Over the last few years the new in vouge investment idea, socially responsible investing has a lot of interest. As environmental issues become more and more prevalent it’s a natural progression. In very simplistic terms socially responsible investing is an investment approach that allows you, the investor, to invest your funds in companies that commonly invest in ways that are compatible with your beliefs. Investing in environmental friendly funds that you support would be a good example of this. As these issues become more important to us, socially responsible investing will become even more popular.
The most common way to invest when it comes to socially responsible investing is through what’s called a sector fund. Sector funds as the name implies focuses its investment objectives in a particular sector. Sector funds are best known for their focus on popular areas. These areas commonly include oil, technological areas, or any other hot sector at the time. Thus, they can be a very valuable tool, allowing you to invest in any area you see fit. So, if an area is hot like real estate was over the last few years you could take advantage of that with a sector fund. Many speculators are currently taking advantage of the rising oil sector. As these trends come to an end, sector funds allow you to move to the next hot area, and so on.
To take a closer look at socially responsible investing we can see that it has evolved over the last couple years. In the past, socially responsible investing was all about supporting the good cause or not supporting a company that you disagree with fundamentally. It’s no longer that way, however, as now the socially responsible investing definition just comes down to aligning your beliefs with a particular investment style, and that can be a slew of different things.
The most common socially responsible investing style can usually fit within one of three different styles. Those typical styles being shareholder advocacy, screening, and community investing. Shareholder advocacy is the influence of a given company by its shareholders to make changes. This could influence a company to stop doing business with a certain entity or a certain way, for example. Screening is probably the most well known and common. It involves not investing in those companies that you disagree with. Maybe, you dislike tobacco companies for their cancer causing issues. You could avoid investing in them. This isn’t always easily done with typical mutual funds, as they own many stocks with little criteria that would align with your beliefs. Community investing can help areas or countries in need of investment funds get much needed capital. This not only spreads good will, but also can be rewarding, as many areas are emerging markets with big potential for investment return.
Socially responsible investing sector funds have grown at an incredible pace. In fact, they’re one of the fastest growing sectors. So, it’s important to note that anytime you invest in a particular sector fund or investment area, you may not be getting the proper diversification that is typically recommended. Make sure to diversify your portfolio. Anytime you’re focusing on just a small area of the market your taking more risk. There can also be sacrifices when eliminating a sector all together. This is a common goal with some socially responsible investing techniques, but can prove costly. Eliminating the oil service sector, for example, during this recent run up would have sacrificed a major portion of your large gainers. Always, check with a professional advisor before implementing an investment plan.