Is Faith-Based Investing Right For You?
Many of our clients at Step by Step prioritize their spiritual health. Remaining active in religious communities has been difficult with the ever-evolving government restrictions and in-person risks brought on by the coronavirus. But there is a surprising way you can support your religious views: with faith-based investing.
When you think about investing, saving money, compound interest, and balancing risk often comes to mind. But investing is so much more than building wealth. People have expanded their view of the dollar to include their values and preferences. They don’t just want their money to grow; they want it to promote companies and organizations that share their value-system.
This weight on value has led to a growing trend: impact-based investing. You can see this strategy popping up all over the place from socially responsible to value to faith and more.
Faith-based investing allows people to financially assist businesses that uphold the tenets of their faith, bringing more meaning and intention to their financial life.
What is faith-based investing, and is it right for you? Let’s find out.
What is faith-based investing?
Faith-based investing is a form of impact investing. It promotes the financial support of institutions and businesses that align with your views. This niche has gained popularity with the rise of socially responsible investing or investing in companies that operate in humane, community-conscious ways.
This type of investing brings more control to how your money is used. It asks critical questions like,
- Is your money helping companies that have a mission you believe in?
- Are the corporations you support acting in ethical, legal ways?
- Do these businesses invest in industries aligned with your values like community outreach, environmental care, and more?
Faith-based investing can fuse your moral compass with your financial decisions. Many people who assume this approach avoid companies that are associated with things like tobacco, guns, and gambling, to instead focus on those that invest in areas like fair employment, clean energy, and other positive impacts.
These examples will change based on your unique value-set and beliefs. Everyone holds different views, which makes this investment approach specific and tailored to you.
For so many people, giving back to the community is important whether through volunteering, tithing, or other charitable contributions. Why not ensure your investments coordinate with that altruistic behavior?
Now that you have a good idea of what faith-based investing is, it’s time to see how it functions.
How does it work?
No, you can’t buy stock in your church. Churches are non-profit organizations, so you won’t find them on the stock exchange.
Even though you can’t buy stock in a religious organization, there are several stock and bond funds with a religious slant like Eventide Gilead, Timothy Plan, Ava Maria Funds, and Guidestone. These funds are examples of Christian-based investments, but there are mutual funds and ETFs that align with a broad range of religious beliefs.
You can find several vehicles that promote financial care of your religious affiliation. Let’s look at a few ways you can apply faith-based investing to your portfolio.
- Research and hand-pick investments that fit the bill.
- Use an online screening tool to weed out companies that won’t work for you.
- Apply filters or presets to your search.
- Work with companies that screen faith-based investments.
- Invest in funds that allow shareholder engagement and activism.
It’s no doubt that impact-investing requires a more hands-on approach. But for some investors, that added effort is worth it. It is all about finding the right balance that works for you.
Will it make you money?
Investing based on your beliefs shouldn’t just help you sleep better at night, it should also be profitable. According to U.S News, the composite returns over 5 years from the Christian Investment Forum, outperformed the industry average by 77 points. But, as with any investment strategy, this approach works best in the long-run.
Faith-based investing has two main goals.
- Financially enabling companies that promote your values/beliefs.
- Earning money.
These two ideas aren’t necessarily mutually exclusive, but they can butt-heads every now and then. You need your investments to work for you to support your future. If you find that this investment strategy hinders your ability to move forward financially, it might be time to pause and take a step back.
Let’s take a closer look at the general pros and cons of faith-based investing.
- It enables you to invest with your heart.
- Your values can take top priority.
- When you believe in something, you are often more willing to stick with it long-term, which could have a positive impact on your net returns.
- Be siphoning off part of the market, that limits some diversification efforts.
- Faith-based investing can see high fees. Watch out for the load and expense ratio on religious-focused mutual funds.
- It is more complex to manage and rebalance as investment options are limited.
Your investment philosophy has to be about what is most important to you and finding a balance between your values and your finances.
How to find the right balance
As with everything in life, you need to find the right balance. Faith-based investing has the power to enrich your financial life by combining your values and your money, but being difficult to maintain, can also result in fluctuating returns.
Remember, your money is a tool to help you live a satisfying and fulfilling life. Where, how, and why you invest your money can play a significant role in that conversation, but you need to make sure your money is used to support your goals both now and in the future.
Ready to see how faith-based investing could work in your portfolio? Schedule a call with our team to learn more today.