Not every investor is chasing the hottest new stock on Wall Street — some are putting their money where their values are.
Known as faith-based investing, the strategy is still to make a profit, but not at the expense of morals or beliefs. However, that isn’t always easy.
Denisa Tova, founder and CEO of DaVinci Financial Planning Inc., said she would not advise investors to use values as the first criteria of investing.
While some mutual funds are specifically managed with faith-based values, and thus avoid assets in certain industries, others frequently buy and trade their holdings — underlying stocks — making it difficult to “to see what’s under the hood — it’s not necessarily going to be the same a year from now.”
“But if investors have a lot of different asset categories and have the option of investigating the funds underneath those assets — then it’s great for people to get excited about it,” she said.
As long as people stay diversified, Tova said, faith-based investing can be useful if it makes people feel good about investing.
Jerry Kennell is managing director of MMA (Mennonite Mutual Aid) West in Fort Collins. The company was founded in the Anabaptist/Mennonite tradition, which includes a hands-on faith that follows the life and teachings of Christ — “It’s a very practical, applied faith.”
MMA bases its investments on five tenets of Mennonite faith — peace, justice, community creation, care and service.
“The history of faith-based investing has been focused on screening out companies that don’t fit your value set,” said David Gautsche, president of MMA Praxis Mutual Funds. “But we do positive screening, versus negative screening.”
The company also tries to change community behavior through active engagement — working to effect change by “making capital available to companies who do good things and do well,” Gautsche said. “Some companies we clearly screen out, but as a shareholder, we can impact corporate behavior in areas that are gray — we can influence their decisions.”
While all financial advisers should be discussing investment objectives, suitability of investments, fees, asset allocation and expected performance of assets with their clients, Gautsche said he encourages advisers to expand the criteria — so clients know whether what they are investing in is consistent with their values.
“So they are investing with intentionality — not naïveté,” he said. “We want investors to be self-aware enough to know whether their investments reflect their beliefs.”
The best way to achieve this is to have a value-identification process before setting up an investment plan, Kennell said.
“The key is to help people match values and investing together,” Kennell said, adding that not everyone has the same values, so portfolios need to be tailored to match individual beliefs.
Which sometimes is much easier said than done.
Chuck Maher, a certified financial planner and registered representative of Wilbanks Securities Inc., specializes in Catholic values-based financial planning.
“It’s inappropriate for Christians to profit from abortion,” Maher said. And pornography “devalues women, men, sex and the family. Are these the sectors we should be investing in and making money from? No.”
However, many mutual funds own stock in companies that make money in such areas, he said.
For instance, one of the largest mutual funds in the United States has 56.6 percent of its assets invested in “objectionable areas,” including abortion (23.2 percent), pornography (11.7 percent) and antifamily values (55.7 percent).
“People need to examine and do moral screens on their mutual funds that filter for these areas,” Maher said.
Still, he’s committed to portfolio diversification.
Maher said that moral screening only eliminates between 5 percent and 10 percent of companies — leaving at least 6,000 domestic companies to invest in.
And even faith-based portfolios must match a client’s goals, objectives, risk tolerance and time line.
However, he isn’t always pleased with the reasons people give him for investing. Responses such as “to make as much money as I can; to do what I want; and to beat the index and have bragging rights at the office” disappoint him.
“These answers look much more like greed, lust and sloth than reasons to invest,” he said. “Part of the reason we had economic problems last year was because investors didn’t have a solid moral compass.”
And he said that most people don’t even think about faith-based investing until specifically being taught about it.
“It’s a special type of person who’s willing to invest their values,” Maher said. “But when they discover that many of the things they’re investing in are a cause for moral outrage — some people are visibly shaken.”
This epiphany changes the way they invest.
“They feel relief,” Maher said. “They know they’ve done the right thing.”