Keeping your money in an exchange-traded fund (ETF) exposes you to a single asset class or group of assets at a low cost and with minimal management hassle.
However, choosing the right ethical fund for you can be tricky. Not all ETFs are created equal, and some may not meet your ethical standards.
You might prefer funds that emphasize environmental, social, and governance criteria (ESG) as part of their selection criteria. Others may have lesser or no specific ESG criteria but include other factors such as investment in small companies or businesses with measurable positive social impact.
With so many options available, there is no one right answer when choosing the right ethical fund for you. Here are some guidelines on how to choose an ethical fund.
What Is an Ethical ETF?
An ethical ETF is an exchange-traded fund that is managed ethically. An ethical fund will not invest in companies that violate specific ethical standards.
The ethical standards an ethical fund adheres to vary from one fund to the next. It can focus on specific industries, countries, sectors, or social issues such as climate change, human rights abuses, and racial discrimination. Ethical funds also focus on environmental issues such as using non-renewable resources or contaminating natural habitats.
Read on to find out more about how to choose an ethical fund.
Know What Responsible Investing Means To You
Before you start researching and choosing the right investments, you must understand what responsible investing means.
What values and beliefs are most important to you regarding investing your savings? Are there any specific industries or companies you don’t want to be associated with your money? What are your feelings on risk?
These are all critical questions to ask yourself at the beginning of your investing journey. You can’t truly begin to make smart decisions without understanding what you stand for.
Research Is Very Important
Before you make any decisions, you must do your research. Ethical investing can be challenging, especially if investing in an untested new fund.
Try to stick to funds with a proven track record whenever possible. You can also do some online research and read reviews from past investors to learn more about specific funds that interest you.
While it is essential to research fund options, you must do your due diligence and understand the fund in question before making an investment decision.
Transparency About How Your Money Is Invested
One of the most important things you can do when creating an ethically responsible investment portfolio is to consider the transparency of how your money is invested. This means that you must fully understand where your fund is investing in, how your fund is being managed, and how your fund is being assessed by its administrators.
This can be challenging, significantly when you are investing through a fund that is new to the industry and has never been used before. However, transparency is critical to truly understanding the ethical integrity of your portfolio.
Overall, buying into an ethical ETF can be challenging, but it is also very rewarding. It is important to remember that there is no right or wrong way to invest ethically. The most important thing is being honest with yourself and your moral beliefs.
If you are truly committed to responsible investing, you will need to do your research, make sacrifices, and commit to your decisions. There will be challenges along the way, but with hard work and dedication, you can create an ethically responsible investment portfolio that you can be proud of.