Mostly rational politics, with occasional rants about how a few crazy Republicans are ruining the country.
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Wednesday, August 02, 2006
Throw your 401k in Socially Responsible Funds
I really shifted the asset allocation in my 401k to substantially increase my investments in Socially Responsible funds (specifically, the one I have is the Neuberger Berman Socially Responsive Invesment Fund, NBSRX).
I'd like to make the case that you should invest in these funds (especially in your retirement account which presumably allows the most time for trends to play out), and would like to do it on purely financial grounds, leaving aside any benefits of feeling good about helping the world, etc.
1. Socially Responsible funds outperform, or at least match the S&P 500 For the last 3 month, last 1 year, last 3 year, and last 5 year periods, the NBSRX outperforms the S&P by between 0.5% and 5.1%. It's trailed the S&P by 0.8% in the last 1 month, but that's a pretty good record overall.
2. Socially Responsible funds are becoming more attractive As more money is invested in socially responsible funds, as is the expected trend, the companies that these funds can invest in (the socially responsible ones) will get bid up by the increased investment, and therefore the funds will outperform.
3. Business schools are emphasizing 'Corporate Social Responsibility' The generation of students at business schools since Enron has learned about CSR in tandem with finance, marketing, leadership, etc. When they get in corporate positions of influence, starting in a few years, they will (hopefully) carry this with them, and operate their companies better, opening up more companies for these kinds of funds to invest in.
4. Reduced legal risk Generally, companies that make a concerted effort to show social leadership and avoid conflicts with the community and the environment are less likely to face lawsuits, especially the large class action kind that can crush a stock. So a portion of the downside risk of these companies is removed.
So there's four purely financial reasons to invest in Socially Responsible funds. Plus, you help save the world! (I couldn't help myself).