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Investing with a social conscience

You buy environmentally friendly products, care about corporate integrity and favor companies with clean labor practices.

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What if your financial decisions could reflect your social values? With socially responsible investing, or SRI, it is becoming easier than ever to align your investment choices with your ideals.

Investors can find the socially responsible investing approach in everything, from mutual funds to checking and savings accounts to venture capital, but, as with any investment, make sure to do your homework so you know exactly what you're getting into, and why.

What is socially responsible investing?
With socially responsible investing, investors can choose companies not only based on potential financial performance, but also on the company's environmental, social and governance practices. Alternatively called mission investing, ethical investing, sustainable investing or green investing, socially responsible investing seeks to deliver long-term wealth to investors in the form of financial returns and a cleaner, safer, more principled world.

Socially responsible investing officially has existed for centuries, beginning with religious groups who invested selectively, avoiding so-called "sin" investments such as alcohol or tobacco.

Socially responsible investing

The industry has expanded rapidly since the 1970s, when larger numbers of individual consumers began to ask for financial products that reflected their value systems.

While early SRI investments focused on the exclusion of certain sectors, today the industry uses sophisticated screening methods that allow consumers to select companies based on a variety of criteria.

"In the past it was easier to avoid certain industries, but investors now have many more choices," says David Strege, partner at Syverson, Strege & Co., a financial advisory firm in Des Moines, Iowa.

According to Fran Teplitz, managing director of the Social Investment Forum, a member association of institutions and social investment practitioners, socially responsible investing now accounts for an estimated $2.3 trillion out of $24 trillion in the U.S. investment marketplace, including investments from individuals and insititutions such as corporations, foundations, hospitals, endowments, pensions and religious organizations.

A growing social conscience
Socially responsible investing has evolved considerably since the first fund families were established more than 30 years ago, and the industry has experienced a surge in popularity in recent years. Growing awareness about climate change, environmental issues and the corporate scandals of the early 2000s have caused consumers to be more attentive of the way companies conduct business. Consumers are also beginning to understand that as shareholders, their opinions and their dollars can make a difference.

"America is becoming more socially conscious," says Paul Hilton, director of advanced equities research at Calvert Group, one of the first socially responsible investing fund families. Hilton says that as consumers become more focused on the issues that are important to them, they are realizing the role of business in shaping a better world and are using their own power to influence corporate policy.

Adam Deixel, director of marketing and communications at Domini Social Investments, agrees. "Consumers are coming to recognize that the world of business and finance are a very significant part of both the problems they see and the solutions to those problems," he says. "Investing can play an important role."

How do I invest?
Individual consumers interested in socially responsible investing can invest in a variety of ways, from buying individual stocks or bonds, purchasing mutual funds or constructing a broad-based portfolio using socially responsible investing funds in concert with other investments.

Researching individual companies can take a great deal of time, so many consumers choose to let mutual fund managers do the hard work of screening and selecting investments.

Deixel says that the process of building a well-diversified investment portfolio of socially responsible investing funds should fundamentally be the same as creating an approach using conventional mutual funds.

He suggests that consumers considering socially responsible investing ask themselves a couple of questions.

Is socially responsible investing right for me?
What is my basic financial plan, including goals, time frame and asset allocation?
What are my values, and does my financial plan fit with my values?
 
 
Next: "How are companies screened?"
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