3. PUT YOUR CONCERNS TO REST

How do you know if trusting your hard-earned shekels to a tree-hugger, no matter how earnest and well intentioned, will actually do something for your net worth? Like any investment in the stock market, it's a gamble. (Anyone avoiding gambling-related companies should leave the room right now!) There are no guarantees that your money will even come back to you, let alone gain 20 percent a year. But there are some statistics that might make you feel more at ease. In the past, one of the major arguments against socially responsible investing was that it would not be profitable. As it turns out, several socially-conscious mutual funds beat the S&P 500, a broad stock market index of 500 companies and a common indicator of the market's overall performance. Case in point - In 1999:

  • Citizens Index Fund, a mutual fund of 300 companies, increased 27.49%
  • Domini Social Equity Fund, an index of 400 companies, increased 22.63%
  • By comparison: S&P 500 increased 19.5%

Both funds have outperformed the S&P 500 since they started.

Here are some statistics on top-performing mutual funds in 1999:

IPS New Frontier Fund

IPS Millennium

Citizens Emerging Growth

Bridgeway Social Responsibility

Parnassus Fund

American Trust Allegiance

Dreyfus Third Century

Aquinas Equity Growth

Meyers Pride Value

Citizens Index Fund 187.50% increase

119.79%

68.09%

48.06%

47.74%

38.03%

30.16%

29.11%

28.34%

27.49%

Detractors claim that socially responsible companies have higher costs of doing business. Proponents counter that companies with bad labor relations, worse environmental records and ugly lawsuits are the ones to avoid because ultimately they incur higher costs of doing business. (The tobacco industry, take note.) Companies that treat not just their stockholders but also their employees, the environment and their community well will probably have similarly good business practices in other areas. Still others say that socially responsible mutual funds have higher expenses because of the research required to screen companies. While in some cases, especially with smaller mutual funds, expense ratios can be higher, supporters say that as the fund grows, it will reach economies of scale and the expense ratio will decline.

Another concern about socially responsible investing is that you are limited in your choice of companies. But screened mutual funds exist with several hundred companies in them, and supporters say there are plenty of companies out there, it's just a matter of doing more research. Critics also maintain it is impossible to have a completely "clean" company. Although guaranteeing that a company of any size is 100% in compliance with every moral guideline is unrealistic, the screening process is an honest attempt to find the truth and pick the best of the lot.

Finally, you may be worried about whether you are investing on the fringe (that would be, investing with extremist weirdo groups that no sane person would ever endorse). Socially responsible investing is gaining broader acceptance with the increasing number of mainstream mutual fund companies hopping on the bandwagon. In December 1999, Vanguard, the nation's second largest mutual fund company, broke onto the scene to partner with Calvert Group, a longtime pusher of socially responsible investing. Now there are almost 200 socially responsible funds to choose from. At the end of this article are some other sites to help you find your way to true enlightenment, or at least a guilt-free investment.