilty pleasure of deviating from "VTSAX / VTIAX all day every day"...

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