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I am a young man who has recently reached a point of financial stability. I'm starting to think about long-term plans which may one day buy a home, or provide for myself in old age.

This raises the question of savings and investments, which causes me some ethical concerns.

I don't have an issue with investment in its basic form. Providing people money to help them do business, allowing it to grow and gaining interest in gratitude is not an issue for me.

The problem comes when we realise that a lot of the most financially successful businesses succeed due to addiction in their customers. Alcohol, tobacco, gambling, pornography, high interest financial services, and a number of others all rely on customers becoming dependent, unable to keep from buying their services. Because of this dependency, a lot of money is made in ethically questionable businesses, and professional investors (whose job is only to make as much money as possible) will choose to put money into these businesses.

The alternative would be to look in to investing myself. Although without some good practical knowledge, this would resemble gambling, throwing my money at whatever business takes my fancy, hoping for the best.

Being concerned about ethics, how can I go about investments and/or savings? Are there businesses which professionally invest ethically?

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    The worst addiction is that created by smartphones, their manufacturers, and by everybody engaged in developing the next new app or the next great search engine. So be sure to avoid investing in Apple, Samsung, LG, Intel, Google, Yahoo!, Microsoft, and a whole host of other similar companies. – Dilip Sarwate Aug 25 '15 at 20:02
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    It's curious you should mention that, freemium addiction is certainly an unfair and addictive economy. Although I hope you appreciate the irony involved in you using the internet to make that declaration :) – AJFaraday Aug 25 '15 at 20:04
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    You probably don't want to leave it in a bank, since they're going to be unconstrained about putting your deposits into a subprime mortgage or (say) Altria's commercial paper, and you won't even get the same yield. – user662852 Aug 25 '15 at 20:57
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    Congratulations on the realization that capitalism is unethical. If you'd like to do something about this, first, you're going to need a lot of money ;) – HC_ Aug 26 '15 at 17:54
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    Good luck. How many companies give to the United Way? They support Planned Parenthood. Is abortion ethical in your mind? – AbraCadaver Aug 26 '15 at 18:10
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Are there businesses which professionally invest ethically?

Yes. The common term for this is "socially responsible investing". Looking at that page and googling that term should provide you with plenty of pointers to funds to investigate.

Of course, the definitions of "ethical" and "socially responsible" vary from person to person and fund to fund. You'll have to take a look at each fund to see which ones match your principles.

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    And on the flip side some companies that aren't obviously "unethical" (though I wouldn't call all of the listed industries inherently unethical) can be labeled unethical depending on how far you dig. Is Gap the clothing store unethical? What about their reliance on cheap Chinese labor? Are banks unethical? Credit card companies? investment brokers? What about movie companies that have made movies with nudity in them (but not porn)? What about a green-energy company that had an accounting scandal? There are no clear lines in Ethics, so you have to be really careful when defining guidelines. – David Grinberg Aug 26 '15 at 2:25
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    @DavidGrinberg - most people into socially responsible investing simply equate that with their baseline political views and don't bother digging deeper. – user2932 Aug 27 '15 at 21:03
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Avoiding tobacco, etc is fairly standard for a fund claiming ethical investing, though it varies. The hard one on your list is loans.

You might want to check out Islamic mutual funds. Charging interest is against Sharia law.

For example: http://www.saturna.com/amana/index.shtml

From their about page:

Our Funds favor companies with low price-to-earnings multiples, strong balance sheets, and proven businesses. They follow a value-oriented approach consistent with Islamic finance principles. Generally, these principles require that investors avoid interest and investments in businesses such as liquor, pornography, gambling, and banks. The Funds avoid bonds and other conventional fixed-income securities.

So, it looks like it's got your list covered.

(Not a recommendation, btw. I know nothing about Amana's performance.)

Edit:

A little more detail of their philosophy from Amana's growth fund page:

Generally, Islamic principles require that investors share in profit and loss, that they receive no usury or interest, and that they do not invest in a business that is prohibited by Islamic principles. Some of the businesses not permitted are liquor, wine, casinos, pornography, insurance, gambling, pork processing, and interest-based banks or finance associations.

The Growth Fund does not make any investments that pay interest. In accordance with Islamic principles, the Fund shall not purchase conventional bonds, debentures, or other interest-paying obligations of indebtedness. Islamic principles discourage speculation, and the Fund tends to hold investments for several years.

  • dumb question - if charging interest is against Sharia law, how can they provide returns on investments? Isn't that a form of "interest"? – warren Aug 27 '15 at 20:04
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    @warren no, a return on an investment is fine. It's specific to loaning money. The difference is, say, if you loaned your friend money so he could start a business (and if it goes under he still owes you, or at least you get paid first when the assets are sold off), vs if you gave him the money for a piece of the business he's starting (and if it goes under you lose too, and any assets sold off are split based on your share). Debt vs. Equity. – Patches Aug 27 '15 at 20:21
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    @warren a few years ago I read somewhere on how they get around it for car loans -- you go in on the car with a "lender", and buy it jointly with each of you owning a certain number of shares in the car. Then you buy his shares off of him at a fixed schedule until you own all the shares. Of course the price you're paying for the "lender's" shares is higher than what he put into it, so he can profit from helping you buy the car when you couldn't afford it. A profit which is technically not "interest". :-D – Patches Aug 27 '15 at 20:27
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    Interestingly, those Amana funds not only won't invest in debt or lenders, they also won't invest in companies that are too heavily indebted. They screen out companies with more than debt > 33% of market cap., and accounts receivable > 45% of total assets. Also, apparently Sharia bans speculation, so they invest for the long term. It makes for an interesting value model. – Patches Aug 27 '15 at 20:36
  • Is insurance also against Islamic law? I'd like to know why. – Zenadix Aug 28 '15 at 18:32
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Domini offers such a fund.

It might suit you, or it might include things you wish to avoid. I'm not judging your goals, but would suggest that it might be tough to find a fund that has the same values as you. If you choose individual stocks, you might have to do a lot of reading, and decide if it's all or none, i.e. if a company seems to do well, but somehow has an tiny portion in a sector you don't like, do you dismiss them? In the US, Costco, for example, is a warehouse club, and treats employees well. A fair wage, benefits, etc. But they have a liquor store at many locations. Absent the alcohol, would you research every one of their suppliers?

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Markets are amoral. If you don't buy stock in a company that has high growth/earnings, someone else will. By abstaining you will actually make it cheaper for someone else who is interested in making money.

Investing in "socially responsible" funds will only ensure that you have less money to make a moral difference in the world when you decide to transition from working to philanthropy.

Edit to clarify -- You aren't interested in buying individual stocks directly, that leaves you with two general options:

  1. Buy one of these "socially responsible" funds that will eat your gains away with their relatively high management fees.
  2. Invest in index funds which may catch a few marginally ethical companies in their net but that will give a you a reasonably diversified investment in a particular market sector without paying a high fee for that privilege.

You can make a statement with your investment now, or you can take the better returns and make a difference with your money later.

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    "By abstaining you will actually make it cheaper for someone else who is interested in making money," but you will make it very slightly harder for those companies to raise capital, right, since there will be less demand for their stocks and bonds. – lazarusL Aug 26 '15 at 14:01
  • "you will actually make it cheaper" yes! which means the stock doesn't increase as much making it less desirable to current and future investors. The net change in desirability will approximately be even, and you'll have not given them your money. Sounds net positive to me. – Rick Aug 26 '15 at 16:15
  • So assuming you have no problem buying oil, but you don't want to support Venezuela, so you only buy Saudi oil, will that have a negative impact on the price Venezuela can get for its oil? When there are dollars chasing returns in the market, any profitable venture will be funded, you just ensure that you aren't collecting those returns, and you're stepping aside so someone else can. – Nathan L Aug 26 '15 at 17:29
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    +1, but there are many things we do that are symbolic, not really making a difference. Even if 10% of US investors acted socially responsible, the market wouldn't notice. But for each person, knowing in their heart they didn't support [whatever they are avoiding] is enough. – JoeTaxpayer Aug 27 '15 at 21:32
  • @JoeTaxpayer - I agree completely, and I'm happy to make symbolic gestures of my own. I just wanted to be a contrarian voice offering food for thought. I think if an ethical fund doesn't outperform it's amoral counterparts it isn't making a strong case for the ethics it espouses. In any case, I expect the fruits of wise investing will be greater means to do good in the world, so that's my primary aim. – Nathan L Aug 27 '15 at 22:20
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There are a number of mutual funds which claim to be 'ethical'. Note that your definition of 'ethical' may not match theirs. This should be made clear in the prospectus of whichever mutual fund you are looking at.

You will likely pay for the privilege of investing this way, in higher expenses on the mutual fund.

If I may suggest another option, you may want to consider investing in low-fee mutual funds or ETFs and donating some of the profit to offset the moral issues you see.

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There are the Dow Jones Sustainability Indices. I believe the reports used to create them are released to the public. This could be a good place to start.

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Peer to peer lending such as Kiva, Lending Club, Funding Circle(small business), SoFi(student loans), Prosper, and various other services provide you with access to the 'basic form' of investing you described in your question.

Other funds:

  • REITs
  • Commodities
  • Country indexes
  • Bond indexes
  • Currencies

You may find the documentary '97% Owned' fascinating as it provides an overview of the monetary system of England, with parallels to US, showing only 3% of money supply is used in exchange of goods and services, 97% is engaged in some form of speculation.

If speculative activities are of concern, you may need to denounce many forms of currency.

Lastly, be careful of taking the term addiction too lightly and deeming something unethical too quickly. You may be surprised to learn there are many people like yourself working at 'unethical' companies changing them within.

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