Allen Ostrofe
Special to The Union

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July 29, 2013
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Ostrofe: Is it bad to be a ‘good’ investor?

Recently, I was in San Francisco visiting pension plan participants at a large nonprofit foundation client of ours. Like many successful foundations, the employees are driven by a passion to not only further public welfare, but also proactively respond to changing social conditions in human rights, the environment and cross-cultural understanding. As “stewards” of their foundation’s funds, and of the investments in their pension plan, these employees take a critical eye toward the companies in which they invest their monies, and therein is the dilemma. Some call this “Socially Conscious Investing.”

According to FINANCIAL ADVISOR (July 18, 2013), there is a benchmark for socially conscious investing called the “Domini 400 Social Index” which tracks more than $10 billion in socially responsible stocks, made up of 400 companies that pass multiple broad-based social and environmental screens. Investors in socially responsible stocks typically are religious institutions, foundations, educational institutions, pension funds and individual investors through mutual funds and exchange traded funds (“etf’s”). Additionally, the “Social Investment Forum (Washington D.C.)” advises us that there is a huge $2 trillion market of socially responsible stocks and mutual funds.

The dilemma of our clients is not so different from many investors with good intentions. Just as our San Francisco clients, many ask the same questions:

1. How can I find companies which practice corporate social responsibility? There are so many social screens available, how can I personalize my own investment policy statement to screen companies which focus on, for example, the environment (e.g. fracking), workplace issues, human rights, abortion issues, avoidance of tobacco, alcohol, gambling and nuclear power.

2. Who will watch out for financial fairness in my portfolio? To be fair, I understand that there can be disadvantages to a socially responsible company. For example the Board can make decisions based upon their own personal opinions and biases, providing very public exposure to poor financial decisions and jeopardizing benefits to very worthy causes.

3. I understand that socially conscious investments can carry higher costs, why? Efforts such as event sponsorship, charitable donations, product donations, and commitment to voluntary environment standards all cost money. Corporate responsibility can have, but does not necessarily have, higher costs. This means investors may be willing to take less money, in the interest of investing more money back into the companies’ efforts they support.

According to Morningstar, an industry standard in tracking investment returns, one popular non-socially conscious index called the “S&P 500 Index” has shown that a select group of 500 U.S. stocks had provided returns around 6.91 percent/year over the last five years (The performance data quoted represents past performance and does not guarantee future results. The investment return and principal value of an investment will fluctuate: thus an investor’s shares, when redeemed, may be worth more or less than their original cost. Interestingly, when we cited a “Socially Conscious Portfolio” case study to our clients, it was evident that there is no absolute proof that the socially conscious portfolio cannot fairly compete with the performance of investments which do not meet your personal portfolio screen.

There are many investment types to select from, for example, stocks, bonds, mutual funds, annuities, exchange traded funds, currencies, real estate, commodities to name a few. One important investment strategy remains key - think global. A recent study (Franklin Templeton 2012) reminded us that 10 years ago 85 percent of all securities were in the U.S. and Europe. Today that figure is 48 percent! Investing in “Good” knows no borders. It’s not bad …to be a “good” investor!

The S&P 500 is an unmanaged stock index. S&P 500 is a registered trademark of Standard & Poor’s Corporation. Investors cannot invest in the S&P 500 Index.

International investing entails special risk considerations, including currency fluctuations, lower liquidity, economic and political risks, and differences in accounting methods.

Allen Ostrofe, MBA, CFP®, AIF® is president of Ostrofe Financial Consultants, Inc., a S.E.C. Fee-based Registered Investment Advisor. Securities and Advisory Services offered through National Planning Corporation (NPC), member FINRA/SIPC, a Registered Investment Advisor. Ostrofe Financial and NPC are separate and unrelated companies. For questions or suggestions, visit ostrofefinancial.com. Branch address: 565 Brunswick Road, Ste. 15, Grass Valley.


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The Union Updated Jul 29, 2013 08:18AM Published Jul 29, 2013 08:18AM Copyright 2013 The Union. All rights reserved. This material may not be published, broadcast, rewritten or redistributed.