What is Ethical Investing

What is Ethical Investing?

You may have heard the term ethical investing, but what exactly does it mean? The answer is found in the standards and practices of individuals who use their ethical and moral compass when purchasing securities. This does depend on the view of the investor, their belief system, and what they consider to be ethical practices when making decisions about which securities to acquire.

It should be noted that there is a difference between socially conscious funds and ethical investing practices. Understanding the difference will help you determine if ethical investing is a course of action you should take when acquiring securities.

Ethical investing is when you apply your principles to purchasing securities that result in a portfolio that matches your internal moral guidelines. This means that portfolios of different people who practice this form of investing will have different securities, but it will have the same, general approach. It is your principles and not what securities are simply the most profitable that is the guide.

Source of Ethical Investing

The practice of sustainable investing is nothing new, but it has gained more in prominence in recent years as more people have access to stocks and securities. The alignment of capital allocation with a personal belief system can be based in religious, political, or environmental sources. The result is that certain industries are not chosen when considering what to purchase.

A good example is “sin stocks”. These are stocks of companies that are based in the selling of alcohol or firearms. Or, they may ben centered on gambling. In other words, they profit on what is perceived to be human sin, so the ethical investor does not purchase any of their stocks or securities for their profit.

How to Practice Ethical Investing?

It begins with understanding your own moral and ethical principles. Knowing what you approve and disapprove of before you begin. A careful evaluation of what you are willing to tolerate along with what is unacceptable provides the guidelines for your purchases.

The next step is research. This means examining all companies before you make the decision to purchase or not. You may find that some companies engage in activities that you object to based on your personal ethics. With companies that are involved in different industries, this type of research is quite important. Property Investing can usually be found in the ethical investing bracket.

This is particularly true with companies that may advertise they are following ethical principles, but in practice they do not. Mission statements, public addresses, and press releases are not the foundation of judging whether a company is morally sound in your view. It is the actions that they take which is the standard.

Of course, ethical investing is not about eliminating companies. It is about purchasing the most promising stocks and securities from companies that fit your personal ethical standards. Building a portfolio is still about making the most money to enhance your financial security. So, choose the most promising of all options that fall within your ethical standards.

You should work with your financial advisor in finding the right opportunities that both meet your ethical standards and provide the most promise for investment options.