Mike at Oblivious Investor recently discussed some low-cost socially responsible mutual funds. His article prompted me to write about the issue of faith-based or socially responsible investing, which has been on my mind for quite some time now.
The idea of socially responsible investing has been around for quite some time now, and faith-based investing has seen a lot of growth in the last ten years as well. Investors are showing increasing interest in the concept and many religious teachers are touting the benefits, and alluding to the necessity, of faith-based investing. However, I have found many misconceptions in the arguments of those who support these investing ideas. Personally, I see it as another attempt to pursue righteousness through works and find little Biblical basis for such legalistic views. Here are a few of the reasons proponents give for faith-based and socially responsible investing:
1. When You Invest in a Company, You Help It.
The idea that you’re helping a company because you’re investing in it is completely flawed. The only time this matters is when a company makes a public offering of its stock. In that case, the money raised from selling the stock does go directly to the company. But if you’re buying the stock on the stock exchange, your money does not go to the company whose stock you’re buying. It goes to the investor who owned the shares you just purchased. From the company’s point of view nothing has really changed except the name on the stock certificate.
“But if everyone sells a company’s stock its share price will go down. That’ll show them!” It’s true that if a company’s stock price goes down, it will probably affect the company’s ability to borrow money and will impact those employees (mostly officers) who own stock or stock options. However, the idea that you can affect the stock price of a company is absolutely ridiculous. Which brings us to point #2…
2. You Vote with Your Investment Dollars. (Sell the company’s stock, and you’ll show them you don’t support them.)
Even if all the Christians in the world refused to buy the stock of “sinful” companies, we would see no change in the corporate world at all. If anything, these companies could become even more “sinful” because no Christians would have an ownership voice in how the companies are run. For every Christian that sells a company’s stock, there will be a non-Christian who will buy it up (especially if it is a good value). And we haven’t even looked at the fact that most stock price movements are caused by institutional investors – not individuals with $50,000, $300,000, or even $1,000,000 portfolios. The “big guys” are trading billions of dollars and your investment choices will have little impact on them or the stock market.
3. If You Invest in Companies That Sin, You’re Investing in Sin!
This claim is absurd for two reasons. First, it relies on the validity of #1 (above). Second, it has no merit even on its own – your investment in a specific company is not causing any more or less sin than if you don’t invest in it. This idea also alludes to the conception that you have control over how your money is spent. This is true only until you spend it – whether on something “holy” or something “sinful”. After that, however, you have no idea how the next person will use it. They may spend it in an even more righteous way than you did (maybe they’ll actually feed the hungry with it…) or they may use it in the most sinful way you can imagine.
If the proponents of faith-based investing actually followed this argument to its full end, they’d never watch television again. You do more harm by supporting sinful television shows through your viewing habits than you do by investing in sinful companies. First, the television networks raise advertising money because you watch their shows, which leads them to produce more of the same types of shows. And second, these shows can actually affect your conscience and beliefs and tempt you to sin in ways that investing in a specific company cannot. I’m not saying you should seek out sinful business to invest in. But if your portfolio holds 1.3% of Exxon because you invest in index funds, you’re not going to be more likely to sin because of it. But if you pollute your mind with shows that do not glorify God, you’re giving Satan a much easier way to tempt you.
4. Faith-based or Socially Responsible Investing Is Good Stewardship of Your (God’s) Money.
Take a moment to consider the prudence of investing in faith-based mutual funds where you pay 5% up front as a “sales load” (commission to broker) plus annual expenses of 1.45%. The fees for righteous investing are outrageous, and there’s no way I can consider it good stewardship to spend that extra money on something that has negligible benefits for actually improving the world. And don’t think that you’ll get better stock selection because you’re using these highly paid professionals “with a conscience”. Take a look at the actual holdings of some of these faith-based mutual funds and you’ll find some of the same companies you would in an index fund. For example, the MMA Praxis Value Index Fund holds Time Warner, which owns HBO, which in turn shows adult entertainment. I’m sure there are many examples from a variety of faith-based funds, but this one highlights an important reason you shouldn’t get so focused on this idea. The corporate world is so convoluted and full of subsidiaries of subsidiaries that it’s difficult to really know what a company is involved in.
It doesn’t get much better if you decide you’re going to buy individual stocks you’ve researched for their righteous actions (or at least non-sinful actions). First, you’re going to need to buy “round lots” (multiples of 100 shares) to avoid paying an artificially inflated price. Then, you’ll need to buy at least 30 different stocks in different sectors to create your diversified portfolio. Also, don’t forget your trade commissions – at least $7 per trade, probably more if you don’t shop around. And we’re just talking about U.S. stocks…the transaction costs for international companies can be much more, not to mention the difficulty in obtaining accurate research about their business practices.
The only socially responsible fund that comes close to having the same low fees as an index fund is Vanguard’s FTSE Social Index at an expense ratio of 0.31%. But it’s still likely that some of the companies in that fund will violate your personal morals, so you’re still back where you started.
5. Can You Own Those Companies with a Clean Conscience?
This is the only valid argument on the side of faith-based or socially responsible investing. If the Holy Spirit convicts you about owning specific companies, then there is no reason you should own those companies. But do not try to further justify your reasons by using the claims above – they are illogical and have no factual support. And do not place the burden on other Christians by preaching that they should do the same. God has provided no clear teaching on the matter in the Bible, and adding legalistic rules to faith in Jesus does not glorify Him at all. If you still feel compelled to invest according to these “faith principles”, that is fine. But do not condemn or judge others because they do not follow your opinions in such trivial matters.
The Holy Spirit has revealed nothing to me about investing in index funds as being evil. If anything, we’d be better off spending our time focusing on showing God’s love and sharing the news about Jesus rather than worrying about how our money is invested (especially when it doesn’t really affect the world). The whole concept of faith-based investing reminds me of when Jesus blasted the Pharisees for straining out a gnat but swallowing a camel. We are still finding ways to emulate the Pharisees today – using legalistic rules to justify ourselves as righteous while neglecting the things God really cares about. We worry about investing in sinful companies, but we’re fine with planing for an early retirement or a second home when people (including Christians) are starving and homeless. Which do you think God cares more about?
Where Does Your Righteousness Come From?
Just as Paul asked the Galatians to remember how they became righteous, I ask those who preach faith-based investing the same question. Did your investing habits condemn you or save you from your sin? Do you claim your righteousness and holiness based on how you choose to invest your money? Let’s not forget that we place our faith in Jesus Christ – knowing that it is by grace we have been saved through Christ’s death.
Nowhere does Christ preach such a legalistic faith as the one faith-based investors would like us to follow. What did He teach us? To love God and to love each other. His teaching focused not on the possible actions of others, but on our own actions and our own thoughts. Which is the more loving act? To invest in companies that will make us feel better about getting rich, or to give generously to those in need while remembering the gift of Jesus?
If you want to see real change in the world that will glorify God, then do the things you support. Give your time and money to causes that promote your values. And instead of relying on your investment dollars to change people, spread the Gospel. It’s the only force that will effect any lasting and truly good change in the world.