Author Topic: Ethical Question Re: Index Funds  (Read 6175 times)

Rtg2314

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Ethical Question Re: Index Funds
« on: March 13, 2017, 08:11:59 PM »
Hey everyone!
I recently listened to MMM on the Tim Ferriss podcast and thought it was excellent ó even listened to it twice to try and get maximal absorption. The advice on investing seems extremely sound and I am scrambling to get into the index fund space. The one question thatís been nagging me is an ethical one ó I donít like the idea of making money from supporting companies whose impact on the world I find objectionable (i.e. a big oil company) or potentially objectionable. But this seems unavoidable with something like the Vanguard S&P 500 or Total Stock Market index fund. I feel like this thought has to have crossed MMM's mind, as he seems very concerned with having a positive impact on the world. What am I missing?!

human

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Re: Ethical Question Re: Index Funds
« Reply #1 on: March 13, 2017, 09:40:10 PM »
I'll bite, with one post not sure if you are serious.

Essentially human beings are full of contradictions and ignore what isn't in front of us. So investing in energy companies that pollute while driving a leaf makes us think the electric car we drive charged by coal fired generation plants or hydro that flooded millions of acres or brought many fish species close to extinction seems ok because you know man electric cars are cool.

The whole environmental mantra isn't served to well when we point out we all invest in exxon or shell. So we ignore it and keep saving our money hoping small little actions like hang drying clothes will somehow save us when what really is needed is a complete rethink of capitalism.

And cue the apologists 1, 2, 3 . . .

In a way I'm the worst hypocrite. I know I live in the matrix but I'd rather stay plugged than unplug myself and run into the streets in protest with the huddled masses moving from couch to couch like jaggi sing. Give me a place of my own and a nice cushy job with great benefits please and thank you. We all sold out a long time ago, anyone who thinks differently is fooling themselves.

Just look at half the threads on here it's white yuppies justifying their rich and upper middle class lives and pretending we are not the ones responsible for environmental degradation or marginalization of the poor. DROPS MIKE / END RANT THE END
« Last Edit: March 13, 2017, 09:44:01 PM by human »

akzidenz

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Re: Ethical Question Re: Index Funds
« Reply #2 on: March 13, 2017, 09:52:13 PM »
Ethically anxious personal finance, my favorite kind!

I haven't thought about this extensively for investing, but I've thought about this extensively re: the things I buy and the companies I buy from. (If anyone's interested in ethical fashion, specifically, I think this Huffington Post piece on "The Myth of the Ethical Shopper" is a very sobering read on how complex it is to just buy an ethically acceptable t-shirtónew. I do think buying secondhand solves a lot of problems here.)

It's hard, I think, as a consumer/small-time investor, to get the information you need to make these choices, and also have the energy to carefully weigh your options. There are also so many ways to think about ethical spending/consumption/investing. Do you care about worker's rights? The environment and pollution? Women's advancement in the workplace? Support of dictatorial regimes? How much time and emotional energy do you have to investigate all these things?

I follow quite a few political activists on Twitter and I saw a great bit of wisdom from a long-time organizer following the election. He noted that it can be overwhelming to follow every issue and every fight that's important, and recommended that people trying to get politically involved seek to understand and follow two issues, and deeply engage in those. Picking two also means you forgive yourself for not keeping up with the rest.

I think that advice translates well to ethical concerns as well. Picking a few things to care about deeply helps you sustain your commitment to something. I personally don't worry about my investment money, because I think I have very little leverage as a small-time investor to make any kind of difference with where I put my money. But I'll donate to nonprofits and advocacy groups and so on, so that I can hopefully boost the work of people who are strategic and knowledgeable about how to attack some of the issues I worry about.

I'd love to hear how others think about this, though.

SwordGuy

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Re: Ethical Question Re: Index Funds
« Reply #3 on: March 13, 2017, 09:58:13 PM »
Hey everyone!
I recently listened to MMM on the Tim Ferriss podcast and thought it was excellent ó even listened to it twice to try and get maximal absorption. The advice on investing seems extremely sound and I am scrambling to get into the index fund space. The one question thatís been nagging me is an ethical one ó I donít like the idea of making money from supporting companies whose impact on the world I find objectionable (i.e. a big oil company) or potentially objectionable. But this seems unavoidable with something like the Vanguard S&P 500 or Total Stock Market index fund. I feel like this thought has to have crossed MMM's mind, as he seems very concerned with having a positive impact on the world. What am I missing?!

1) I think you are over-thinking this issue.
2) Maybe you are wrong and we are lucky those companies are in the business they are in.

If this is your total contribution to world wrong-doing you won't keep your priest very busy at confession time. :)





Feivel2000

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Re: Ethical Question Re: Index Funds
« Reply #4 on: March 14, 2017, 12:33:12 AM »
How are you supporting a company by buying their stock? Let alone an ETF investing in a stock?

This is a serious question.

Johnez

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Re: Ethical Question Re: Index Funds
« Reply #5 on: March 14, 2017, 02:54:11 AM »
How are you supporting a company by buying their stock? Let alone an ETF investing in a stock?

This is a serious question.

I don't know about support, but by holding the stock, he is profiting from the actions of that company.

Feivel2000

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Re: Ethical Question Re: Index Funds
« Reply #6 on: March 14, 2017, 03:10:58 AM »
How are you supporting a company by buying their stock? Let alone an ETF investing in a stock?

This is a serious question.

I don't know about support, but by holding the stock, he is profiting from the actions of that company.

Indeed. So taking money away from an unethical company and giving it to a good cause (like financing his own life) could be seen as a good thing.

human

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Re: Ethical Question Re: Index Funds
« Reply #7 on: March 14, 2017, 04:13:50 AM »
It's strange how ignorant people are on this forum. Buying shares you own a piece of the company and share in the profits. So by definition it's far more involved than buying their products, not sure why so many here don't seem to understand this. I've seen this disconnect on other threads as well.

Feivel2000

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Re: Ethical Question Re: Index Funds
« Reply #8 on: March 14, 2017, 04:34:53 AM »
It's strange how ignorant people are on this forum. Buying shares you own a piece of the company and share in the profits. So by definition it's far more involved than buying their products, not sure why so many here don't seem to understand this. I've seen this disconnect on other threads as well.

I am not trying to be ignorant, I try to understand him.
If you buy a product, you are paying the company, rewarding it for making it.
If I buy the share, I do not reward the company. I am more involved but the company is not making any money from me.

human

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Re: Ethical Question Re: Index Funds
« Reply #9 on: March 14, 2017, 04:47:34 AM »
You own the company!!! You profit from their business model whatever that happens to be. Kids making iphones check that's on you, exxon spilling oil on you (and me). Can't hide from this, owning the company means you are responsible for its actions.

ShoulderThingThatGoesUp

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Re: Ethical Question Re: Index Funds
« Reply #10 on: March 14, 2017, 05:12:04 AM »
So you buy renewable energy to power your EV but mostly use public transportation, right? Because otherwise, it's a little hard to see why not passively investing in fossil fuel companies is where you draw the line.

Feivel2000

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Re: Ethical Question Re: Index Funds
« Reply #11 on: March 14, 2017, 05:24:43 AM »
Okay, while I don't feel responsible for actions I cannot control, you are free to feel whatever you like.
In this case you need to invest only in companies which actions are OK with you. So need to either pick stocks or trust someone else to do it.

Good news, there are already ETF taking these aspects into consideration. Check out the following article:

http://www.etf.com/sections/features-and-news/top-5-socially-responsible-etfs?nopaging=1

BrickByBrick

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Re: Ethical Question Re: Index Funds
« Reply #12 on: March 14, 2017, 05:51:07 AM »
Your only option is to invest in the relatively few companies that would meet your standards or start your own business that conforms to your ethics.  Sounds like indexing may not be for you if you cannot get past your ethics concerns.  Keep in mind that unless you find the majority of companies listed on the index objectionable then the companies you do not like will be in the minority.

I personally do not worry about.  Ethical logic in investing very quickly goes down a long rabbit hole.  If you're against companies that produce petroleum/fossil fuel (based energy), then what about companies you do like that likely utilize fossil fuel energy or petroleum based products somewhere in their supply chain (if not all of it)?  Why is that ok?  The companies you don't like are simply responding to a demand in the market for their product.  If you start asking questions along those lines you will either realize the relative futility of "ethics" based investing or find that you can hardly invest at all.

davisgang90

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Re: Ethical Question Re: Index Funds
« Reply #13 on: March 14, 2017, 06:28:18 AM »
These concerns can get fairly convoluted quickly and it's turtles all the way down.  If you live in the US you gain benefit because those companies you dislike pay taxes and the taxes pay for benefits for you (infrastructure, national parks etc.).

Rather than twisting yourself in knots and limiting your options for investing, I'd keep your investments separate from your pet causes. 

I have no idea what companies I'm invested in right now.  If they are in the S&P 500 and the international fund I'm in, then I own them and I don't care about them other than they work to be profitable.

I'm a red panda

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Re: Ethical Question Re: Index Funds
« Reply #14 on: March 14, 2017, 07:02:26 AM »
There are many "social choice" funds to select from if you do not want to support everything in a general index.

They usually have higher fees, and you have to find one that has the same values as yours, as they don't always align the way I'd like.

Jacks flunky

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Re: Ethical Question Re: Index Funds
« Reply #15 on: March 14, 2017, 08:01:36 AM »
To the OP, several people have pointed out "ethical" funds. They generally have clearly defined criteria for what types of business activities they don't include, which vary by the fund. A couple aim to be pseudo index funds (I say pseudo because they often drop oil, which is a significant portion of the market). Are they perfect? No, but if you care about what your money does, then they are a step in the right direction, though usually at a cost to yield.

To those who negate the OP's concerns: just because you choose to draw the ethical line at a different place does not make the OP's ethics trivial. To that point, most companies not only respond to market demand, but also attempt to create demand. I personally see a pretty big difference between a company actively promoting oil demand versus one that use fossil fuels as an incidental part of business, though it is clearly better if said company would switch to a regionally appropriate renewable. Humans always have impact, but that doesn't mean that we shouldn't optimize for lower impact and sustainable society. How we personally approach that will vary.

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Rimu05

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Re: Ethical Question Re: Index Funds
« Reply #16 on: March 14, 2017, 08:04:15 AM »
In real life there is genuinely no way to avoid contributing to pollution. After all, even that environmentally friendly vehicle had to be transported in some way. The parts had to come from some where.

There's just too many components to consider. It's one of the things that has often made me wonder what environmentally friendly even means? You can grow cotton, hand make a scarf, but then your demand requires you to say ship the scarf and bam, it's on a USPS truck.

At that point, is it still environmentally friendly?

This is genuine curiosity on my part not even a snarky remark.

Case

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Re: Ethical Question Re: Index Funds
« Reply #17 on: March 14, 2017, 08:16:08 AM »
Okay, while I don't feel responsible for actions I cannot control, you are free to feel whatever you like.
In this case you need to invest only in companies which actions are OK with you. So need to either pick stocks or trust someone else to do it.

Good news, there are already ETF taking these aspects into consideration. Check out the following article:

http://www.etf.com/sections/features-and-news/top-5-socially-responsible-etfs?nopaging=1


When you buy a stock, the money goes to whoever previously owned the share, and you in return get the share.  This contributes to the perceived value of the stock.  It it was an IPO, then the original owner was the company, and the company literally receives your money.  If in the future the company offers additional shares (in order to raise money for the company), the value they get on the stocks is based on the market value.

When you own a stock, you are contributing to the overall value of a company's stock.  The value of the company's stock also affects the company's performance in various ways.

When you own a stock, you are also making money off of the company (dividends) as well as when you sell it (varying with value of the stock, which increases when a lot of people want to own it and buy it from you for more than what you paid).

To believe that investing in a company does not mean you are financially supporting the company as well as all of the things the company represents, is  ignorant. But it's also very common, and not meant as a criticism to you personally.  I myself had to refresh myself on how stocks worked before typing this response.  But now you have the knowledge (or at least might be stimulated to go do more reading).  Stocks and finances are complicated; it has taken me years to develop a grasp on how the stock market works, and I'm not a dumb guy and I still have imperfect knowledge.

In the end, many people in this forum have moral disagreements with many of the companies they invest in.  MMM himself is a living contradiction, discussing his various beliefs on how the world could be improved, but meanwhile professing the importance of investing in VTSAX.  I'm sure he has an endgame in mind, but certainly there are some contradictions.  At the end of the day, many of us believe it is more important to secure our own individual retirement than to be a martyr and now own certain stocks.  I myself fall into that boat; it's a greedy viewpoint, but I am honest about it.  One day I hope to be in a financial state where I can afford to invest in different companies, but for right now it's petal-to-the-metal for early retirement.

Feivel2000

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Re: Ethical Question Re: Index Funds
« Reply #18 on: March 14, 2017, 08:40:05 AM »
I understand that if I buy during the IPO (or when the share I buy happens to be one the company is selling), my money goes to the company.
But I never participated in an IPO and most often the company is more likely to buy stock than selling it. I also understand the idea of supply and demand and that buying a companies share increases the price and that a rising stock price can be used by them to buy other companies and that it can be seen as positive feedback for their strategy.

But I also understand that me buying Apple shares for 5000$ has similar effects on the stock price as my breathing affects global warming.
Me, living a frugal life in financial independence and contributing financially to society, thanks to dividends from big oil, has way more positive effects for society than all ethic investing I could do.

And I don't think that this thinking is ignorant, I think it is a realistic assessment of my influence.

use2betrix

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Re: Ethical Question Re: Index Funds
« Reply #19 on: March 14, 2017, 08:42:49 AM »
Okay, while I don't feel responsible for actions I cannot control, you are free to feel whatever you like.
In this case you need to invest only in companies which actions are OK with you. So need to either pick stocks or trust someone else to do it.

Good news, there are already ETF taking these aspects into consideration. Check out the following article:

http://www.etf.com/sections/features-and-news/top-5-socially-responsible-etfs?nopaging=1


When you buy a stock, the money goes to whoever previously owned the share, and you in return get the share.  This contributes to the perceived value of the stock.  It it was an IPO, then the original owner was the company, and the company literally receives your money.  If in the future the company offers additional shares (in order to raise money for the company), the value they get on the stocks is based on the market value.

When you own a stock, you are contributing to the overall value of a company's stock.  The value of the company's stock also affects the company's performance in various ways.

When you own a stock, you are also making money off of the company (dividends) as well as when you sell it (varying with value of the stock, which increases when a lot of people want to own it and buy it from you for more than what you paid).

To believe that investing in a company does not mean you are financially supporting the company as well as all of the things the company represents, is  ignorant. But it's also very common, and not meant as a criticism to you personally.  I myself had to refresh myself on how stocks worked before typing this response.  But now you have the knowledge (or at least might be stimulated to go do more reading).  Stocks and finances are complicated; it has taken me years to develop a grasp on how the stock market works, and I'm not a dumb guy and I still have imperfect knowledge.

In the end, many people in this forum have moral disagreements with many of the companies they invest in.  MMM himself is a living contradiction, discussing his various beliefs on how the world could be improved, but meanwhile professing the importance of investing in VTSAX.  I'm sure he has an endgame in mind, but certainly there are some contradictions.  At the end of the day, many of us believe it is more important to secure our own individual retirement than to be a martyr and now own certain stocks.  I myself fall into that boat; it's a greedy viewpoint, but I am honest about it.  One day I hope to be in a financial state where I can afford to invest in different companies, but for right now it's petal-to-the-metal for early retirement.

It seems like people are unable to grasp that one can believe in protecting the environment, yet still drive a gas powered vehicle or invest in index funds with oil companies. Just because you care about a cause it doesn't mean that not doing 100% of everything to support it makes you ignorant.

I'm pretty passionate and a believer in important nutrition. I also like a bowl of ice cream on occasion. Does that mean I don't find nutrition important?

The two are not mutually exclusive, and it's apparent many here are unable to understand this.

Jacks flunky

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Re: Ethical Question Re: Index Funds
« Reply #20 on: March 14, 2017, 08:45:04 AM »


At that point, is it still environmentally friendly?

This is genuine curiosity on my part not even a snarky remark.
The term "environmentally friendly" is generally marketing BS, IMHO. Products and services have varying degrees of impact. In other words, it's all shades of grey, but there are ways to account for those impacts (making varied assumptions) over a variety of areas.

 For example, method A of producing the-next-great-widget may contribute less to global warming than method B, but method A may release more carcinogens into the environment than method B. Which is better? Sometimes there is a clear answer, but often not, since this is apples and oranges.


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Tetsuya Hondo

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Re: Ethical Question Re: Index Funds
« Reply #21 on: March 14, 2017, 09:05:26 AM »


At that point, is it still environmentally friendly?

This is genuine curiosity on my part not even a snarky remark.
The term "environmentally friendly" is generally marketing BS, IMHO. Products and services have varying degrees of impact. In other words, it's all shades of grey, but there are ways to account for those impacts (making varied assumptions) over a variety of areas.

 For example, method A of producing the-next-great-widget may contribute less to global warming than method B, but method A may release more carcinogens into the environment than method B. Which is better? Sometimes there is a clear answer, but often not, since this is apples and oranges.


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'

Eh, sure there's shades of gray. But some are light gray. Some are nearly black. They're not all equal.

Good for the OP for thinking about this. It's a valid question and it doesn't deserve all the snark that it's received here.

Personally, I own broad funds that include shares in companies I loathe, like Exxon. I don't feel great about it, but I made peace with it by trying to effect change in other ways. It also gets pretty complicated trying to divest yourself of all the bad actors, especially when your committed to index funds.

letired

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Re: Ethical Question Re: Index Funds
« Reply #22 on: March 14, 2017, 09:57:53 AM »
This is my personal reconciliation on this issue. It's also how I resolve other issues of ethical consumption.

1. I'm a biologist by training, which skews my perspective on the whole 'life' thing. As a general rule of thumb, to live is to consume.  There is no life that does not consume. Even plants, who make their own food, consume water and trace nutrients from the soil. I cannot avoid consumption as a living being, particularly an animal-type living being.

2. Everything I've read when researching ethical consumption choices indicates that the consumptive choices of a single individual cannot and will not have an impact, especially under late stage capitalism, which specializes in encompassing everything and turning it around for profit (see: punks, greenwashing, etc).

2.5 You know what DOES have an impact? Collective action. Whether it is striking for better working conditions, petitioning your elected reps for laws and regulations that protect the vulnerable and the environment, engaging in shareholder activism, or petitioning businesses to change. That is where real impacts can be made.

3. With that in mind, I attempt, to the extent I can as a person who is not going to devote their life to these issues, to participate in collective action that helps the issues I care about. I use my fancy high-paying job to make monetary donations to groups who DO employ people who have devoted their lives to various issues around the environment and inequality. I volunteer with local groups who do work that I think is important. And I invest in broad-market index funds on the assumption that better me than someone else who does not share my values, and I'll have a lot of money leftover that will continue to support these causes after I'm dead.

4. Does that mean I entirely give up on trying to make ethical choices? No. I still try to ride my bike more than I drive, I eschew most cleaning products, I minimize fertilizing my food garden and forego pesticides, and purchase all of my clothing primarily second hand. These are my efforts toward shifting my immediate cultural standards away from consumer capitalism. But I don't worry about it too much because worrying takes energy that I could otherwise use to make a phone call to my legislators telling them that they need to continue to support national parks and fund the National Science Foundation.

So yeah. Everyone draws the lines they are comfortable with. And that's how I approach things.

redbird

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Re: Ethical Question Re: Index Funds
« Reply #23 on: March 14, 2017, 10:07:11 AM »
I see it this way - most companies aren't 100% bad. They are still benefitting you in some way. Even if I hate how Big Oil negatively affects the environment, I still drive a car (a gas sipping Prius, but still...). I don't particularly like how Walmart doesn't treat their employees well and how they affect local economies. But I still buy from them once in a blue moon for certain products. Respectively, I don't see a problem with owning stocks in them.

lthenderson

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Re: Ethical Question Re: Index Funds
« Reply #24 on: March 14, 2017, 10:08:32 AM »
Just heard something on NPR last week about a company that is offering index funds that drop out any companies they deem environmentally unfriendly. It is something that doesn't bother my conscious so I didn't pay attention enough to hear what company or what they managing fees are. But I'm pretty sure they started with Vanguards VTSAX fund and whittled from there.

frugaliknowit

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Re: Ethical Question Re: Index Funds
« Reply #25 on: March 14, 2017, 10:18:15 AM »
While I would agree that IDEALLY, one would not invest in companies one finds "immoral" or whatever, the reality is for an index investor, this is rather impractical.  I certainly would NOT participate in an IPO (initial public offering) of a company I found objectionable.

Owning shares in a company you find objectionable arguably may help support the market price of the shares, but does not directly put money in anyone's pocket.  While executives' compensation may be impacted by the stock value, money is not directly passed to anyone.  Purchasing shares in the open market (non-IPO), including through funds has much less impact than:

1.  Not buying said company's product.
2.  Buying a competing product (example:  You hate oilco's and buy an Electric Vehicle).
3.  Any successful legislation/regulation that puts a damper on said company.

pbkmaine

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Re: Ethical Question Re: Index Funds
« Reply #26 on: March 14, 2017, 10:35:13 AM »
Or you can own a socially responsible index fund like this one:

http://www.morningstar.com/funds/xnas/vftsx/quote.html

mcneally

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Re: Ethical Question Re: Index Funds
« Reply #27 on: March 14, 2017, 10:56:48 AM »
"Socially responsible" investing has literally no effect on any companies stock price. If a large number of people refuse to invest in "bad" companies, the price gets lower, but the profits don't. People who don't care about socially responsible investing see underpriced "bad" companies' stock and load up. Price gets back to where it should be based on the numbers. It would take the majority of people to only use socially responsible investing (and to agree on what that meant) for it to have any effect. Not for it to have a significant effect, for it to have any effect.

It's not like where you personally choosing to bike rather than drive, where the effect while very small, is real. If some people refuse to invest in oil companies, it just means other people are going to buy Exxon rather Apple (or whatever) because Exxon is underpriced.

That's not to say you shouldn't make other efforts to shape policies you believe in.
« Last Edit: March 14, 2017, 11:12:16 AM by mcneally »

I'm a red panda

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Re: Ethical Question Re: Index Funds
« Reply #28 on: March 14, 2017, 11:19:08 AM »

1.  Not buying said company's product.
2.  Buying a competing product (example:  You hate oilco's and buy an Electric Vehicle).
3.  Any successful legislation/regulation that puts a damper on said company.

But then I'm doing things that hurt my investments. Wouldn't I WANT the companies I profit off of to do well? So it's a conflict of interest to hold the stock.

I think I'd rather not make money off them in the first place.

Prairie Stash

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Re: Ethical Question Re: Index Funds
« Reply #29 on: March 14, 2017, 11:43:47 AM »
You can invest in SRI - Socially Responsible Indexes if you desire, in general they don't perform as well as a broad based Index, but they satisfy your ethical concerns. If enough people do that, like 50% of the population, you will see the unethical stocks drop in value (extreme exaggeration to prove appoint). At which point the P/E price to earnings will look fantastic, those companies that nobody buys the stocks from will have fantastic profits compared to their stock price.

I assume you, and everyone else, sticks to their ethics. Those people who own the stocks will receive large amounts of cash to spend, since their unethical (by your definition) they are likely to buy large trucks to run over small animals in pristine environments.

By buying SRI you leave more money in the hands of non-environmentalists. All ethics aside, which I find no fault in, your ethics in stock buying aren't going to enact change. Change only occurs when the company profits shrink, stop buying their products.

In 2008 I purchased bank stocks. Their price had decreased by 50%, because people hated buying bank stocks. The reason I purchased was the dividend had doubled, which meant the profit had stayed constant while the price dropped, end result was I made a lot of money off an evil stock. I don't buy stocks (anymore) because of stock price, I base it on the companies abilities to make money. That's the easiest way to evaluate a company, do they currently and will they continue to make money?

bacchi

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Re: Ethical Question Re: Index Funds
« Reply #30 on: March 14, 2017, 11:47:41 AM »
The South African Divestment is an example of a divestment movement that actually created real, significant, change.

Case

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Re: Ethical Question Re: Index Funds
« Reply #31 on: March 15, 2017, 05:50:35 AM »
I understand that if I buy during the IPO (or when the share I buy happens to be one the company is selling), my money goes to the company.
But I never participated in an IPO and most often the company is more likely to buy stock than selling it. I also understand the idea of supply and demand and that buying a companies share increases the price and that a rising stock price can be used by them to buy other companies and that it can be seen as positive feedback for their strategy.

But I also understand that me buying Apple shares for 5000$ has similar effects on the stock price as my breathing affects global warming.
Me, living a frugal life in financial independence and contributing financially to society, thanks to dividends from big oil, has way more positive effects for society than all ethic investing I could do.

And I don't think that this thinking is ignorant, I think it is a realistic assessment of my influence.

On the one hand, it is good that you are upfront about your beliefs.  On the other hand, it is profoundly disturbing how little responsibility you are taking for this.  Sure, you have limited influence given that your share of the company is quite small compared to the total, and therefore you are unlikely to have a visible impact.  But, the exact same argument is used for voting.  Why should any of us vote?  It doesn't matter, right?  I'm not saying your should feel deep guilt for owning a stock; I'm saying that believing you're not contributing towards the evil the company does, even if just a little bit, does in fact make you partly responsible (even if just a little bit).

The answer is, when enough people share the same opinion and actually act on it, then change can actually happen.
If enough people decide they are unwilling to support company X and sell their shares, then they could do that and cause the stock value to plummet.  And when the shareholders have enough voice, the company will listen!  Companies act in accordance of their shareholder wishes, and the shareholders can fire the CEO if the have enough of a share, and are willing to vote.

You are also not entirely correct on your point on the effects of your frugal living.  That is a very complex statement and there is no way I or anyone should take your assumption as correct.  For one, you are underestimating the influence of a collective of individual people influencing a company.  For two, to prove that your frugal lifestyle is doing more good than supporting the company is doing more harm, we'd have to see a lot of data and details (not necessary here).


Case

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Re: Ethical Question Re: Index Funds
« Reply #32 on: March 15, 2017, 06:02:08 AM »
Okay, while I don't feel responsible for actions I cannot control, you are free to feel whatever you like.
In this case you need to invest only in companies which actions are OK with you. So need to either pick stocks or trust someone else to do it.

Good news, there are already ETF taking these aspects into consideration. Check out the following article:

http://www.etf.com/sections/features-and-news/top-5-socially-responsible-etfs?nopaging=1


When you buy a stock, the money goes to whoever previously owned the share, and you in return get the share.  This contributes to the perceived value of the stock.  It it was an IPO, then the original owner was the company, and the company literally receives your money.  If in the future the company offers additional shares (in order to raise money for the company), the value they get on the stocks is based on the market value.

When you own a stock, you are contributing to the overall value of a company's stock.  The value of the company's stock also affects the company's performance in various ways.

When you own a stock, you are also making money off of the company (dividends) as well as when you sell it (varying with value of the stock, which increases when a lot of people want to own it and buy it from you for more than what you paid).

To believe that investing in a company does not mean you are financially supporting the company as well as all of the things the company represents, is  ignorant. But it's also very common, and not meant as a criticism to you personally.  I myself had to refresh myself on how stocks worked before typing this response.  But now you have the knowledge (or at least might be stimulated to go do more reading).  Stocks and finances are complicated; it has taken me years to develop a grasp on how the stock market works, and I'm not a dumb guy and I still have imperfect knowledge.

In the end, many people in this forum have moral disagreements with many of the companies they invest in.  MMM himself is a living contradiction, discussing his various beliefs on how the world could be improved, but meanwhile professing the importance of investing in VTSAX.  I'm sure he has an endgame in mind, but certainly there are some contradictions.  At the end of the day, many of us believe it is more important to secure our own individual retirement than to be a martyr and now own certain stocks.  I myself fall into that boat; it's a greedy viewpoint, but I am honest about it.  One day I hope to be in a financial state where I can afford to invest in different companies, but for right now it's petal-to-the-metal for early retirement.

It seems like people are unable to grasp that one can believe in protecting the environment, yet still drive a gas powered vehicle or invest in index funds with oil companies. Just because you care about a cause it doesn't mean that not doing 100% of everything to support it makes you ignorant.

I'm pretty passionate and a believer in important nutrition. I also like a bowl of ice cream on occasion. Does that mean I don't find nutrition important?

The two are not mutually exclusive, and it's apparent many here are unable to understand this.

To your first point, you are correct, but only in that you have misrepresented me.  I did not say you couldn't care about a certain belief and not do some contradictory things.  I said that the other guy was wrong to believe he was having no personal responsibility in the company (even if very minor).  I am not criticizing his choice to own oil stocks (or whatever), I am criticizing his belief that he can own them and not share in the responsibility of how that company impacts the world.

Feivel2000

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Re: Ethical Question Re: Index Funds
« Reply #33 on: March 15, 2017, 06:48:40 AM »
On the one hand, it is good that you are upfront about your beliefs.  On the other hand, it is profoundly disturbing how little responsibility you are taking for this.  Sure, you have limited influence given that your share of the company is quite small compared to the total, and therefore you are unlikely to have a visible impact.  But, the exact same argument is used for voting.  Why should any of us vote?  It doesn't matter, right?  I'm not saying your should feel deep guilt for owning a stock; I'm saying that believing you're not contributing towards the evil the company does, even if just a little bit, does in fact make you partly responsible (even if just a little bit).

For what should I take responsibility? That VW, a company my MSCI World ETF is investing in, had cheated on air pollution regulations?
Sorry, that's a burden I cannot put on myself. Even if I had handpicked VW stock.

And you are right, share holders have influence. So if you really think a company is evil, maybe the more responsible thing would be to buy shares and then sue them because their evil doings are potentially harmful to the value? (This idea needs more research, but AFAIK it's something you can do if you own stocks in a company...)

But it is not all black and white. I see the responsibility which comes along with owning stock. It is very small (at least at my pay grade, for Warren Buffet it's different). Would I buy stock from a company making money by selling Dolphin tears? No, of course not. Can I sleep, knowing I am invested in big oil? Yes. But I also want governments around the world to regulate them so their actions are not totally disastrous and I am willing to have a lower ROI for that.

I am not against ethical investment, I can totally understand why someone would want to do this.

In American Dad there was an episode where Haylay started to strip for money. Stan screamed "Hayley, you are participating in the exploitation of women!" and Hayley answers: "At least I am participating."

Jacks flunky

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Re: Ethical Question Re: Index Funds
« Reply #34 on: March 15, 2017, 10:33:51 AM »


At that point, is it still environmentally friendly?

This is genuine curiosity on my part not even a snarky remark.
The term "environmentally friendly" is generally marketing BS, IMHO. Products and services have varying degrees of impact. In other words, it's all shades of grey, but there are ways to account for those impacts (making varied assumptions) over a variety of areas.

 For example, method A of producing the-next-great-widget may contribute less to global warming than method B, but method A may release more carcinogens into the environment than method B. Which is better? Sometimes there is a clear answer, but often not, since this is apples and oranges.


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Eh, sure there's shades of gray. But some are light gray. Some are nearly black. They're not all equal.

Good for the OP for thinking about this. It's a valid question and it doesn't deserve all the snark that it's received here.

Personally, I own broad funds that include shares in companies I loathe, like Exxon. I don't feel great about it, but I made peace with it by trying to effect change in other ways. It also gets pretty complicated trying to divest yourself of all the bad actors, especially when your committed to index funds.

I agree that the shades are varied and we should use the available tools to entangle that; perhaps my response wasn't written the most clearly, and I was not intending to be snarky at all. I attempt to engage in ethical investing (though not all of my funds are such), but I was pointing out that "environmentally friendly" is, at its best (when not just abused for marketing purposes) multi-dimensional.

The most common index for environmental impact, called TRACI, has 7 impact categories (ozone depletion, climate change, acidification, eutrophication, smog formation, human health impacts, and ecotoxicity) and those are not all-inclusive. As a concrete example (this from the consumer end), is it better to purchase a Prius or a higher-efficiency diesel car (I'm not suggesting VW, because we all know what happened in that case, and I'm not bringing up electric because the impact per mile hugely depends on your regional energy mix)? The Prius will produce more CO2 equivalents per mile than the diesel, but diesel will cause more smog production. This is the shades of grey part that I was discussing. Like you, I do not consider Exxon to be very light grey.

In short, the OP, you, and I all make a decision about where to draw the line in investing, career, and consumption. Everyone should give it serious thought, but we will end up at different places. Each should have the info to make informed decisions.

prognastat

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Re: Ethical Question Re: Index Funds
« Reply #35 on: March 15, 2017, 11:00:21 AM »
As an investor you profit from the company, as a consumer you create the demand for the product the company creates.

I feel the latter is worse than the former and would rather focus on minimizing my contribution and other's contribution to creating the demand for a product that is "unethical" than profiting of this. If demand drops the company will shrink and other companies will grow.

itchyfeet

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Re: Ethical Question Re: Index Funds
« Reply #36 on: March 15, 2017, 11:49:55 AM »
"Socially responsible" investing has literally no effect on any companies stock price. If a large number of people refuse to invest in "bad" companies, the price gets lower, but the profits don't. People who don't care about socially responsible investing see underpriced "bad" companies' stock and load up. Price gets back to where it should be based on the numbers. It would take the majority of people to only use socially responsible investing (and to agree on what that meant) for it to have any effect. Not for it to have a significant effect, for it to have any effect.

It's not like where you personally choosing to bike rather than drive, where the effect while very small, is real. If some people refuse to invest in oil companies, it just means other people are going to buy Exxon rather Apple (or whatever) because Exxon is underpriced.

If everyone has an attitude that we are too small to make a difference then change will never happen.

If you own shares in a company that uses child labour you are lending money to build factories that will house the child workers. If you buy shares in a tobacco company you are financing the marketing campaigns that convince kids that smoking is cool and not much of a health risk.

A good starting point is to be honest about our actions.

Financing morally abhorant activities is certainly no better than consuming products from the companies.

Maybe if the child labour company you owned a few shares in offered you a seat on their Board of directors, and you had to raise your hand at a board meeting to vote to put another 1,000 7year olds to work, you might see it differently.

If many investors decided not to finance such companies their share price would drop, which would result in a higher cost of  funds for the unethical activity, as the company would have to issue more shares to finance its operations. This additional finance cost would impact profitability.

By willingly financing these companies, making decisions purely based on financial returns, you are making it cheaper for the company to f$ck people over.

If your view is - if you don't invest then Someone else will just step in and benefit from the profitability of the company that you could have had a piece of, and this thinking drives your actions, then you are seriously complicit.

 If you care, you should at least be honest.

Unfortunately, I am seriously complicit. I know it. sigh.

pigpen

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Re: Ethical Question Re: Index Funds
« Reply #37 on: March 15, 2017, 01:01:03 PM »
Very interesting discussion. One more thing to think about -- in addition to this being a debate about ethical investing, it's also a debate about Kantian vs. Utilitarian ethics. So there can be two people -- each of whom believes that at least some of their investments are in "bad" companies -- arguing different sides of the question about whether to make ethics a component of their investing strategy.

(Gross simplification warning) The Kantian would argue that you shouldn't buy stock in the bad companies because those companies are bad, and the investor has a moral duty to pursue what is right, regardless of his/her impact or lack of impact on the company's financial health and business practices. The Utilitarian might also believe that the same company is bad, but in pursuit of the best overall outcome for society, buy the stock anyway as part of a plan that will eventually lead to what he/she believes will be a greater good -- e.g., donating money, shareholder activism, etc. Or just because that person believes that the net impact will be so close to zero as to not matter anyway. You've probably heard some variation of this before, but search online for "trolley problem" for an ethical thought experiment based on this.

Personally, I would agree with Itchyfeet in saying that whatever you believe and however you act, be honest with yourself about your actions and your motivations. Whether you're trying to be a saint or you're a greedy bastard who only cares about yourself, you should own it and not try to pretend otherwise.


Feivel2000

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Re: Ethical Question Re: Index Funds
« Reply #38 on: March 15, 2017, 01:31:26 PM »
^^^ this :-)

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Case

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Re: Ethical Question Re: Index Funds
« Reply #39 on: March 15, 2017, 07:18:02 PM »
On the one hand, it is good that you are upfront about your beliefs.  On the other hand, it is profoundly disturbing how little responsibility you are taking for this.  Sure, you have limited influence given that your share of the company is quite small compared to the total, and therefore you are unlikely to have a visible impact.  But, the exact same argument is used for voting.  Why should any of us vote?  It doesn't matter, right?  I'm not saying your should feel deep guilt for owning a stock; I'm saying that believing you're not contributing towards the evil the company does, even if just a little bit, does in fact make you partly responsible (even if just a little bit).

For what should I take responsibility? That VW, a company my MSCI World ETF is investing in, had cheated on air pollution regulations?
Sorry, that's a burden I cannot put on myself. Even if I had handpicked VW stock.

And you are right, share holders have influence. So if you really think a company is evil, maybe the more responsible thing would be to buy shares and then sue them because their evil doings are potentially harmful to the value? (This idea needs more research, but AFAIK it's something you can do if you own stocks in a company...)

But it is not all black and white. I see the responsibility which comes along with owning stock. It is very small (at least at my pay grade, for Warren Buffet it's different). Would I buy stock from a company making money by selling Dolphin tears? No, of course not. Can I sleep, knowing I am invested in big oil? Yes. But I also want governments around the world to regulate them so their actions are not totally disastrous and I am willing to have a lower ROI for that.

I am not against ethical investment, I can totally understand why someone would want to do this.

In American Dad there was an episode where Haylay started to strip for money. Stan screamed "Hayley, you are participating in the exploitation of women!" and Hayley answers: "At least I am participating."

I actually have no problem ethically speaking with you owning stocks that that are big oil or dolphin tear producers.  All I am saying is that yes you have some small amount of responsibility due to owning the stock.  You can't shirk that responsibility by saying "oh, my small share isn't important".  Most of us have a nice chunk invested in big oil (for example).  We are all a little bit responsible.  We are reaping the rewards of capitalism at its best and worst.

I am fully aware of the how much oil, manufacturing, etc... are intertwined with our very existence.  I work for Big Chemical (for lack of better words).  The world as we know it would not exist without technology, energy, etc...  Hippies can complain all they want about the chemicals industry for example, and then they go play on their smart phones made of chemicals.  It is important for people to understand how interconnected everything is.  And to understand how their investments fit in, for example.

Personification is a common problem; people try to personify companies, saying they have human traits.  But really companies are more like complex machines; multifaceted, influenced by many people, hard to predict except that they always want to make money for shareholders as the top priority.  Companies aren't actually evil or good (well, most aren't); they are systems of capitalism.
My point in all this is not to argue ethics; it is simply to clarify how things work. 


human

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Re: Ethical Question Re: Index Funds
« Reply #40 on: March 15, 2017, 07:44:04 PM »
Except legally corporations are practically afforded the same rights as individuals and yet somehow shareholders (the owners) have limited liability.

mcneally

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Re: Ethical Question Re: Index Funds
« Reply #41 on: March 15, 2017, 09:04:09 PM »
"Socially responsible" investing has literally no effect on any companies stock price. If a large number of people refuse to invest in "bad" companies, the price gets lower, but the profits don't. People who don't care about socially responsible investing see underpriced "bad" companies' stock and load up. Price gets back to where it should be based on the numbers. It would take the majority of people to only use socially responsible investing (and to agree on what that meant) for it to have any effect. Not for it to have a significant effect, for it to have any effect.

It's not like where you personally choosing to bike rather than drive, where the effect while very small, is real. If some people refuse to invest in oil companies, it just means other people are going to buy Exxon rather Apple (or whatever) because Exxon is underpriced.

If everyone has an attitude that we are too small to make a difference then change will never happen.


You would need the invested assets of people who only invest in socially responsible corporations to exceed the wealth of people who don't care in order for it to make a non-zero difference. Actually, even that is understating it. You only need enough unconcerned investors to fund the irresponsible corporations, which could be far less than my first sentence implied (unless the majority of corporations are unworthy of being invested in, and again, everyone has to agree on what this means- at which point we could presumably pass laws to change the behavior).  There are ways you can make a small difference but this isn't one. Boycotting large corporations you don't like has an effect that is near zero, but is infinitely more than not buying an index fund that includes their stock.
« Last Edit: March 15, 2017, 09:17:17 PM by mcneally »