Values-based investing for the faithful

Faith-based investing has ancient roots and many modern, well-researched options.

It is a precept of many faiths that one’s beliefs aren’t left hanging on the coat rack when stepping into the office, that there is an obligation to conduct business following the same values that guide the rest of life.

For some, this imperative extends into one’s portfolio.

Faith-based investing, or the practice of aligning investment decisions with religious beliefs, is not a new concept. Religious precepts have continually guided people of faith from the days of commodity currencies to today’s interwoven global financial system. Movements for avoiding so-called “sin stocks” in alcohol, tobacco and gambling companies date to at least the 18th century.

The complexities of the modern economy can make it somewhat more difficult to keep one’s investments strictly aligned with one’s faith. It can be very time-consuming to keep up with precisely what businesses you own and through which methods they create revenues. A single well-diversified mutual fund may touch vast swaths of the market economy.

However, as it is prone to do, the market responded to this need. The first explicitly faith-based investment fund was founded in the 1950s. Since then, the world of options has only grown, and faith-based investing is a major pillar of the market for values-based investment products.

Values and returns

One common perception of values-based investing is that it involves sacrificing investment returns. However, this compares an idealized portfolio with real-world investing. While avoiding purchasing stock in a company may mean a faith-based investor misses out on a particularly stellar quarter for that company, it’s not a given that they would have otherwise owned shares in that company.

Modern portfolios, like the financial instruments that comprise them, have vast potential for diversification. Faith-based investment vehicles follow the same modern portfolio theories that define today’s prudent investment strategies. They rarely exclude entire sectors, instead selecting the strongest performers in each category on both traditional and values-based factors. They also typically use the same benchmarks as broad-based strategies to gauge performance.

Avoidance and impact 

Faith-based investment funds often follow what is known as an exclusion model in their selection process. Simply put, companies that provide products and services at odds with the directives of a faith tradition are not purchased. Likewise, a fund may exclude certain kinds of debt instruments that may be interpreted as usurious. When faith leaders call for a boycott of certain nations based on their actions, a faith-based fund may adjust its holdings to meet the new directive.

The other side of faith-based investing, which is quickly growing, is more affirmative, seeking to invest in companies and organizations seen to embody values consistent with a religious faith. By directing capital toward these companies, investors aim to be stewards, using their financial influence to support their moral beliefs.

Many faith-based funds use a combination of both negative screens and positive impact criteria in their investment decisions.

Selecting investments

Popular faith-based investment frameworks adhere to specific religious traditions based on guidance from respective religious authorities. In choosing to align your entire portfolio or a portion of it, investment options include a range of products, including mutual funds, exchange-traded funds and separately managed accounts.

These are far from the only options, and as the world of values-based investments has grown, so have the tools for selecting and overseeing them. You can take a detailed questionnaire to both identify your specific goals and values and highlight well-researched investment products to suit. The results may even lead you to a secular fund that meets your faith criteria.

As with all of your investment decisions, your financial advisor is there for candid, honest conversation about your values and your goals. Through a deeper understanding of what matters to you, they can help better align your financial plan with your long-term goals and faith-based values. 

Incorporating faith-based investing criteria into the investment selection process may result in investment performance deviating from other investment strategies or broad market benchmarks. Diversification does not ensure a profit or guarantee against a loss, including asset allocation and diversification.

This information is intended to be educational and is not tailored to the investment needs of any specific investor.  The information contained in this report does not purport to be a complete description of the securities, markets, or developments referred to in this material. The information has been obtained from sources considered to be reliable, but we do not guarantee that the foregoing material is accurate or complete, it is not a statement of all available data necessary for making an investment decision, and it does not constitute a recommendation. Past performance is not indicative of future results.