Investors are now looking at putting their money in investments that positively impact the world, hence the rise and growth of ethical investing. While generating returns, this investing strategy focuses on an investor’s morals, values, and principles. Being new to ethical investing requires a deep understanding of ethical stocks and ETFs. This article takes you through the different aspects of ethical investing.
Types of Ethical Stocks and ETFs
Exchange-Traded Funds, commonly known as ETFs, are funds that trade on exchanges; they are sold and bought just like stocks when the exchange opens. The intraday price data is obtained daily and has a ticker symbol. There are different types of ETFs that you can choose from depending on their costs, benefits, risks, and the investment strategies used. Some of these ETFs are discussed below.
Sector ETFs are exchange-traded funds that invest in stocks within a specific industry or sector. These ETFs provide a way for investors to gain exposure to a particular industry, such as technology, healthcare, or energy, rather than the broader market. By investing in a sector ETF, an investor can benefit from the growth of a particular industry and achieve more targeted investment outcomes.
Commodity Exchange-Traded Funds (ETFs) are investment vehicles that track the price of a specific commodity or a basket of commodities. Commodity ETFs are traded on stock exchanges, and their value is tied to the performance of the underlying commodities they represent.
Socially Responsible Investing Funds (SRI Funds)
This type of investing focuses on maintaining a more just, peaceful, and sustainable world with a simpler approach. It avoids investing in disputed areas such as tobacco or gambling and tends to lean towards investments that reduce negative externalities.
Environmental, Social and Governance Funds ETFs (ESG)
ESG ETFs consider how environmental, social, and governance issues can impact a company’s performance. These funds invest in companies with positive ESG characteristics, such as a commitment to reducing carbon emissions, promoting diversity and inclusion, and good governance practices. The objective of ESG funds is to generate financial returns while promoting positive environmental, social, and governance outcomes.
Steps to Ethical Investing
Define your Goal
Determine what is ethical and what is unethical for you. What are your morals and beliefs? This question will help you identify ethical stock ETF that align with your principles and beliefs, and you will only invest in companies or causes that uphold them.
Choose and Research the Investment
An investor may buy a managed stock or fund or build a portfolio. However, you should thoroughly research the fund’s investment objective for managed funds and stocks. Look at how the funds work, options available, previous performance, fees, and most importantly, the fund managers. When building a portfolio, look at the sustainability reports of an ethical company.
Monitor the Investment
After you are satisfied with the findings, buy the stocks or funds of your choice. After purchase, it is vital to monitor how the investment performs. Quarterly reviews give a detailed report, and the fund managers keep investors updated if investing through managed funds or stocks.
Investing in ethical stocks and ETFs ensures that you get good returns from your investments while doing some good in the world. It also comes with lower financial risks as investors can avoid investing in companies likely to have future financial crises.