Personally, investing can seem like a minefield of moral and ethical dilemmas. How do you navigate it? How do you go about balancing ethics and investing?
Learning to invest your money safely and properly in the stock market is tough enough. Adding in moral and ethical considerations exponentially complicates the process. It is probably why this is an area that is not very widely discussed in the world of personal finance.
We invest primarily in index funds. Index funds are a great way to invest in the stock market because of 1) Diversification and 2) Simplicity.
Diversification is important because it lowers risk. Would you carry all your money in cash with you all the time? Or would you rather spread it out over different banks? With index funds, you buy the whole basket of stocks in specific stock index. For example, in an index fund tracking the S&P 500, you own a piece of every stock in the 500 largest companies in the US.
Along with diversification, index funds bring simplicity to investing. Since you don’t have to pull out a crystal ball and try to see what combination of stocks will perform for you in the future, there is little complexity involved with the process. All you have to do is purchase an index fund. You get a piece of every company in the index. You gain the average return of all of the companies in the index. Simple.
Picking individual stocks leads to further complexity in an investment portfolio. It moves away from the simplicity and elegance of an index fund.
However, if you chose to pick your own stocks for your investments, you could choose to align your investing with companies that match your values and avoid companies you don’t agree with. The freedom to choose your own investments, however, come with increased risks.
On the flip side, if you invest through index funds, you lower risk through diversification, but it comes with holding investments in companies you might not agree with.
For example, if you are against smoking and you had money in an index fund tracking the S&P 500, you would own a piece of the Altria Group, under which Philip Morris operates. Or say you are against genetically modified foods. Well too bad, you would be owning a piece of Monsanto.
Words of the Wise
The majority of the advice I have received from those older and wiser than me about investing is to ignore these concerns. You need to maximize your returns. You need to remove emotions from investing. If you want to index, you have to take the good, the bad, and the ugly.
But it is difficult to simply ignore these ethical and moral considerations. No matter how tightly I try to shut them out, they inevitably seep through to consciousness. Maybe I think too much. I probably do.
I don’t have an answer to my own question. Not yet.
How do you tackle ethical and moral considerations when it comes to investing?