When it comes to ethical investment, there is no generally acceptable definition for it, but in one way, it simply means making investments in companies whose products and business match what you believe in personally.
Before now, ethical investment was used by investors who belonged to strong religious groups and only wanted to invest in stocks that aligned perfectly with their values and faith, based on their strict religious beliefs, they avoid companies that have to do with gambling and alcohol.
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But these days, the idea of ethical investment has evolved and become more popular, these days more investors even those who are not particularly religious want to ensure their investment particularly aligns with their beliefs. Instead of using ethics alone as a platform to see what to invest in, investors now look for companies that are focused on doing things differently.
The ethical investment comes in different forms and are of different types;
We have socially responsible investing, this set of people avoid controversial industries such as; alcohol, gambling, and firearms industries.
Environmental, governance, and social investing have a group of investors who consider first the social and environmental impacts of the company before investing. This set of investors would rather focus on the transparency of business practices, alongside its sustainability.
Impact investing is a combination of environmental and social benefits with financial returns. These set of investors select companies depending on their performance in those areas as well as deliver growth.
Faith-based investment is where investors only invest in companies that align with their religious values and they stay very far away from any company that is against their belief system.
If you want to invest in companies that are ethically and socially responsible, then you should build a portfolio on your own through the act of making investments in individual stocks, this approach can however be expensive and time-consuming, so get ready for the long ride you may be going for.
While it may appear to be unnecessary to be an ethical investor for so many people, this act of investment has a lot of advantages and these are some of them.
Personal satisfaction is attained: As an investor, when you invest in companies whose mission you understand and support, you will be provided with a greater level of satisfaction.
You can support companies that are focused on change: When you are an ethical investor, you get to invest in socially responsible companies, and of course, it comes with a pleasant feeling.
When you do good by following ethics in terms of investing, it opens up the door for more ethical investment to flow in.
Just like you know, nothing is completely good without having its downsides. So, just in case you are thinking about becoming an ethical investor after all these things you have read, you must understand there are downsides to it as well.
Here are some of the downsides linked with ethical investments;
In some cases, you may need to pay a more expensive fee and this is often because of the extra time it takes to manage socially responsible funds, as investment companies would charge higher fees in this case.
Your portfolio may underperform as well in the market.
To design such a portfolio, you will need to invest more time into doing research compared to others. If you build a portfolio on your own, you must get to research the mission and vision of each of the companies you would be investing in and adjust your portfolio to fit into that circle too.
Knowldge sources.
https://www.forbes.com/advisor/investing/what-is-ethical-investing/
https://corporatefinanceinstitute.com/resources/esg/ethical-investing/
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