This article was updated on June 5, 2017. It was originally published on Dec. 1, 2005.
Many of us investors feel a bit uneasy about some of our holdings. One stock I have owned, for example, is Wal-Mart, and I felt a little conflicted about it. I could see reasons to both buy and sell it:
Buy, because:
- The stock seemed attractively priced, relative to its historical range. (That's not the case at the moment -- its price-to-earnings (P/E) ratio has recently been around 18, while its average P/E over the past five years has been around 15.)
- It had been a strong grower and great performer for shareholders for many years, and still seemed to have room to grow.
- It did and still does serve a useful purpose in America, offering low prices to consumers.
- It even pays a dividend, which is likely to grow over the years. (Wal-Mart's dividend recently yielded a solid 2.6%, but it has not been growing too briskly in recent years.)
Image source: Getty Images.
Don't buy, because:
- There had been an awful lot of credible reporting out there asserting that the company didn't treat many employees very well. (More recently, though, the company has been paying many workers more and has been seeing customer satisfaction and sales numbers increase.)
- As Wal-Mart spreads across the land, it's hurting lots of other businesses, from mom-and-pop competitors to major supermarkets and retailers.
- There are plenty of other good investments out there.
Socially responsible investing
If concerns like these matter to you, you should consider learning more about socially responsible investing (SRI). Some folks assume that it can't be an effective way to invest because it screens out and ignores so many powerful performers. But there are actually many SRI-oriented mutual funds and exchange-traded funds (ETFs) that have been around many years, and while few have been long-term blockbuster performers, plenty have roughly kept up with the overall market, if not clearly exceeding it over certain periods.
For example, consider the MSCI KLD 400 Social Index, which used to be known as the Domini 400 Social Index. In its own words, it's "an index of 400 US securities that provides exposure to companies with outstanding Environmental, Social and Governance (ESG) ratings and excludes companies whose products have negative social or environmental impacts." The benchmark to which it compares itself is the MSCI USA Investable Market Index (IMI), which has more than 2,400 components and aims to reflect the performance of the large, mid and small cap segments of the U.S. stock market. How has the Social Index performed? Well, since its inception in 1994, it has outperformed its benchmark by a hair, with an annualized average return of 9.80%, vs. 9.72% for the IMI. Over the past 10 years, the two indexes were even.
So, you might say, why not just invest in the benchmark index or the somewhat similar S&P 500? Well, by opting for an SRI fund, you might sleep a little better at night knowing that some companies have been excluded because of ethical concerns. You can invest in the MSCI KLD 400 Social Index via the iShares MSCI KLD 400 Social ETF (DSI 0.60%), which sports a relatively modest expense ratio (annual fee) of 0.50%. Here are the recent top 10 holdings of the ETF:
- Microsoft
- Alphabet
- Procter & Gamble
- Verizon Communications
- Coca-Cola
- Merck
- Walt Disney
- Intel
- Cisco Systems
- Oracle
There are, of course, plenty of other SRI-oriented funds you can discover via a little research.
Keep learning about socially responsible investing
If you'd like to learn more about socially responsible investing, check out these articles:
- What Is Socially Responsible Investing?
- Socially Responsible Investing Stocks: What to Watch in 2017
- The Problem with Socially Responsible Investing
It's a fascinating field, and even if you don't invest entirely according to some SRI principles, you may want to incorporate a few into your investing strategy or just snag some shares of a few companies you can be proud to own.
