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Investing With Purpose: How Faith-Based Investing Works

If you’re looking to invest in a way that resonates with a deeper commitment to your religious and personal values, faith-based investing may be an investment strategy that’s right for you. While the concept has been around for decades, faith-based investing has gained momentum in recent years as the chaos of world events has made many investors embrace the idea of using their money to support—and even create—positive change. Let’s explore the concept and learn how you can get started with your own faith-based investments.

What is faith-based investing?

Faith-based investing is the practice of investing your money in companies, stocks, and mutual funds in a way that aligns with your spiritual beliefs. This often involves screening out investments that are contrary to specific religious teachings while actively seeking out investments that promote ethical and religious values. The premise is simple yet profound – money is a tool, and it should be used in a way that honors your faith.

Is it the same as biblically responsible investing?

Biblically responsible investing is a subset of faith-based investing that is centered around the Christian faith. It is an ideal strategy for investors who want to follow the tenants of the Christian Bible when deciding where to put their money.

Faith-based investing is a broader concept that that can be adapted for any faith. Many religions provide specific principles that can be interpreted to provide insights on how money should be used.

Whether it’s the Christian teachings of stewardship and not serving two masters (God and money), Islam’s emphasis on risk-sharing and prohibiting interest, or Judaic teachings on social equity and community responsibility, there are many different guideposts you can use to inform your investment decisions that are unique to your personal faith.

Even within the Christian faith, there are different faith-based investing approaches you can take based on your denomination. For example, Ave Maria Mutual Funds is a fund family dedicated to serving investors interested in opportunities that align with the principles of the Catholic Church.

How well does faith-based investing perform?

For decades, conventional wisdom assumed that you had to sacrifice financial returns if you were committed to faith-based investing. It was a matter of principle over profit.

But times have changed. Thanks to the rise in popularity of values-based investing and demands for more corporate social responsibility, ethics has taken a front-row seat in how businesses are being evaluated by consumers. This has led to two major developments that are good news for faith-based investors:

  • There are now more companies that prioritize good stewardship—meaning faith-based investors have more options on how and where to invest their money.
  • The data shows that ethical companies tend to outperform their unethical peers. This is due to myriad reasons: they attract better talent, entice greater customer loyalty, are at lower risk for fines, and more.

That being said, keep in mind that faith-based investing is just like any other investment style. There are no “sure things.” It is vital that you do your due diligence to make sure your investments align not only with your faith, but also with your current financial health, your short- and long-term goals, and your risk tolerance.

Finding your comfort level with faith-based investing

Faith-based investing is not an all-or-nothing approach. You can take on different levels of commitment, depending on what you’re comfortable with.

Negative Screening Approach

The most basic form of faith-based investing is negative screening, which involves the exclusion of companies that are involved in activities deemed unethical according to your faith. This often includes areas like alcohol, gambling, tobacco, and weapons manufacturing. Although there’s an immediate moral alignment, negative screening does not actively promote ethical practices.

Positive Screening Approach

Positive screening takes your faith-based investing a step further. It involves actively seeking out companies and projects that align with your religious values. For example, you  might focus on companies that are active leaders in environmental sustainability, community development, or human rights advocacy.

Shareholder Engagement Approach

Some faith-based investors want to engage directly with companies, using their status as shareholders to advocate for changes in behavior and policy. There are also a number of faith-based mutual funds that will advocate on its investors’ behalf at company shareholder meetings to try and effect positive change. This is a proactive approach that aims to influence the moral character and corporate social responsibility of companies.

How to Get Started with Faith-Based Investing

Now that you know what faith-based investing is, how the strategy performs, and the different approaches and commitment levels that are available to you, let’s break down the key steps to creating a faith-based investment plan that adheres to your religious beliefs—and emphasizes what matters most to you.

Step 1: Define your boundaries as an investor

Building a portfolio that perfectly aligns with your faith can be difficult. No company is perfect. What’s more, a lot of variables are out of your control. Here are just two hypotheticals to show you what we mean:

  • You’ve found a great faith-based mutual fund, and you feel confident that 48 out of the 50 companies comprising it align with your personal beliefs. Are you willing to overlook the 2 that aren’t quite what you had in mind?
  • You want to invest in Company X because their values mesh with yours. But you discover Company X donates to Nonprofit Z, which advocates for a cause you don’t agree with. Is that enough to prevent you from investing in Company X?

Start by making a list of your values or faith-based investing priorities. Decide which ones are your non-negotiables. This will be your roadmap as you move on to step 2.

Step 2: Understand your investment options

If you want to take the DIY approach to faith-based investing, there are a number of screening tools you can use to evaluate the market’s faith-based investment opportunities against your personal priorities. Different tools screen for different criteria, so be sure to research the tool itself before relying on its output.

A second option is to invest in a faith-based investment vehicle such as a mutual fund or exchange-traded fund (ETF). These entities have done the bulk of the vetting and selecting for you. As mentioned, many will even advocate on your behalf at company shareholder meetings to ensure the companies you’re investing in continue to be a force for good in the world.

Lastly, it never hurts to work with a financial advisor who has experience in faith-based financial planning and investing. They can help you identify and manage the risks associated with this investment approach, and they often have insights into the availability and performance of faith-friendly investments.

Step 3: Monitor and Review Your Investments Regularly

Once you’ve begun investing, it’s crucial to regularly review your portfolio. The companies and funds in which you’ve invested can change their practices, and it’s important to ensure your investments still align with your convictions.

I’m not religious but I like the idea of investing with purpose. What can I do?

Even if you are not a faith-based person, you can still develop an investment strategy that aligns with your personal beliefs and morals. This is a broader concept known as values-based investing. Values-based investing can include:

  • Environmental, social, and governance (ESG) screenings to screen potential investments based on positive or negative corporate ESG behaviors, such as human rights practices, carbon footprint reduction efforts, and corporate transparency.
  • Socially responsible investing (SRI) which goes a step beyond ESG to screen investments around a specific set of social issues, such as gun control.
  • Impact investing in which the end goal is less about financial returns and more on helping companies achieve a measurable positive outcome that benefits society.

Start building an investment strategy that you can have faith in

If you’d like to learn more about faith-based investing or values-based investing, schedule a time to meet with Advent Partners today. Our team of Certified Financial Planners includes experienced Certified Kingdom Advisors who can offer you a spiritually integrated approach to investment planning and wealth management that allows you to generously support the people and causes you love the most—without sacrificing your financial peace of mind.