When it comes to your investment portfolio, you may have a good idea of what you want it to accomplish. Maybe you want to save for retirement, fund your children’s education, or provide income when you’re no longer working.
But what about the ethics of those investments? Ethical investment is about aligning your values with your investments. It’s not just about avoiding certain industries and companies; it’s also about making sure that your money is being used in a way that reflects your beliefs.
So how can you make sure your investments are ethically sound? Here are some ethical stocks investing tips:
Ethical Investing: How To Build An Ethical Portfolio
- Set Your Investment Objectives.
Before researching companies and industries, consider your ethical standards’ positive and negative implications. For example, how far down the supply chain will this take you if you want to avoid fossil fuel stocks? Do you want to invest in companies that produce renewable energy? How much do your values align with those of the company? You may also want to consider how much money you want to make.
- Research Companies Individually.
Once you know what companies and industries you want to avoid investing in, it’s time to shop around for ones that fit your criteria better — and there are plenty. Ideally, you should search for funds that meet ESG, social responsibility, or impact rating criteria.
Socially responsible and environmental funds are more general in their approach. The purpose of impact funds is to support specific causes, such as renewable energy.
- Define Your Target Allocation.
Once you know what companies and funds are available for consideration, it will be easier for you to determine what percentage of your portfolio should be allocated toward each of them. Portfolio allocation refers to how your portfolio is composed across different asset classes, such as stocks and bonds. The composition of your portfolio heavily influences your risk tolerance. Before building any portfolio, understand your target allocation, regardless of your ethics.
- Watch the level of risk you are Taking.
Investing your money for longer means you can be more aggressive with your allocation. Market fluctuations can be volatile from year to year, but over long periods, they usually average out to growth.
For example, investing 70% in stocks and 30% in bonds makes sense for a 20-year timeframe. Also, it may be better to split the workload 60-40 or 50-50 if your timeline is shorter.
- Make sure you monitor your holdings.
It’s important to monitor what companies you’re invested in and whether any of them are doing anything that goes against your personal beliefs. If you discover that a company does something you disagree with, try to sell off your shares as quickly as possible.
If you are concerned about the impact that your life choices have on the world around you, then an ethical investment portfolio could be an actionable step to take in a more socially responsible direction. Many resources are available online to help you find ethical and sustainable investments. The key is to do your homework. You will have a diverse portfolio of stocks, bonds, and other investment vehicles, like real estate and mutual funds. By making conscious financial choices today, you can set yourself up to better achieve your ethical and financial goals later in life.