A Novice’s Guide To Faith-Based Investing

Faith-Based Investing

The primary goal of investing is to buy low and sell high to earn a profit. However, this sentiment is slowly changing among investors, with some looking for much more than profitable returns. The internet and social media platforms have played a big role in facilitating this shift in mindset by directing the limelight to public companies. Because of this, some investors nowadays want to invest in companies that line up with their religious beliefs, a concept referred to as faith-based investing. 

If this investment strategy seems like something you’re interested in, look no further. Below is a guide on a novice’s guide to faith-based investing. Let’s get started. 

What’s Faith-Based Investing?

Faith-based investing refers to an investment strategy whereby you factor in your religious beliefs before buying a company’s shares. Therefore, it doesn’t focus on investing in faith-based companies but rather in companies with a similar religious principle as you do. Besides companies, faith-based investors consider other investments and managers that share their religious beliefs. 

As a faith-based investor, you also stay clear of companies that advocate for things such as gambling, tobacco, alcohol, any addictive substance, or other anti-religious activities. It can also mean avoiding companies involved in high-interest lending and firearms. According to experts at Knights of Columbus Asset Advisors, faith-based investors only consider companies that implement corporate, social, and environmental responsibility. It can also factor in political views and individual opinions when choosing a suitable investment. 

But even though faith-based investing focuses on shared values, it shares one thing with any other traditional investment, which is the primary goal of earning profitable returns. Any person or entity that observes faith-based investing, be it through investments firms, pension funds, foundations, nonprofit organizations, family offices, or individual retail investors that practice retail investing, is known as a faith-based investor. 

How Does Faith-Based Investing Work? 

Faith-Based Investing

Like with traditional, secular investments, the success or failure of faith-based investing is identical. Therefore, your investment, even though in line with your religious beliefs, doesn’t necessarily guarantee you a profitable return. In fact, this investment philosophy is susceptible to similar risk as any other investment. Faith-based investments are also affected by external issues such as: 

  • Interest rates 
  • Market sentiments 
  • Geopolitical problems 
  • Economic conditions 
  • Changes in government policy

With this in mind, you must do your research even when it comes to faith-based investing and you should avoid making hasty decisions simply because a particular investment aligns with your religious beliefs. Otherwise, you risk making a substantial loss due to your ignorance. Only after extensive research will you find out crucial information about your potential investment that can help you make an informed decision. This includes your long and short-term goals, the company’s financial profile, and the current economic situation. 

In case you still have difficulty finding an appropriate investment based on your religious values, it’s best to hire a financial advisor. With the help of this professional, you can easily identify mutual funds, bonds, exchange-traded funds (ETFs), stocks, and any other investment which aligns with your personal faith. 

There are three core principles that faith-based investing typically observes, and this includes the following: 

  • Affirmation: This means your focus as a faith-based investor isn’t only on staying clear of investments that don’t adhere to your religious values but also prioritizing companies that are bringing positive change to the world. 
  • Advocacy: This involves using your shareholder status in a particular company to fight for a positive change across the different companies that you own shares in.  
  • Avoidance:  It’s the most common approach and entails avoiding altogether industries that go against your religious beliefs, be it the Christian, Jewish, Catholic, or Muslim doctrine.  

Steps To Faith-Based Investing 

There are three steps you must follow during faith-based investing and this includes;

Step 1: Using A Screening Tool To Know Your Options 

Manually checking the different companies or investment options to determine those that align with your faith-based principles is often hectic and time-consuming. If you don’t want to deal with such hassle, you should get a screening tool that does this job on your behalf. This way, you’ll manage to get an investment that sides with your beliefs without breaking a sweat. Some of the companies or investment options that will be suggested include: 

  • Companies that align with your religious principles.
  • The firms that don’t publicly promote gambling, abortion, alcohol, and tobacco.
  • Investments that guarantee an excellent return on your investment while observing desirable values.
  • Companies that aren’t linked with human rights violation, bioethics, pornography, and other ill social values.     

Step 2: Pay Close Attention To The Fees 

The next step is closely examining the fees you’re expected to pay upon investing in a faith-based company or investment. Doing this is essential even when investing in faith-based investments to avoid surprises later on because such niche investments are typically linked with high commissions and fees. And while this is slowly changing, it’s better to be safe than sorry by confirming the fees you’ll be charged for your faith-based investment.  

The high fees of faith-based investments typically result in the fund underperforming. That being said, make sure to check the fees involved and proceed to consult a financial advisor to learn whether these fees compare well with other similar investments.   

Step 3: Hire An Advisor Who Observes Faith-Based Investing  

If you strongly believe in faith-based investing, then go ahead and find a financial advisor willing to guide you in finding a suitable investment. However, finding a financial advisor might prove to be a challenge because the idea of faith-based investing is yet to be fully embraced by most of these professionals. But with the right financial expert, you should be able to find an investment portfolio that supports your religious principles. 

What Are The Limitations Of Faith-Based Investing?

Faith-based investing is typically linked with a couple of limitations as follows: 

  • High expense ratios and fees to invest in the morally upright investment 
  • Faith-based investments throughout history haven’t performed when compared to traditional and secular portfolios  
  • Your diversifying options are somewhat limited as an investor   

However, some of these downsides will gradually be less of an issue because there has been a rapid growth in preference for these investments in the last couple of years.   

Takeaway 

If you’re an avid religious person, faith-based investing is perfect for you because it allows you to invest while still observing your religious beliefs. But for the average investor, faith-based investing is a whole new concept that many still don’t understand. Luckily, this guide has sought to enlighten you further by detailing everything you need to know about faith-based investing. 

The views expressed in this article are those of the authors and do not necessarily reflect the views or policies of The World Financial Review.