We’ve almost checked everything off our financial goals list for the year. Not bad, since we still have almost five months to go. We’ve maxxed out the HSA, and my husband’s IRA is on an automatic deposit schedule that will reach $5000 by December. We’ve paid off $5000 in our HELOC, which continues to be a priority. We’re now working on my Roth IRA. We’ve put $2000 into it so far, so we have another $3000 to go. The money we’ve contributed so far is just in a money market account. My plan is to get the entire $5000 into the account, and then pick one exchange traded fund to buy. I can buy ETFs for $10/trade (so one $10 charge for the whole $5000 investment), as opposed to $50 if I want to buy a mutual fund. I like the idea of buying one ETF each year. Over time, my portfolio would include several ETFs, which are automatically diversified much more than individual stocks.
So here’s the tough part. I want to invest my Roth in socially responsible funds. In particular I’d like to go with sustainable and alternative energy, organic farming, fair trade in developing nations, etc. But I’d also prefer that my retirement funds gain value as time goes by.
I’ve been looking at some exchange traded funds that are considered socially responsible, and I’m finding some tough choices. For example, I found PowerShares Wilder Hill Clean Energy Portfolio (PBW), which is primarily invested in alternative energy (solar, fuel cell, etc.) We love the idea of supporting alternative energy research and development. But Morningstar gives this ETF one little star, above average risk and low returns. On the other hand, the iShares KLD Select Social Index Fund (KLD) gets three stars, below average risk, and average return. But when you look at the top ten companies that KLD is invested in, it’s things like General Mills, H.J. Heinz, and Pepsi Co. It’s a socially responsible fund because they’re not investing in guns or alcohol or the Chinese government, but I’m not really that into the idea of supporting Pepsi. I don’t really want to send my money to big processed food companies that encourage conventional agriculture and junk food addictions.
I’m still working on this. I’m going to keep searching, trying to find my ideal ETF. Maybe it’s not even out there yet, although socially responsible investing has come a long way in the last ten years. In our day to day life, we’re very focused on minimizing our ecological footprint, avoiding toxic chemicals, eating organic food, and minimizing waste. So it doesn’t make sense to be blindly throwing money into the stock market, investing in big-name companies that aren’t concerned with any of the issues that we consider really important. I have a few months to get all this figured out, because our plan is to put $1000/month into my IRA for the next three months. So it will probably be December before I’m ready to buy an ETF. I’ll let you know what I find.
What about you? How do you balance your values with your need for investments that perform well? Are you willing to settle for lower returns in order to really customize your investments to precisely match your values, or would you prefer to deviate a little from your personal beliefs, and invest in companies that show good returns but don’t necessarily mesh with your values? Or do you just say to heck with it, and invest in whatever companies make the most money, regardless of how they do it?
v says
christian science monitor has a section devoted to ethical investing at their website http://www.csmonitor.com
Alissa says
Interesting. We’re not really in a position to invest yet, but when the time comes I will definitely be considering some of the points you’ve mentioned. It seems silly to advocate for all of the good things in your regular life, but then to invest your money in companies that go against all of those values that you work hard to protect. Good point.
Rachel says
I don’t really know anything about investing. I have an account that the family money guy takes care of. Right now my account is involved in mutual funds. In any case, one thing I’d like to invest in–in addition to alternative energy and grains–is medical research. A friend has been getting great returns from an investment in a company that makes artificial blood for transfusions–no worries about disease or blood type or rejection, and it takes some of the religious questions out of it too.
April says
We’re just getting started with investing, but I’d love to hear more about what you find as you look for socially-responsible investments. That’s something I’d definitely be interested in.
FrugalBabe says
I’ve been doing more reading this afternoon, and I found this post on Tom Konrad’s blog…
http://tomkonrad.wordpress.com/2006/11/26/etfs/
Sounds like my PBW might be a good choice afterall…
Tom Konrad says
In your search, you left a comment on an old artilce of mine about Green ETFs… since that was written two years ago, I thought you’d be interested in my more recent articles on the subject. To avoid having this comment spammed, I won’t include links, but clink over to my website AltEnergyStocks.com, and take a look at the “Mutual Fund and ETF” category… I’ve written a couple articles in the last month or so.
FrugalBabe says
Thanks Tom! I just spent a while reading through your archives – tons of good stuff! For any of my readers who want to see more:
http://www.altenergystocks.com/archives/mutual_fund_etf/
neimanmarxist says
i am so impressed with all your financial know-how. What is your recommended reading for someone who is just starting out and doesn’t know a lot of this stuff (ie. how HSA or Roth IRA works) ?
Frugal Trenches says
I am exceptionally committed to ethical banking and have moved my money into ethical accounts that don’t invest in certain business’. I would recommend reading some of the UK sites (I believe the UK has the largest number of ethical banking customers per population). They do talk about international ethical funds, including US funds.
FrugalBabe says
Thanks Neimanmarxist! Although I don’t think I really know that much at all. I’m always trying to learn more. I’m a health insurance agent, so HSAs are part of my work, and a perfect strategy for my family’s health insurance. About four years ago, I started working at a public library, and discovered the personal finance section (332 in Dewey – it’s like Yellowstone National Park, you can spend weeks there and not see everything!) I started checking out every book that looked remotely interesting. I read a lot of stuff by Suze Orman, Andrew Tobias, David Bach, and a slew of other authors. I read the tightwad gazette and all sorts of other frugal idea books. I read enough to get a basic idea of how investing works, but that’s absolutely the part of the puzzle that I don’t understand well enough. For our IRAs and HSA, we pretty much only buy mutual funds, index funds, and exchange traded funds – I just don’t understand it all well enough to buy individual stocks. I know that the best thing I can do is keep investing, limit our transactions (to limit how much we pay in transaction fees) and not stress about it.
These days I’m more inclined to do research online as opposed to getting a book, since the info is more up to date. Of course the trick is to sort out the spam from the real information…
BTW, an HSA is a savings account you can set up if you have a qualified high deductible health insurance policy (ask your insurance agent, or check with your HR department to see if your company offers one). Then you can put money into the HSA to use for future medical expenses. You get to deduct the amount you put in from your income when tax time rolls around, and as long as you use the money for medical purposes, you never pay tax on it. Once you turn 65, the account works like a traditional IRA, and you can take money out for whatever purpose you like, but you will pay income tax on it then.
With a Roth IRA, you put money into the account, but you don’t get to deduct it on your taxes the way you would with a traditional IRA. So you’re using after-tax money to fund the account. But when you retire, you get to take out all the money – contributions AND EARNINGS – without paying taxes on it.
Obviously I’m not a financial professional – you should consult one of those if you need help :)
Randy says
I recently took a look at alternative energy ETFs and funds for a blog article; and to be honest, I came away throughly unimpressed. Why? Either their expense ratios are too high (ideally, it should be less than 1%), or they’ve been performing poorly.
I did find some individual stock picks that I like in the alt-energy space: GE and AMAT are two that spring immediately to mind.
Good luck!
Randy
neimanmarxist says
thanks!!! for the info and the pointers. i’ll be looking around :)`
Green Me says
I am no investing expert, but my husband used to watch Kramer every day. One thing that really hit home to me was his suggestion that investing in stocks is the last place one should worry about morals (unless you are already a billionaire). His take is that companies will make money whether Joe Shmoe invests in them or not and that you should invest in a way that makes you the most money. And, that your money and morals are better spent directly funding, spending, supporting things in your day to day existence. In other words, maximize your investments, so that you can afford to give and spend money where it counts.
laketrout says
Here’s some more ETFs to ponder:
iShares KLD 400 Social Index Fund (DLS)
Market Vectors Global Alternative Energy ETF (GEX)
PowerShares WilderHill Progressive Energy Portfolio (PUW)
Market Vectors Environmental Services ETF (EVX)
Lisa says
Green Me beat me to the point I wanted to comment to make, but I’ll say it anyway. I think it’s more important to maximize your investment, so that when you need that money, you can afford to continue to be socially responsible in your buying decisions. What good is your IRA if, when you do retire, you’re reduced to eating ramen noodles and Chicken McNuggets? In an ideal world you could do both — invest in your ideal companies AND make great money on your investments. But in the absence of that ideal, I feel it’s better to invest where you can make the most money; I don’t think it’s worth sacrificing your future security for iffy socially responsible investments.
FrugalBabe says
Lisa,
I agree. But I also think that it’s inevitable that the world is eventually going to have to switch to alternative, sustainable energy, even if the oil industry has to be dragged there kicking and screaming. The fact is, non-renewable resources eventually run out. Since I have more than 30 years before I’ll be able to access my retirement funds, I’m betting that by then, oil won’t be our primary energy source anymore. And I think my investment will be sound, both in supporting something I believe in very strongly, and as a strong investment.