Briefly Noted

    Socially Responsible Investing: Tips for Success

    A growing number of people are extending their social consciousness beyond driving hybrid vehicles or drinking fair trade coffee to pursuing an investment strategy that reflects their beliefs.

    The “socially responsible investing” (SRI) movement has actually been around for some time; the approach seeks to integrate financial objectives with social and environmental objectives. SRI assets have grown from $639 billion in 1995 to $2.71 trillion in 2007, according to the 2007 Report on Socially Responsible Investing Trends published by Social Investment Forum.

    As SRI’s popularity continues to increase, CFA Institute, the global association for investment professionals, offers these tips for investors interested in developing a socially responsible investing policy:

    1. Define Your Goals and Objectives: SRI means different things to different investors. The first step is to ask yourself what you hope to achieve; the answer should be based on what you consider to be important. For example, you may wish to promote environmentally sustainable commerce, support companies that explicitly incorporate social responsibility into their governance systems, or avoid companies that engage in certain types of activities, such as weapons contracting, the sale of tobacco or alcohol, or gambling.

    2. Decide on an Approach: Socially responsible investment techniques can be categorized into three general approaches. The first approach is portfolio screening, which can be negative screening (excluding companies or sectors based on certain criteria relating to the company’s policies, actions, products, or services); or positive screening (specifically including companies or sectors based on the company’s meeting certain standards). The second, called best practices classification, chooses companies in a particular sector that rank high based on one or more environmental, social, governance, or ethical criteria as well as financial criteria. A third approach is using shareholder status as an owner in the company to monitor management and influence managerial behavior through proxy voting or direct engagement. Although this active approach may not be feasible for the typical investor, investors can choose investment managers, pension funds, and mutual funds that define their investment strategies by such advocacy efforts.

    3. Be Aware of Fees: Expect to pay higher management fees for socially responsible mutual funds and ETFs. For example, annual expense ratios for SRI ETFs range from about 0.40% to 1.00% of portfolio value, substantially higher than for ETFs that track traditional broad market indexes, like the S&P 500 index, which have expense ratios that range from 0.08% to 0.40%.

    4. Diversify: The golden rule of investing is to maintain a well-diversified portfolio because diversification reduces risk without necessarily sacrificing return, and it applies to SRI as well. A process of systematically excluding investments and even market sectors based on negative screens or focusing exclusively on certain sectors can inadvertently create an underdiversified portfolio. Socially responsible investors need to be especially vigilant about maintaining proper diversification.

    Tips to Prevent Debt Paralysis

    Many Americans are drowning in debt, which can be attributed to various factors including the overuse of credit, unexpected expenses, a reduction of income or job loss, or an unforeseen illness or injury. While some are prepared for the inevitable, many individuals are blindsided by the overwhelming debt that has seemed to paralyze some U.S. consumers.

    The National Foundation for Credit Counseling offers some basic tips to prevent debt paralysis:

    • DON’T hide purchases from family members. Being dishonest about your spending not only leads to financial trouble, but also can strain your personal relationships.

    • DON’T apply for new credit cards simply because you’ve reached the credit limit on existing cards.

    • DON’T start charging when there is no money. As a general rule you should not be spending more than 20% of your take-home income on credit card bills or loans, and this includes your car payment.

    • DO make more than the minimum credit card payment. The NFCC recommends paying at least double the minimum required payment.

    • DO work with your creditors. If you encounter any problems repaying your debts, contact the creditor immediately and explain the situation. Creditors often will work with you to come up with an alternate payment arrangement.

    Source: The National Foundation for Credit Counseling (NFCC), based in Silver Spring, Maryland; (