Socially Responsible Mutual Funds

Does the idea of investing in your future via mutual funds appeal to you, but the idea of helping out zillionaire business owners who exploit both their workers and consumers get you sick in the pit of your stomach? For many people, the very idea of investing in stocks just seems, well, nauseating. If you've ever watched the stock of a company after news comes out that it has laid off workers or is going to be forced to downsize in any way, you've no doubt been repulsed the effect on the stock price to this news is typically to go up. Why is bad news for workers always good news for business?

Because the entire idea of investing in stocks carries with it the taint of exploitation of the workers, many people with a conscience shy away from the practice. On the other hand, when CNBC consistently reports how many people have become millionaires simply by investing in 401k and annuities and mutual funds, it's hard to resist. We all have future to think about and most of us have families to take care of and it's certainly admirable to have a conscience when it comes to making money, but few us have that privilege and those who have that privilege the most typically have the least problem with sticking a knife in their conscience.

Where is where the idea of investing in social responsible mutual funds came from. As usual, this somewhat lofty goal sprung from basic greed. Mutual fund managers realized there was a segment of potential customers out there who just weren't comfortable with sticking money into funds that supported corporate criminals like Enron, Exxon and WorldCom, among thousands of others. In order to get their fingers on the dollars of these kinds of people, somebody somewhere came up with the idea of creating a mutual fund that only invested in companies that cared about following laws and regulations and even-gasp!-non legal ethics.

To further capitalize on that last part, some of these funds only invest in companies that follow certain religious dogma. In other words, let's say you don't want to invest in Walt Disney because you disapprove of the one day out of the year in which their theme parks invite gay couples in and allow them to walk hand-in-hand and even kiss on the lips. You can find a mutual fund that is devoted to screening out companies that don't believe a person's sexual life is their own business. Imagine!

The very model of socially responsible mutual funds, however, don't take such a hard-line approach to the idea of being socially responsible. Environmentalists in particular tend to be hardcore about the idea of investing. Which is why you can find many mutual funds that only invest in companies that take environmentalism very seriously. Since those concerned with saving the environment also tend to support human rights, these funds typically won't have cosmetics companies in them, but may include companies who have shown a willingness to support animal rights.

The managers of socially responsible mutual funds usually spend much time and energy in their screening process that decides which companies the fund will invest in than regular mutual funds. Their job is, of course, doubly difficult. A regular fund doesn't have to concern itself with finding companies that give the appearance of being responsible, law-abiding entities; all that matters is profit. But you try to find a company that not only doesn't offend a certain cultural mindset, but also has a better than average chance of returning revenue to its shareholders. Think it's easy? Ha!

Exactly what determines socially responsible? Is McDonald's a socially responsible company? For the most part they've been free from investigation, they've been free from labor problems, they've been free from scandal. On the other hand, they serve up meat which PETA and many others find more disgusting than what they were doing at Enron. (They're wrong about that, of course, but that's their privilege.) Some people consider the entire fast food industry to be free from any claim of social responsibility. You and I might not see things that way, but many people. So in a fund that invests in companies that you and I might consider socially responsible, would the animal rights people would be willing to invest if McDonald's was also in there? Probably not. Boom, out goes that fund.

One other thing to consider before investing in a socially responsible mutual fund is that the fees associated with mutual funds are higher. The reason for this that is given is that the ethical research costs a little more than the research for a regular fund which, as I've said, is thoroughly unconcerned with ethics.

But the main thing to consider before investing in one of these funds is this: Is there really any such animal as a socially responsible mutual fund? In response to the very concept of socially responsible funds came the idea of socially irresponsible funds. They used to be called sin funds, but that's too politically incorrect for these days. These funds invest in industries that have proven profitable for several millennia: smoking, drinking, gambling, sex, etc. They should still be called six funds instead of socially irresponsible. Calling them that gives the impression that companies that produce less obviously sinful products are somehow more socially responsible.

The simple fact when it comes to investing is this: it's all about profits. Even a company with the most lofty goals still has to work within a corrupt system. And capitalism is as corrupt as it gets. Everything and everyone is commodified; turned into a product. And the bottom line is the ultimate arbiter of decision-making. Yes, there are certainly companies out there that are more ethical than others. Thankfully, Ken Lay is the model for every CEO of every company. Nonetheless, the difference between a Ken Lay and any other CEO is not as vast as the Grand Canyon. Business is business and in order to succeed in the global economy-by which is meant but never said the American imperialist economy-businesses have to follow certain patterns of behavior.

It would be terrific to suppose that you could actually find twenty or thirty companies to pool together into a mutual fund that strictly follows all corporate regulations, that engages in spotless accounting practices, that pays their workers decent wages and offers adequate health insurance, and that doesn't harm the environment. But hey, it would also be great to get the President the majority of voters elected every single time. Guess what? Neither of those things are going to happen under the current system.

Investing in socially responsible mutual funds is a tricky proposition. It really comes down-and boy aren't we all tired of every decision we make seeming to come down to this-to how much of a compromise we're willing to make. In other words, if your basic social concern is protecting the environment, then you might have to be willing to overlook a company that, for instance, refuses to pay health benefits to domestic partners. Or, if you're social concern is decent working conditions that avoids overseas sweatshops, you might have to overlook a company's spotty record on the environment.

Let's face it, you can't make a million dollars by investing in charities. Companies are formed to sell products or services. If they don't sell enough, they go out of business. And therein lies the problem, because sometimes these companies have to do things that quite clearly are not social responsible just to maintain their very existence. That said, depending upon your point of view, most socially responsible funds do invest in companies that make them look like the United Way in comparison to Enron. But don't be fooled into thinking that the companies that you'll be investing in are free from irresponsible behavior. This is America and in America even the most responsible of businessmen have to deal with an essentially corrupt system. They may try to do their best, but the methodology is stacked against them.

Socially responsible mutual funds may not be a complete misnomer, but the description hardly tells the whole story, either.