In recent years, the new idea of investing in vouge, socially responsible investing, has attracted a lot of interest. As environmental problems become more and more prevalent, it is a natural progression. In very simplistic terms, socially responsible investing is an investment approach that allows you, the investor, to invest your funds in companies that normally invest in ways consistent with your beliefs. Investing in environmentally friendly funds that you support would be a good example of this. As these topics become more important to us, socially responsible investing will become even more popular.
The most common way to invest when it comes to socially responsible investing is through what is called a sector fund. Sector funds, as their name implies, focus their investment objectives on a particular sector. Sector funds are best known for their focus on popular areas. These areas commonly include oil, technology areas, or any other hot sector at the time. Therefore, they can be a very valuable tool, allowing you to invest in whatever area you see fit. So if an area is hot like real estate has been in recent years, you could take advantage of that with a sector fund. Currently, many speculators are taking advantage of the growing oil sector. As these trends come to an end, sector funds allow you to move to the next hotspot, and so on.
If we take a closer look at socially responsible investing, we can see that it has evolved over the past two years. In the past, socially responsible investing was about supporting a good cause or not supporting a company with which you fundamentally disagree. This is not the case anymore though, as the definition of socially responsible investing now comes down to aligning your beliefs with a particular investing style, and that can be a host of different things.
The most common socially responsible investing style usually falls into one of three different styles. Those typical styles are shareholder advocacy, selection, and community investment. Shareholder advocacy is the influence of a certain company by its shareholders to make changes. This could influence a company to stop doing business with a certain entity or in a certain way, for example. Detection is probably the best known and most common. It implies not investing in those companies with which you do not agree. Maybe you don’t like tobacco companies because of your cancer problems. You could avoid investing in them. This is not always easily done with typical mutual funds, as they own many stocks with small criteria that would align with their beliefs. Community investment can help areas or countries that need investment funds to raise much-needed capital. Not only does this spread goodwill, it can also be rewarding, as many areas are emerging markets with great potential for ROI.
Funds in the socially responsible investment sector have grown at an incredible rate. In fact, they are one of the fastest growing sectors. Therefore, it is important to note that any time you invest in a sector fund or a particular investment area, you may not get the proper diversification that is normally recommended. Make sure to diversify your portfolio. Every time you focus on a small area of the market, you take more risks. There can also be trade-offs when removing a sector entirely. This is a common goal with some socially responsible investing techniques, but it can be costly. The elimination of the oil services sector, for example, during this recent period, would have sacrificed a significant part of its large beneficiaries. Always consult with a professional advisor before implementing an investment plan.
