Natali Morris Blog

April 17, 2016

Are Your Investments Ethical?

I once asked my investment advisor for the following criteria to be met in my stock market portfolio:

  1. 7% average annual return;
  2. Only ethical funds be purchased in my portfolio, making sure to omit any investment in processed foods, tobacco, or big pharma.

My advisor was kind enough not to laugh but I am sure he wanted to. What he said to me was this:

“That 7 percent return, well, I’m not sure anyone could promise you that in the long run. As for the ethical investing part of it: There is basically no way to have a balanced portfolio without including funds that include companies that you are morally opposed to.”

Modern Portfolio Theory tells us that you have to diversify your stock portfolio in order to protect against loss. That means you buy into a variety of stocks and funds. But pretty much every fund – ETF or mutual fund – includes big performers like McDonalds, Procter & Gamble, Nabisco, PepsiCo, and a heap of other companies that I can accuse of disregarding the health and well-being of our country in grossly negligent ways. I will spare you the soap box but this is generally not in dispute: processed food and big pharma is big profit for corporations, bad news for homo sapiens.

I will also spare you the details of how and why I care about these things but let me just assert to you unequivocally that I do. Very much. All the more so since having children and wanting a better world for them then the plastic/sugar world I grew up in. I’m just going to assume that you care about this as much as I do from here on out.

There are ethically-constructed ETFs and mutual funds. There are also ethical companies can that you can cherry pick to invest in those stocks alone. But if you only buy into those stocks and funds, you are not well diversified so this isn’t smart investing. So what is an ethical investor to do?

In my house, my husband and I allocate the bulk of our investments to our rental real estate business. We work with a construction company that rehabilitates our homes and we try hard to ask the questions about the environmental impact of our rehabs. We try to choose energy-efficient appliances. We try to do right by the family that will make our rental property their home. Is this the *most* ethical investment out there? No. I cringe when our contractors talk about foam insulation, salting the sidewalks, and pesticide treatments. But we have to make some tradeoffs to meet municipal requirements and ensure the safety of our tenants. In the long run, I believe we are making the world better, one investment property at a time, by improving cities and living conditions. (Side note: In real estate a 7% return is not a fantasy. It’s actually quite doable.)

Real estate is not the only ethical investment choice however. In his book, Tax-Free Wealth, author and CPA Tom Wheelright talks about local farm investments as an amazing tax-protected option. This isn’t something I know a lot about but I’m psyched to know it exists.

You could also invest in a local business that you care about and believe is having an impact. Or you could buy government products like bonds, although whether or not the government does ethical things with its money is highly debatable. That money does support our military and government employees and there is nobility in that.

The point is that there are options when it comes to investing and I believe it is our responsibility to think them through. I believe that we must consider whether or not our money is invested in companies that hurt humanity in the long run. The first step is asking the question.

Is this something you have considered? What are the thoughts that have plagued you about ethical investing?

Sidenote: I just realized that I have written this post in the same week as Earth Day. Total happy editorial coincidence! Happy Earth Day! Tread lightly on this planet of ours, would ya?

ethical investing words

2 responses to “Are Your Investments Ethical?”

  1. Ron Robins says:

    Re: your post, “Are Your Investments Ethical?” I’d like to chat with you about my new and unique service: Create A Profitable
    Personal Values-Based Portfolio,

    All the best, Ron

  2. Scott says:

    Hi Natali – I posed the same questions to my financial advisor a while back and he tried to talk me out of it, saying it would compromise my returns. I simply threatened to take my money elsewhere, explaining that the my utility function was a function of both returns and being able to sleep at night. I asked that when buying funds, he choose some rated higher on the ethical scale, and when buying individual stocks, he completely avoid tobacco, firearms, alcohol, etc.

    While “ethical” funds are a bit tricky, a less tricky (albeit sometimes still tricky) approach is to invest in green, alternative energy funds. I suspect that they would run contrary to oil funds. Here is a plot comparing YTD performance of ALTEX (an alt energy fund) to USO (an oil fund):

    The good news is that it’s sort of a mini-hedge situation… if oil prices go down, then I would suspect the alt energy funds would go down too (since people are less interested in finding alt energy solutions when oil/gas are cheap), but it is slightly offset by your personal oil/gas use getting cheaper.

    Here is a fairly recent article about alt energy funds:


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