Money for the Rest of Us

There’s a really interesting piece in the Washington Post today about Socially Responsible Funds. I’ve always thought that socially responsible funds are a great way to invest in what you value. If you value the environment or don’t want to give money to big tobacco or promote weapons, then socially responsible funds seem like a good way to go. When I first invested in mutual funds I put some money into a socially conscious fund. But, after 2 years it was under-performing and I sold my shares. I’ve always wondered if I was just impatient, but it according to the article, on average, socially responsible funds do underperform:

Socially responsible investing funds, including expenses, generally trail traditional competitors, according to Morningstar data. For the 12 months ended April 30, for example, such funds investing in big-company stocks returned 11.63 percent, compared with 12.28 percent for all big-stock funds. For funds investing in mid-size companies, socially minded versions returned 7.65 percent over the period, compared with 10.24 percent for all funds.

Despite this, it’s arguable that the lower return may be worth it to you if you are truly invested in social causes. But, the article states that the criteria for being “social responsible” is often simplistic and overlooks key issues. For instance, ” oil producer BP got high grades for an innovative environmental approach — until admitting last year that it had failed to adequately maintain its Alaska pipelines.”

I still support socially conscious funds. Part of my 403(b) is in a socially responsible fund and it does quite well. Even if they aren’t perfect, it’s nice to know that I put some of my money into companies that value the same things I do.