Are ethical investments right for me?
Ethical investing is a strategy where an investor chooses investments based on a personal ethical code. Ethical investing strives to support industries making a positive change, such as sustainable energy, while also creating an investment return.
However, one investor’s view of what is “ethical” may differ with another investor. What is ethical to you may not be to someone else. That is why it is important to understand what investments underpin the investment fund and whether they align to your own ethical investment definition. But be clear as to what you define as “ethical investments”, for example does it mean no exposure to:
– Logging and deforestation
– Mining and fossil fuels
– Nicotine and tobacco
– Animal cruelty
Can ethical investing make me money?
While no investment is guaranteed, the performance of ethical funds has been shown to be similar or even outpacing the performance of traditional funds.
One of the key downsides to ethical investments is the cost. The cost of investments that are labelled “ethical” on average can be more expensive that traditional funds. However, as ethical investments become more mainstream, the cost has come down significantly in the past few years.
How do I get started?
There are a number of ways to get started with ethical investments. You can either purchase ethical funds directly or indirectly via:
– Investment platform/managed fund
– Exchange traded fund (ETF)
The simplest way is via your superannuation fund, particularly if you do not want to part with your own savings. Most super funds these days provide at last one ethical investment option that should meet the criteria of most ethical investors. However, as mentioned, it is important to look ‘under the hood’ and understand what exactly the fund is invested in and whether that aligns to your own ethical code.
Investing via an investment platform or an ETF can be tricker to get started but should provide a broader range of ethical investments, particularly for those investors that have a specific ethical definition in mind. The downside is you may need to invest your own savings and the earnings after-tax may not be as fruitful when comparing to superannuation with its lower flat tax rate of 15%.
Ethical investments can be a great way to start investing and provides individuals with the power to allocate their funds toward companies and projects whose practices and values align with their ethical code.