Faith-Based Investing Strategy
Faith-based investing, also known as faithful or ethical investing, is an approach that aligns financial assets with the principles and beliefs of religious or ethical doctrines. It involves blending one’s faith with investment decisions, seeking to generate financial returns while adhering to ethical, social, or religious guidelines. These guidelines vary based on the specific faith tradition or ethical framework of the investor.
When incorporating faith into the investment process, several screening approaches may be considered. Some funds eliminate companies based on specified criteria, while others select companies based on positive criteria. Investors might seek to invest or avoid certain sectors, size companies, regions, and products themes.
With no commissions on stock trades and the ability to buy, sell, and rebalance stocks at brokerages (e.g., Fidelity, M1), faith-based investors can now consider buying stocks themselves that meet their desired criteria.
Key Components of Faith-Based Investing
Faith-based investing involves investing in companies, stocks, and mutual funds that align with spiritual beliefs. This often means screening out investments contrary to specific religious teachings while actively seeking investments that promote ethical and religious values. The premise is simple yet profound – money is a tool and should be used to honor your faith.
Screening criteria can limit faith-based investing by restricting the ability to pursue investments based on fundamental financial characteristics. Asking advisors about how a particular fund is established may open up more investment possibilities, as some fund managers engage with companies to bring about desired change designed to attract faith-based investors.
Personal decisions about faith-based investing revolve around whether it’s ethically okay to invest in specific mutual funds or ETFs with high returns or low fees if they hold shares in objectionable companies. Furthermore, should we sacrifice these for companies or funds with higher, morally informed principles? Other questions focus on how funds screen out certain companies and invest only in those that pass their screens. What should those screens be, and how reliable are they? This article will provide an introduction to some used by the Heritage Financial Advisor team.
Negative Screening Approach
The most basic form of faith-based investing is negative screening, which excludes companies involved in activities that are not in line with your faith. This may often include sectors like gambling, alcohol, tobacco, and weaponry.
Many companies fall into a gray area between “avoid” and “embrace.” These might be companies with good products or services but whose management has drifted into anti-religion social action or has sub-standard safety or environmental practices.
Positive Screening
Positive screening takes faith-based investing further by actively seeking companies and projects that align with religious values. For example, you might focus on companies that lead in environmental sustainability, community development, or human rights advocacy. This approach ensures that investments are not only avoiding harm but also contributing positively to societal goals aligned with faith principles.
Thematic Investing
Thematic investing focuses on themes like clean energy, affordable housing, or community development that align with faith values. Faith-based funds don’t necessarily lead to underperformance and are sought by those with informed consciences. Many rely on ways to measure how companies impact human flourishing—a competitive advantage worth exploring.
Shareholder Advocacy
Some faith-based investors engage directly with companies, using their shareholder status to advocate for changes in behavior and policy. Faith-based mutual funds may advocate on behalf of investors at company shareholder meetings to effect positive change, aiming to influence the moral character and corporate social responsibility of companies. This activism can lead to significant changes in corporate behavior, aligning business practices with ethical standards.
Impact Investing
Impact investing, also known as responsible investing, involves investing in companies that create measurable positive change while generating good returns. This strategy considers the environmental, social, and corporate governance of the fund or company. Investors might look for companies that support renewable energy, fair trade, and other initiatives that promote social and environmental well-being.
Alternative Investments
Faith-based investing aligns with religious and personal values. While the concept has been around for decades, it has gained momentum as world events prompt investors to use money to support positive change. The basic premise is to invest in vehicles that generate returns while aligning with religious principles, often considering environmental, ethical, and social issues.
Alternative investments, such as private equity or real estate investment funds, are popular as they provide consistent secondary income and align with religious values. These alternatives are an option for faith-driven investors looking to diversify from public markets. For instance, investing in affordable housing projects can provide both financial returns and social impact.
Other Faith-Based Investing Strategy Considerations
Heritage Financial Advisors offers opportunities to grow accounts through companies that are deemed neutral in controversial segments, suitable for account values of $50,000 or higher. Investment strategies include fixed income, domestic stocks, international stocks, and non-traditional bonds. All these options have a cash reserve to cover fees and risk mitigation.
If money can be used to win souls and we are stewards of wealth that belongs to God, then God would see this type of giving as a worthy investment. Consider adding a line item to your budget for spontaneous investment opportunities proportionate to your income and faith. You may want to consult a certified financial planner like Heritage Financial Advisors.
Conclusion
If unsure how to start, a financial advisor can help clarify priorities and choose funds that fit your beliefs. Faith-based investing is impactful, aligning investments with values while supporting financial goals. Assess the professional credentials and skills of investment management teams. We encourage you to take the first step towards investing with purpose by scheduling a meeting with Heritage Financial Advisors.
Schedule a complimentary meeting with us to discuss integrating faith-based investing into your portfolio. Our sessions focus on understanding your financial goals, assessing your current situation, and developing a tailored plan. Gain insights into faith-friendly investments and receive personalized guidance on how to invest with purpose from us certified financial planners and advisors. We assure you that we conduct due diligence on faith-based investment opportunities as we do for all traditional portfolios, ensuring timely and informed decisions.
Faith-based investing is more than just a financial strategy; it's a way to ensure that your investments reflect your deepest values and beliefs. Whether you're new to investing or looking to realign your portfolio, faith-based investing offers a meaningful path to financial growth and ethical integrity. Contact Heritage Financial Advisors for a customized faith-based investment management strategy.
Sources
https://www.adventpartnersfp.com/articles/investing-with-purpose-how-faith-based-investing-works/
https://retirementstewardship.com/2022/05/25/faithful-investing/
https://www.bogleheads.org/forum/viewtopic.php?t=423545
https://www.faithfi.com/faithfi/the-best-investment-ive-ever-made-4046
https://www.yieldstreet.com/blog/article/faith-based-investing/