Author Topic: I don't like the Vanguard index funds  (Read 23892 times)

nocoast

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I don't like the Vanguard index funds
« on: May 28, 2015, 10:50:58 PM »
Hey y'all, I've been reading MMM for several months now and have been very enthused about it; I now know what to do with money when I eventually get a hold of it. This forum is pretty cool too, so props to you all.

tl;dr - I have $5000, no debt, no expenses, no assets, and I want to start an IRA and begin investing. Should I do Roth or traditional, and is this company's mutual funds (http://greencentury.com/our-funds/) a suitable sustainable replacement for the Vanguard index funds?

I'm a 20 year old college student. I have no debt, (almost) no money or assets besides my bike and my car, and very low expenses. I got a full academic ride to college for mechanical engineering, so I will still be debt free when I graduate.

I will be making ~$5000 USD this summer doing a summer research gig at another university (coincidentally, very close to the Colorado residence of MMM...). During the year, I have very few expenses besides the occasional grocery trip (most of my food is included in my scholarship).

I want to start making my money work for me, and from my research (I have NO financial background, and not many in my family do) I should first start an IRA (Roth, traditional?) and put the rest in a low-cost index fund (Vanguard). My issue with the Vanguard funds is that they are heavily invested in the oil, gas, and coal industries (Exxon Mobil is the 3rd largest holding of VFINX). I understand that this is because they buy stocks across the entire market, which obviously includes these companies.

I believe climate change is the most pressing, pertinent issue my generation has to face, and to put it mildly, I am not enthusiastic about positively investing in an industry I have observed to be corrupt and uninterested in the preservation of our climate. In other words, I am aligned with the divestment movement that has been gaining traction as of late (http://gofossilfree.org/).

I have done a lot of searching, and this company - http://greencentury.com/our-funds/ - seems to offer the best alternative. It's not completely aligned with my interests, as I don't really mind nuclear and I'm uncertain on GMO's, but mainly it dumps the major hydrocarbon companies. It's not technically an index fund, but a mutual fund with relatively low fees (I think?). They have a "balanced" as well as an "equity" fund, and I can also open an IRA with them.

Does anyone have experience with Green Century, or know of alternatives? How would you distribute my money into an IRA, and what kind (Roth or traditional?), versus the mutual fund? I know it may have slightly lower returns than the VFINX fund, but I'm already pursuing renewables over oil & gas as a career, so I'm already bracing for making less money than virtually all of my classmates in the oil industry (I come from petroleum country).

Sorry for the essay and all the questions, but I really wanted to get some advice before going ahead with this company. Thanks for your time.

MDM

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Re: I don't like the Vanguard index funds
« Reply #1 on: May 28, 2015, 11:04:18 PM »
tl;dr - I have $5000, no debt, no expenses, no assets, and I want to start an IRA and begin investing. Should I do Roth or traditional, and is this company's mutual funds (http://greencentury.com/our-funds/) a suitable sustainable replacement for the Vanguard index funds?
Roth because your tax rate will be as low now as it is ever likely to be.

Per the comment on the link you gave: "The total annual fund operating expense ratios of the Green Century Balanced Fund and the Green Century Equity Fund, respectively, are 1.48% and 1.25%, as of the most recent prospectus," you will likely pay a huge premium for "green" investing.  No, those fees are not low compared with VFINX, VTSMX, etc.

There are much more direct ways for you to exercise your beliefs (e.g., minimize use of fuel and electricity) than by avoiding the purchase of overall index funds.
« Last Edit: May 28, 2015, 11:24:37 PM by MDM »

TheLazyMan

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Re: I don't like the Vanguard index funds
« Reply #2 on: May 28, 2015, 11:10:21 PM »
I'd stick with Vanguard (much lower fees!).  You could always allocate a portion of your earnings to climate-change mitigation efforts/alternative energy.  What better way to stick it to the man than to use their own profits (now your profits) against them?

nocoast

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Re: I don't like the Vanguard index funds
« Reply #3 on: May 28, 2015, 11:32:29 PM »
What better way to stick it to the man than to use their own profits (now your profits) against them?

I would feel like a fraud advocating for divestment knowing that I myself am invested though... but I have considered this.

What are your all's opinions on Betterment vs. straight Vanguard? It looks cool and powerful.

lr

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Re: I don't like the Vanguard index funds
« Reply #4 on: May 28, 2015, 11:41:30 PM »
Vanguard offers VFTSX, Vanguard FTSE Social Index Fund, which is screened for social responsibility. You might not love all of the holdings, but it excludes what many would consider the worst offenders while keeping the expenses low.

https://advisors.vanguard.com/VGApp/iip/site/advisor/investments/portfoliodetails?fundId=0213#state=20

TheLazyMan

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Re: I don't like the Vanguard index funds
« Reply #5 on: May 28, 2015, 11:48:03 PM »
You could build your own portfolio from various sectors, leaving out energy.
https://personal.vanguard.com/us/funds/etf/all?assetclass=ss&assetclass=ss

It might get difficult to manage though.

MDM

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Re: I don't like the Vanguard index funds
« Reply #6 on: May 28, 2015, 11:52:38 PM »
What are your all's opinions on Betterment vs. straight Vanguard? It looks cool and powerful.
Search for Betterment and check the box for "Search in topic subjects only" and you'll find ~17 different threads.  The back and forth discussion within those might strike one as reminiscent of a debate on AGW.... ;)

nocoast

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Re: I don't like the Vanguard index funds
« Reply #7 on: May 29, 2015, 12:09:00 AM »
Vanguard offers VFTSX, Vanguard FTSE Social Index Fund, which is screened for social responsibility. You might not love all of the holdings, but it excludes what many would consider the worst offenders while keeping the expenses low.

https://advisors.vanguard.com/VGApp/iip/site/advisor/investments/portfoliodetails?fundId=0213#state=20

Comparing the the VFTSX to the VFINX doesn't look too bad... https://advisors.vanguard.com/VGApp/iip/site/advisor/analysistools/productcomp?FundIntExt1=INT&FundId1=0213

The back and forth discussion within those might strike one as reminiscent of a debate on AGW.... ;)
The debate on AGW is hardly a back and forth discussion anymore... however you want to interpret that!

Does it make much of a difference what company one puts their IRA with?


TheLazyMan

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Re: I don't like the Vanguard index funds
« Reply #8 on: May 29, 2015, 12:14:27 AM »
Does it make much of a difference what company one puts their IRA with?

If you're using vanguard funds you might as well go with Vanguard.  Other firms may charge transaction fees.

chesebert

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Re: I don't like the Vanguard index funds
« Reply #9 on: May 29, 2015, 02:58:29 AM »
Vanguard has no ESG fund?

surfhb

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Re: I don't like the Vanguard index funds
« Reply #10 on: May 29, 2015, 03:08:23 AM »
I find it a little weird you use a car yet feel investing in energy is crossing some moral boundary.

You might want to get over this :)

17oclockshadow

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Re: I don't like the Vanguard index funds
« Reply #11 on: May 29, 2015, 04:33:56 AM »
Hey y'all, I've been reading MMM for several months now and have been very enthused about it; I now know what to do with money when I eventually get a hold of it. This forum is pretty cool too, so props to you all.

tl;dr - I have $5000, no debt, no expenses, no assets, and I want to start an IRA and begin investing. Should I do Roth or traditional, and is this company's mutual funds (http://greencentury.com/our-funds/) a suitable sustainable replacement for the Vanguard index funds?

I'm a 20 year old college student. I have no debt, (almost) no money or assets besides my bike and my car, and very low expenses. I got a full academic ride to college for mechanical engineering, so I will still be debt free when I graduate.

I will be making ~$5000 USD this summer doing a summer research gig at another university (coincidentally, very close to the Colorado residence of MMM...). During the year, I have very few expenses besides the occasional grocery trip (most of my food is included in my scholarship).

I want to start making my money work for me, and from my research (I have NO financial background, and not many in my family do) I should first start an IRA (Roth, traditional?) and put the rest in a low-cost index fund (Vanguard). My issue with the Vanguard funds is that they are heavily invested in the oil, gas, and coal industries (Exxon Mobil is the 3rd largest holding of VFINX). I understand that this is because they buy stocks across the entire market, which obviously includes these companies.

I believe climate change is the most pressing, pertinent issue my generation has to face, and to put it mildly, I am not enthusiastic about positively investing in an industry I have observed to be corrupt and uninterested in the preservation of our climate. In other words, I am aligned with the divestment movement that has been gaining traction as of late (http://gofossilfree.org/).

I have done a lot of searching, and this company - http://greencentury.com/our-funds/ - seems to offer the best alternative. It's not completely aligned with my interests, as I don't really mind nuclear and I'm uncertain on GMO's, but mainly it dumps the major hydrocarbon companies. It's not technically an index fund, but a mutual fund with relatively low fees (I think?). They have a "balanced" as well as an "equity" fund, and I can also open an IRA with them.

Does anyone have experience with Green Century, or know of alternatives? How would you distribute my money into an IRA, and what kind (Roth or traditional?), versus the mutual fund? I know it may have slightly lower returns than the VFINX fund, but I'm already pursuing renewables over oil & gas as a career, so I'm already bracing for making less money than virtually all of my classmates in the oil industry (I come from petroleum country).

Sorry for the essay and all the questions, but I really wanted to get some advice before going ahead with this company. Thanks for your time.

Can you contribute to a retirement account when your source of income is a fellowship?
I am not sure that it is considered the same; my recollection is that this is somewhat complex.

Ishmael

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Re: I don't like the Vanguard index funds
« Reply #12 on: May 29, 2015, 05:43:23 AM »
You have it backwards - ethics belongs where you spend your money, not where you invest it (at least in established companies - startups are different, of course). If you choose not to invest in a company, all you're doing is making it more enticing for those that have no such qualms. Besides, when you invest, you actually get a vote to say how these companies act (if you invest directly).

I have completely the opposite approach to investing. When I find a company that I can't stand, yet that seems to be a virtual monopoly I can't seem to avoid - I buy stock in it. Helps mitigate the pain, and has provided great returns. I am, however, very careful mentally to keep my investment interests mentally separate from my beliefs and ethics - I regularly write letters to government for policies that, if they actually did anything, would directly hurt the very companies I am invested in, and I'd be quite happy about it.

My opinion is that you end up having far more influence in the world by how to choose to spend your money than any other way - politically, investing, etc.

BTW, I totally agree with your assessment of the challenge ahead, and appreciate your energy and care about the future.

« Last Edit: May 29, 2015, 06:01:59 AM by Ishmael »

I'm a red panda

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Re: I don't like the Vanguard index funds
« Reply #13 on: May 29, 2015, 06:25:26 AM »
I put money into Social Choice funds.

I want to avoid guns, tobacco, and oil when I can.

« Last Edit: May 29, 2015, 07:19:34 AM by iowajes »

TrulyStashin

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Re: I don't like the Vanguard index funds
« Reply #14 on: May 29, 2015, 06:41:38 AM »
OP, I completely agree with you and also believe that we should reflect our values in how we spend AND how we invest.  After all, investments give capital that companies need for growth.  Why would I want to invest in a company whose growth harms human well-being? (rhetorical)

Not only that, but "green investing" -- just like sustainability programs -- has come a long way over the last 20-30 years.  Sustainable companies are better investments -- especially for long-term, buy-and-hold investors.  Companies with serious sustainability programs do a much better job of identifying risks and spotting opportunities than companies who aren't paying attention to sustainability issues.  Check out the Sustainability Accounting Standards Board for more on this.  (http://www.sasb.org/)

I have been watching the market for a good ESG index fund ("environmental-social-governance" -- shorthand for companies that take sustainability seriously).   A number of studies have shown that companies with integrated, vigorous sustainability programs perform better for their shareholders compared to peer-companies with weak or no sustainability programs.

A few years ago, FTSE http://www.ftse.com/products/home (a competitor to Vanguard -- they create index funds) teamed up with CDP (the "Carbon Disclosure Project" https://www.cdp.net/en-US/Pages/HomePage.aspx) to create the FTSE CDP Carbon Stratgey Fund https://www.google.com/finance?cid=1742632 which is an index fund of the companies that are top performers on CDP carbon leadership/ disclosure rankings.  In fact, FTSE has a whole series of carbon strategy index funds (here https://www.cdp.net/en-US/Respond/Documents/FTSE%20CDP%20Methodology%202-sider.pdf).

I've been looking for an outlet to purchase shares in one of these funds and that's where I'm hitting a wall.  Though, I haven't looked hard yet.

You might also look at Pax World Investment -- they have an ESG index fund http://www.paxworld.com/advisors/investment-strategies/pax-world-mutual-funds/international-fund

seattlecyclone

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Re: I don't like the Vanguard index funds
« Reply #15 on: May 29, 2015, 06:54:45 AM »
OP, I completely agree with you and also believe that we should reflect our values in how we spend AND how we invest.  After all, investments give capital that companies need for growth.  Why would I want to invest in a company whose growth harms human well-being? (rhetorical)

This is a common misconception. The first person to buy a share gives the company the capital needed for growth. Once the company has already sold their shares to the public, further trades are completely meaningless to the company's bottom line. All you're doing by divesting is making it so that people with less of a moral objection to that industry get a slight discount on their shares because you're no longer bidding for them. The company will exist and make profits and pay dividends exactly the same whether you own their shares or someone else does.

If you still just don't feel right owning a piece of that business, that's one thing, but don't pretend that your failure to own their shares affects the company in any way.

On the other hand, if you believe that the oil industry can't possibly last in the long term, given increasing adoption of alternative energy sources and the possibility of increasing carbon taxes in the future, you may want to avoid their shares for purely financial reasons.

I'm a red panda

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Re: I don't like the Vanguard index funds
« Reply #16 on: May 29, 2015, 07:19:12 AM »
Quote
The company will exist and make profits and pay dividends exactly the same whether you own their shares or someone else does.

If you still just don't feel right owning a piece of that business, that's one thing, but don't pretend that your failure to own their shares affects the company in any way.

I know that me not owning their shares doesn't effect them.  But it does prevent me from profiting from areas that I am morally opposed to. To me, that is just hypocritical.

(Now, it isn't always possible for me to avoid these things- a previous employer's 401k didn't have a social choice fund, for instance. But I do what I CAN to avoid them.)

forummm

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Re: I don't like the Vanguard index funds
« Reply #17 on: May 29, 2015, 07:24:34 AM »
OP, I completely agree with you and also believe that we should reflect our values in how we spend AND how we invest.  After all, investments give capital that companies need for growth.  Why would I want to invest in a company whose growth harms human well-being? (rhetorical)

This is a common misconception. The first person to buy a share gives the company the capital needed for growth. Once the company has already sold their shares to the public, further trades are completely meaningless to the company's bottom line. All you're doing by divesting is making it so that people with less of a moral objection to that industry get a slight discount on their shares because you're no longer bidding for them. The company will exist and make profits and pay dividends exactly the same whether you own their shares or someone else does.

If you still just don't feel right owning a piece of that business, that's one thing, but don't pretend that your failure to own their shares affects the company in any way.

On the other hand, if you believe that the oil industry can't possibly last in the long term, given increasing adoption of alternative energy sources and the possibility of increasing carbon taxes in the future, you may want to avoid their shares for purely financial reasons.

True. However, a high stock price does make it possible for companies to raise more capital by selling more stock. However, I think this hardly ever happens with a lot of S&P 500 companies--and I assume is even less likely for energy companies that spit off a lot of dividends.

OP, how are you going to decide which companies are socially OK to invest in? I think you'll have a really hard time finding companies that aren't hurting some cause in some way. Even a business just using electricity to operate is causing some coal or gas to be burned somewhere. Costco is considered a good company for a lot of reasons, yet they ship around their goods using fossil fuels, promote consumerism, let people buy a gallon of Oreos, a bag of potato chips bigger than their children, etc. I consider Coke and Pepsi to be pretty terrible companies from the perspective of trying to get everyone in the world to drink their sugary products, which leads to obesity, diabetes, and heart disease. Berkshire Hathaway? Well in addition to owning some energy business, they shovel ice cream into people, make manufactured home loans that some people consider predatory, etc. Netflix? Well they encourage people to sit around and kill brain cells.

OK, so don't invest in the markets. Just buy bonds. Bonds that provide money for all the same companies to operate....Oh right.

OK, so just leave all your money in Treasuries. So your funds will support wars....Oh right.

OK, so just leave all your money in a bank. The banks that committed mass mortgage fraud, gambled with other people's money, roiled the economy, caused a lot of people to lose their jobs, got taxpayer money as a bailout....Oh right.

You have to draw the line somewhere.

What's in your social choice fund? Is it totally free of anything you object to?

One option is to just buy individual stocks. If there are enough companies (even 30 or 50) that you can find that you don't object to, you could just buy and hold them forever. I suspect that the firms you can find unobjectionable will be more risky than the average business. But that's your call.

ShoulderThingThatGoesUp

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Re: I don't like the Vanguard index funds
« Reply #18 on: May 29, 2015, 07:43:47 AM »
I strongly recommend getting some perspective. There is no immediate practical alternative to fossil fuels. Leaving it all in the ground would condemn billions to unnecessary harsh poverty. Further, the natural gas boom has actually helped to reduce US GHG per capita emissions - energy companies are part of the solution.

Finally, fossil fuels are such a substantial portion of how literally everything gets done that even if you believe them to be evil, there is no moral advantage from not owning any XOM. Everything you buy has been delivered with fossil fuels and manufactured with chemicals and energy from fossil fuels. Divestment from fossil fuels requires withdrawal from society. If you want to fight global warming, start a business providing alternative energy solutions or join a research team.

Not investing first-hand in fossil fuels is social signaling. It does nothing for the world, and nothing for you financially or morally.

teen persuasion

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Re: I don't like the Vanguard index funds
« Reply #19 on: May 29, 2015, 07:44:44 AM »
tl;dr - I have $5000, no debt, no expenses, no assets, and I want to start an IRA and begin investing. Should I do Roth or traditional, and is this company's mutual funds (http://greencentury.com/our-funds/) a suitable sustainable replacement for the Vanguard index funds?
Roth because your tax rate will be as low now as it is ever likely to be.



Maybe.  Scholarships and grants used to pay tuition are tax free, but the portions used for living expenses, etc., must be claimed as taxable income.  Students are not eligible for the retirement savers credit.  Students who are claimed as dependents cannot claim the AOG (the parents may).  Dependents also don't get their personal exemption (the parents do).  Now, if the student is supporting themself thru scholarships and grants, they would not be dependent in the eyes of the IRS, but are still viewed as a dependent for FAFSA purposes, so it is complex.

OP, do the research to see if you are actually eligible to contribute to an IRA (is your income wages, or grant/fellowship/whatever), and how taxable scholarships will affect your taxes.  I ran thru this this year for DD3 - as our dependent, her taxable scholarships resulted in $600 of state + fed taxes, while her actual WS earnings were only $1k.  Partially this was due to the decision to classify some of her tuition as paid by non-scholarship money, so that we could claim the AOG, thus increasing her taxable amounts.  Ultimately we paid her tax bill, since it netted us a greater refund.

rmendpara

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Re: I don't like the Vanguard index funds
« Reply #20 on: May 29, 2015, 11:32:37 AM »
If you don't like vanguard funds, then don't invest in them.

They, along with Fidelity and Schwab, offer the cheapest access to investments, though they do not make it easy to pick and choose what you want to invest in.

I understand not wanting to buy a tobacco stock, but every company is harming someone somewhere.

I'm not trying to change your views, since you are entitled to invest however you wish. The fund company you listed is very expensive, and is basically robbing you each month by charging above average management fees and promoting "ethical investing"... whatever that means.

nereo

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Re: I don't like the Vanguard index funds
« Reply #21 on: May 29, 2015, 11:47:10 AM »
nocoast

You might want to check out Vanguard's Social Index fund.  It has a lowish expense ratio (0.27%) and it only invests in companies that have met certain social, human rights, and environmental criteria.  Of course, what you consider to be important might not match, but it might be good for you.  Read the perspectus for more information.

https://personal.vanguard.com/us/funds/snapshot?FundId=0213&FundIntExt=INT

To echo others, I would NOT invest in a company that charges a 1.x% fee - you'd be better of just donating 1% of your profits to your NGO of choice.

nereo

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Re: I don't like the Vanguard index funds
« Reply #22 on: May 29, 2015, 11:53:46 AM »
nocoast:  to be clear, do you have a problem with Vanguard specifically, or just with certain companies that you can buy shares of Vanguard through.

Vanguard has over 100 index funds that all invest in everything from the total market to specific market caps and even only socially responsible companies. 

ShoulderThingThatGoesUp

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Re: I don't like the Vanguard index funds
« Reply #23 on: May 29, 2015, 12:21:56 PM »
A financially defensible move that might satisfy you would be to put money in an Emerging Markets index like SCHE. No big Corporate America.

Kris

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Re: I don't like the Vanguard index funds
« Reply #24 on: May 29, 2015, 01:13:06 PM »


To echo others, I would NOT invest in a company that charges a 1.x% fee - you'd be better of just donating 1% of your profits to your NGO of choice.

I agree.  In fact, at that rate, I basically think that company is profiting from your naivete.  They are less socially conscious than opportunistic and willing to take advantage of people who are trying to do the right thing.  You're being played if you use them. 

TheAnonOne

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Re: I don't like the Vanguard index funds
« Reply #25 on: May 29, 2015, 01:18:39 PM »
Despite what you invest in or not, the world will move to electric cars and fusion power plants when it is economically correct to do so. Your pie-in-the-sky views are rather useless as far as investing goes. They will also, 'most likely' hurt you in the end.

Good luck.

PS. As others have said 1%+ funds.... ouch

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Re: I don't like the Vanguard index funds
« Reply #26 on: May 29, 2015, 02:41:50 PM »
Following.

Eric

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Re: I don't like the Vanguard index funds
« Reply #27 on: May 29, 2015, 03:04:08 PM »
OP, I completely agree with you and also believe that we should reflect our values in how we spend AND how we invest.  After all, investments give capital that companies need for growth.  Why would I want to invest in a company whose growth harms human well-being? (rhetorical)

This is a common misconception. The first person to buy a share gives the company the capital needed for growth. Once the company has already sold their shares to the public, further trades are completely meaningless to the company's bottom line. All you're doing by divesting is making it so that people with less of a moral objection to that industry get a slight discount on their shares because you're no longer bidding for them. The company will exist and make profits and pay dividends exactly the same whether you own their shares or someone else does.


Yes.  This.  Buying stock on the secondary market does not help the unethical company directly.  The company has already received the benefits from the issuance of the stocks. 

For example, I don't shop at WalMart and haven't for years.  But if I go to a garage sale, and want to buy an exercise bike, I don't skip the purchase if it was originally bought at WalMart.  It has no bearing on WalMart at this point.

Yes, there are slight indirect benefits to the company, but they're small in general, and almost non-existent when you consider the tiny tiny fraction of money that your investment represents.

NorCal

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Re: I don't like the Vanguard index funds
« Reply #28 on: May 29, 2015, 03:14:42 PM »
While I've never understood the notion of avoiding funds because of what they hold, I respect your beliefs in it, particularly that you're willing to put in the effort yourself.  Although for full disclosure, I once tried my hand at ethical investing (by my definition) by investing in VICEX.  It was not a good investment product.

I would think about it in terms of how much this is going to cost you personally.  Your "costs" are:

1.  The higher expense fees of this fund.  I'll believe the posts below, with the listed expense ratio of 1.5%.  Compare this with a vanguard fee of 0.1%.
2.  While impossible to quantify in this context, you will lose some diversification, and likely some long term returns by avoiding the oil & gas sector.  Just take a SWAG at 0.25-0.75% lost performance per year over the long term.  Others can throw out different numbers, but it will end up being just a guess.

So, bottom line, you're looking at reduced portfolio performance of +/-2ppts of performance per year.

The below is my back-of-the-envelope math.  Others can expand or correct if they have the time or inclination.

I won't estimate the added time lost to compounding (because I'm lazy), although that will be significant.  You will be reducing your safe withdrawal rate to about 2%/yr instead of 4% per year. 

This means to generate $30,000/yr in income, you will need a $1.5M portfolio instead of a $750K portfolio.

So the question to you is whether you believe in divesting enough to impact your savings plan to the tune of $750K?

bacchi

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Re: I don't like the Vanguard index funds
« Reply #29 on: May 29, 2015, 03:37:26 PM »
Divesting (or not investing in the first place) can effect change, even if it's not money withheld from a stock offering.

https://en.wikipedia.org/wiki/Disinvestment_from_South_Africa


Reducing your own dependence on fossil fuels is probably easier and more effective though.

1) Use a green energy supplier. MMM does.
2) When you graduate, live close to work and walk or bike.
3) Stop using so much electricity. Turn off computers and routers and lights when not in use.

Travis

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Re: I don't like the Vanguard index funds
« Reply #30 on: May 29, 2015, 03:46:53 PM »
Quote
Yes, there are slight indirect benefits to the company, but they're small in general, and almost non-existent when you consider the tiny tiny fraction of money that your investment represents.

^This.  If you don't want these companies or industries to benefit from your money, then don't buy their products.  The gallons of fuel you buy this month represent a hell of a lot more direct investment in their company than the shares or fractions of shares you might buy through Vanguard. 

Unfortunately oil, gas, and coal make the world go 'round right now.  At my desk I'm typing on a laptop made of plastic, drinking from a plastic thermos, and sitting on a chair in part made of plastics.  All of that comes from oil either through its construction, packaging, or distribution to market.  The electricity powering this building comes from a fair amount of hydro in my area, but I'm sure there's a fossil fuel plant nearby somewhere on the grid.  Tonight I'm going to drive home in a car built and powered by dead prehistoric plants and animals.  I ate food today that had to be transported to the grocery store in a truck before I bought it.  I expect your daily routine looks something like mine.  The point is you're buying into these industries you don't like simply by consuming in the modern world.

They represent a larger share of index funds than others because they encompass a large part of the market.  They're big companies because they do big things for the economy.  If you still have moral problems with the industries and don't want them to benefit from you that's fine, but understand where your money is going and where you can make an actual impact on them.

nocoast

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Re: I don't like the Vanguard index funds
« Reply #31 on: May 29, 2015, 08:01:50 PM »
Well shoot this seems to be a popular topic. Here goes.

I strongly recommend getting some perspective. There is no immediate practical alternative to fossil fuels. Leaving it all in the ground would condemn billions to unnecessary harsh poverty. Further, the natural gas boom has actually helped to reduce US GHG per capita emissions - energy companies are part of the solution.

Finally, fossil fuels are such a substantial portion of how literally everything gets done that even if you believe them to be evil, there is no moral advantage from not owning any XOM. Everything you buy has been delivered with fossil fuels and manufactured with chemicals and energy from fossil fuels. Divestment from fossil fuels requires withdrawal from society. If you want to fight global warming, start a business providing alternative energy solutions or join a research team.

Not investing first-hand in fossil fuels is social signaling. It does nothing for the world, and nothing for you financially or morally.

Despite what you invest in or not, the world will move to electric cars and fusion power plants when it is economically correct to do so. Your pie-in-the-sky views are rather useless as far as investing goes.

Unfortunately oil, gas, and coal make the world go 'round right now.  At my desk I'm typing on a laptop made of plastic, drinking from a plastic thermos, and sitting on a chair in part made of plastics.  All of that comes from oil either through its construction, packaging, or distribution to market.  The electricity powering this building comes from a fair amount of hydro in my area, but I'm sure there's a fossil fuel plant nearby somewhere on the grid.  Tonight I'm going to drive home in a car built and powered by dead prehistoric plants and animals.  I ate food today that had to be transported to the grocery store in a truck before I bought it.  I expect your daily routine looks something like mine.  The point is you're buying into these industries you don't like simply by consuming in the modern world.

They represent a larger share of index funds than others because they encompass a large part of the market.  They're big companies because they do big things for the economy.  If you still have moral problems with the industries and don't want them to benefit from you that's fine, but understand where your money is going and where you can make an actual impact on them.

People seem to think I'm some hippy college student with no idea of how the world works. I live in Oklahoma, believe me when I say I understand oil makes the world go round. In my state we tax solar and keep fracking even though the numerous earthquakes it's causing have caused millions in private property damage. We love our oil and gas, and it pays the salary of most people I know there. Oil money pays for my scholarship.

The issue is that the technology needed to transition to a clean energy economy is already here and viable, and could and would be much more heavily implemented if not for the destructive lobbying efforts of the oil industry. Take out the massive tax subsidies for oil companies and incorporate the short and long-term environmental costs of those resources, and renewable energy technologies are not far off at all from conventional ones - in fact, they are already there in some scenarios. Other countries and cities are making it happen; we (our gov't, corporations and their lobbyists) in the US are actively impeding progress. Economics are not standing in the way of the transition, moneyed interests are. And the moneyed interests are those very companies which I am so hesitant to invest in.

Divesting (or not investing in the first place) can effect change, even if it's not money withheld from a stock offering.

https://en.wikipedia.org/wiki/Disinvestment_from_South_Africa


Reducing your own dependence on fossil fuels is probably easier and more effective though.

1) Use a green energy supplier. MMM does.
2) When you graduate, live close to work and walk or bike.
3) Stop using so much electricity. Turn off computers and routers and lights when not in use.

1) This unfortunately is not available in my area.
2) I plan to!
3) I do this as well.

I run and bike more miles than I put on my car. I do research on multiple renewable energy projects. I've been vegetarian for several years to try to reduce my carbon footprint. It just frustrates me that I try to do all the little and big things for the cause and this really big thing (where I put the majority of my money) doesn't seem to have a good alternative.

OP, I completely agree with you and also believe that we should reflect our values in how we spend AND how we invest.  After all, investments give capital that companies need for growth.  Why would I want to invest in a company whose growth harms human well-being? (rhetorical)

This is a common misconception. The first person to buy a share gives the company the capital needed for growth. Once the company has already sold their shares to the public, further trades are completely meaningless to the company's bottom line. All you're doing by divesting is making it so that people with less of a moral objection to that industry get a slight discount on their shares because you're no longer bidding for them. The company will exist and make profits and pay dividends exactly the same whether you own their shares or someone else does.

Yes.  This.  Buying stock on the secondary market does not help the unethical company directly.  The company has already received the benefits from the issuance of the stocks. 

For example, I don't shop at WalMart and haven't for years.  But if I go to a garage sale, and want to buy an exercise bike, I don't skip the purchase if it was originally bought at WalMart.  It has no bearing on WalMart at this point.

Yes, there are slight indirect benefits to the company, but they're small in general, and almost non-existent when you consider the tiny tiny fraction of money that your investment represents.

This is the same logic people have when they don't vote - my impact will be so little, I might as well not contribute at all. But it all adds up. I do research in the lab for little money while my peers make big bucks in the oilfields. What's stopping me from working for an oil company then? If I don't work for them, someone else will take my spot, the same as divestment. But there's no way in hell I would work for an oil company. Then why would I invest in them?

Viewing it like the Wal-Mart bike does make it seem a bit better, but it still seems like I'd be directly supporting them essentially. This has been on my mind all day, and I can't make sense of it. I'm incredibly conflicted on what to do. But I am resolute in that we shouldn't be aiding institutions that are actively detrimental to this global issue.

nocoast

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Re: I don't like the Vanguard index funds
« Reply #32 on: May 29, 2015, 08:14:24 PM »
OP, how are you going to decide which companies are socially OK to invest in? I think you'll have a really hard time finding companies that aren't hurting some cause in some way. Even a business just using electricity to operate is causing some coal or gas to be burned somewhere. Costco is considered a good company for a lot of reasons, yet they ship around their goods using fossil fuels, promote consumerism, let people buy a gallon of Oreos, a bag of potato chips bigger than their children, etc. I consider Coke and Pepsi to be pretty terrible companies from the perspective of trying to get everyone in the world to drink their sugary products, which leads to obesity, diabetes, and heart disease. Berkshire Hathaway? Well in addition to owning some energy business, they shovel ice cream into people, make manufactured home loans that some people consider predatory, etc. Netflix? Well they encourage people to sit around and kill brain cells.

OK, so don't invest in the markets. Just buy bonds. Bonds that provide money for all the same companies to operate....Oh right.

OK, so just leave all your money in Treasuries. So your funds will support wars....Oh right.

OK, so just leave all your money in a bank. The banks that committed mass mortgage fraud, gambled with other people's money, roiled the economy, caused a lot of people to lose their jobs, got taxpayer money as a bailout....Oh right.

You have to draw the line somewhere.

What's in your social choice fund? Is it totally free of anything you object to?

One option is to just buy individual stocks. If there are enough companies (even 30 or 50) that you can find that you don't object to, you could just buy and hold them forever. I suspect that the firms you can find unobjectionable will be more risky than the average business. But that's your call.

It's obvious most large publicly traded corporations have fucked up majorly in some fashion. But the problem with climate change is that it is fundamentally time-sensitive, and myself and others feel have observed that the involved companies are putting relatively more backpressure on progress than in other issues other companies may be involved in. And that's why I feel like it is the most crucial thing to not be financially supporting. Every issue can be fought with money, but in no other case does the enemy (pardon my militant phrasing) possess such monumental funding, which makes this fight fundamentally about money. Other issues also don't run the risk of reaching a point of no return (runaway global warming if we burn a certain quantity of stored reserves, at which point reducing emissions will have no effect).

lr

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Re: I don't like the Vanguard index funds
« Reply #33 on: May 30, 2015, 01:01:44 AM »
The debate about socially responsible investing rarely leads to people changing their minds. The reasons are probably that there's truth on both sides, and that people prefer not to think about things that reduce their income or make them feel bad.

In any case, while it's true that the initial offering is where companies make the bulk of their money, it's also true that companies are directly incentivized to keep the "secondary" market happy for a metric ton of reasons, including their ability to raise capital, keep big shareholders happy, negotiate deals, pay executives and keep them out of prison, and reduce ongoing labor costs. If you don't believe me, grab some vodka and a list of corporate mission statements, and take a drink every time shareholder value is mentioned.

There are great arguments to be had around how insignificant any given person is, and how there's always a greater asshole around to exploit ethics-based market inefficiencies, or how alternative investments are complicated and we can't agree on what ethical means. Those arguments might be productive. But the argument that companies don't care about their stock prices is batshit. If any of the top holdings in VTSAX had their stock prices mysteriously cut in half tomorrow, you'd go deathstar-deaf from the sound of that many resumes being polished all at once.

What annoys me is not the rationalization, but the cowardliness of some of these arguments.

It's pretty simple: If you buy a share of a baby-cocaine farm, you're now in the baby-cocaine business. That's what you do for a living. True, you might be a silent partner. True, someone else would have bought it anyhow. True, you might lobby politicians to stop baby-cocaine (while the farm you own does the opposite, except effectively). But you're still a baby-cocaine dealer... or an oil baron, or a sweatshop owner, or an arms dealer.

So own it or change it. But stop pretending there's some mystical distinction between your investments and your values. Life is hard. We make tradeoffs. But we'll never get better at it if we hide them from ourselves.

stlbrah

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Re: I don't like the Vanguard index funds
« Reply #34 on: May 30, 2015, 09:04:49 AM »
i use fidelity since work uses it and its all in one place.

The only thing I liked better about vanguard was that their REITs had way better expense ratios and a lower minimum. It seems that for everything else, take a vanguard fund and fidelity will have a copy of it with similar or less expense ratio.

pbkmaine

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Re: I don't like the Vanguard index funds
« Reply #35 on: May 30, 2015, 09:26:42 AM »
VFTSX

nereo

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Re: I don't like the Vanguard index funds
« Reply #36 on: May 30, 2015, 10:22:10 AM »
nocoast - there's a lot of grandstanding and soapbox preaching going on from all sides, so I'll try to make this as on-topic as I can.

I think Green Century is not a good choice for you.  They have a high fee (1.25% for their equity fund) and they have low turnover (32% last year).  What this means is that you are paying a lot more for what's a fairly passively managed fund.  Which means a lot of your profits are going to the money managers.  There's a term for it in advertising - greenwashing.  They're using the 'halo' of a green product to make themselves rich, largely at your expense.  Conversely, less money is going to the companies that you want to support, and you suffer in the returns department.


There are better choices out there that will give you better returns (instead of the market managers).  You can invest in Vanguard's VFTSE fund - which eliminates most of the oil/gas producers and doesn't invest in companies that don't meet a certain standard of social responsibility.

Alternatively, if you want to be invested in just green energy, there's a number of ETFs that will do exactly this.  TAN does just solar, ICLN does just US companies involved in renewable energy (thereby eliminating overseas companies that may not be as closely regulated).... there are literally dozens.
The risk of doing only clean-energy ETFs is that you will not be as diversely invested, but it is a way of 'putting your money where your mouth it' and supporting what you believe in.  You can then diversify by picking up other market sectors... maybe one that is composed of clean-technology companies and another that does only socially-responsible consumer products.

Best of luck - PM if you have questions
N

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Re: I don't like the Vanguard index funds
« Reply #37 on: May 30, 2015, 11:51:48 AM »
Interesting debate, here is my 2c:

Buying stocks on the secondary market in a company really doesn't affect the company in any meaningful way unless you are Warren Buffet.  What does make a meaningful difference is how wealthy you become and how you choose to spend/allocate your wealth.  Someone is going to make money investing in Exxon mobile and their values will be different than yours. They will take that money and spend it on what matters to them, and this may not align with your values. Investing in a "socially responsible" mutual fund for 100 basis points puts money in someone else pocket other than your own.  They will be spending that money, not you. It is my belief that the biggest way we can change society is how we spend our money, and this means they more I have in relation to others the more I can influence things and align them with my values. Take the Exxon Mobile dividends and buy a bike, or solar panels, or loan the money to a local organic farmer, etc.

An IPO is different, this raises money for the company to use for whatever purpose they choose.

Bearded Man

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Re: I don't like the Vanguard index funds
« Reply #38 on: May 30, 2015, 12:01:19 PM »
For you, I'd say Roth right now. Let that money compound until you are 60 and you will have a decent nest egg from that alone if you don't add anymore money.

Congrats on the full ride scholarship! Wish I had one of those lol.

kpd905

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Re: I don't like the Vanguard index funds
« Reply #39 on: May 30, 2015, 12:16:14 PM »
The fees on these funds are 25-30 times higher than VTSAX.  I'd say invest in Vanguard, and when you get up to a substantial amount, take the money you save on fees and donate it to charities of your choosing.

At $250,000 invested, the balanced fund would cost you $3700 in fees per year. 

Investing in Vanguard funds that average 0.10% expense ratio would cost $250 per year.

Take your $3450 and do whatever you want with it.

TrulyStashin

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Re: I don't like the Vanguard index funds
« Reply #40 on: June 02, 2015, 10:41:34 AM »
I asserted in my earlier post that socially responsible funds and/ or impact investing funds yield a BETTER return than the S & P 500.  Well, I just ran across this article on that very issue.

http://news.morningstar.com/all/market-watch/TDJNMW2015052158/update-socially-responsible-investing-has-beaten-the-sp-500-for-decades.aspx

Beyond "do no harm" investing is the world of "impact investing" which seeks to invest dollars in companies that have a affirmative positive impact.  If you want to know more, a Google search on "impact investing" will give you plenty of reading material.

Edited to add this gem -- here's your socially responsible index fund from Vanguard AND FTSE:  https://personal.vanguard.com/us/funds/snapshot?FundId=0213&FundIntExt=INT
« Last Edit: June 02, 2015, 10:44:21 AM by TrulyStashin »

nereo

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Re: I don't like the Vanguard index funds
« Reply #41 on: June 02, 2015, 10:57:23 AM »
I asserted in my earlier post that socially responsible funds and/ or impact investing funds yield a BETTER return than the S & P 500.  Well, I just ran across this article on that very issue.

http://news.morningstar.com/all/market-watch/TDJNMW2015052158/update-socially-responsible-investing-has-beaten-the-sp-500-for-decades.aspx

Beyond "do no harm" investing is the world of "impact investing" which seeks to invest dollars in companies that have a affirmative positive impact.  If you want to know more, a Google search on "impact investing" will give you plenty of reading material.

Again - the problem with most actively managed 'socially conscious' investing is that fees drag down any out-performance.  The expense ratio here is about .5%, which corresponds nicely to it's "outperformance" vs Vanguard's SP500 admiral shares. 
As noted, investing in socially conscious index funds like Vanguard's can be a happy medium.  For buy-and-hold investers, it makes sense that eliminating companies which do not have a sustainable business model could yield better returns.
Quote
But since 1990, the social index (MSCI KLD 400) returned an average annual total return of 10.46% compared with the S&P 500's 9.93%.

Sibley

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Re: I don't like the Vanguard index funds
« Reply #42 on: June 02, 2015, 11:52:50 AM »
Ever hear the saying, "cut off the nose to spite the face"?

Don't.

beltim

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Re: I don't like the Vanguard index funds
« Reply #43 on: June 02, 2015, 12:04:23 PM »
tl;dr - I have $5000, no debt, no expenses, no assets, and I want to start an IRA and begin investing. Should I do Roth or traditional, and is this company's mutual funds (http://greencentury.com/our-funds/) a suitable sustainable replacement for the Vanguard index funds?

Can you contribute to a retirement account when your source of income is a fellowship?
I am not sure that it is considered the same; my recollection is that this is somewhat complex.

It depends on whether it's considered "earned income."  None of my fellowships ever were, but I know people who did receive fellowships that were considered earned income.

Nocoast: make sure your fellowship is considered earned income before depositing the money in a retirement account.  If it turns out that you're not eligible, there are substantial penalties for depositing the money in the account.  The easiest way to tell is to see if Social Security taxes are deducted - if they are, then it's considered earned income.  Unfortunately, if they're not, it doesn't necessarily mean that you aren't able to contribute - it just makes it more complicated.

bdc

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Re: I don't like the Vanguard index funds
« Reply #44 on: June 02, 2015, 10:24:45 PM »
I take the topic to be "how to make a diversified investment in stocks at low-cost without investing in fossil fuel companies," not whether fossil fuel divestment is desirable.

One solution would be to collect a number of sector-specific or other funds that exclude (or minimize) energy companies.  Here's a list of Fidelity sector ETFs (except energy), which could be purchased to mimic the VTI without energy at a 0.12% expense ratio.  (If anyone calculates the correct allocation to achieve that, please post it.)
FREL Real Estate
FNCL Financial
FSTA Consumer Defensive
FTEC Technology
FDIS Consumer Cyclical
FCOM Communications
FHLC Health
FIDU Industrials
??? FMAT Natural Resources
??? FUTY Utilities

Other ideas include: 
VIS - Vanguard Industrials ETF - 0.12% Expenses (https://personal.vanguard.com/us/funds/snapshot?FundId=0953&FundIntExt=INT)

ONEQ - FIDELITY NASDAQ COMPOSITE INDEX - 0.21% Expenses (https://advisor.fidelity.com/app/funds-and-products/etf/FIIS_ETF_ONEQ/fidelity-nasdaq-composite-index-etf-oneq.html)

VFH - Vanguard Financials ETF - 0.12% Expenses (https://personal.vanguard.com/us/funds/snapshot?FundId=0957&FundIntExt=INT)
 
These are just examples.  You should be able to find other low-cost funds that do not include energy stocks (or are at least significantly underweight in energy).  You would want to check the prospectus documents to ensure you were comfortable with at least their top holdings.  You might also want to supplement with some purchases of funds investing in renewable.)

Once you found a group of funds you were comfortable with, use Personal Capital or Morningstar x-ray to create an allocation that is at least reasonably diversified.  (You don't want to accidentally end up with 80% tech stocks.)

It actually seems like a fun Mustachian challenge: DIY a fossil-fuel free at much lower cost than a 1%-plus fee solution.  Someone with more time and energy on their hands than I do should give it a shot.

With only $5,000 to invest, it may be difficult to put together a truly balance portfolio.  On the other hand, I don't think it's essential to be fully diversified with such a small portion of your lifetime earnings on the line.

« Last Edit: June 02, 2015, 11:16:30 PM by bdc »

seattlecyclone

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Re: I don't like the Vanguard index funds
« Reply #45 on: June 03, 2015, 12:11:32 AM »
It actually seems like a fun Mustachian challenge: DIY a fossil-fuel free at much lower cost than a 1%-plus fee solution.  Someone with more time and energy on their hands than I do should give it a shot.

7.8% of VTSAX is invested in oil and gas stocks. How about you buy VTSAX and short 7.8% as much VDE? This would achieve essentially no net exposure to fossil fuel stocks. You'll pay margin interest on the short position, but might still come out with lower expenses and less hassle than taking out long positions in all of the other individual sectors.

forummm

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Re: I don't like the Vanguard index funds
« Reply #46 on: June 03, 2015, 07:37:56 AM »
I take the topic to be "how to make a diversified investment in stocks at low-cost without investing in fossil fuel companies," not whether fossil fuel divestment is desirable.

One solution would be to collect a number of sector-specific or other funds that exclude (or minimize) energy companies.  Here's a list of Fidelity sector ETFs (except energy), which could be purchased to mimic the VTI without energy at a 0.12% expense ratio.  (If anyone calculates the correct allocation to achieve that, please post it.)
FREL Real Estate
FNCL Financial
FSTA Consumer Defensive
FTEC Technology
FDIS Consumer Cyclical
FCOM Communications
FHLC Health
FIDU Industrials
??? FMAT Natural Resources
??? FUTY Utilities

Other ideas include: 
VIS - Vanguard Industrials ETF - 0.12% Expenses (https://personal.vanguard.com/us/funds/snapshot?FundId=0953&FundIntExt=INT)

ONEQ - FIDELITY NASDAQ COMPOSITE INDEX - 0.21% Expenses (https://advisor.fidelity.com/app/funds-and-products/etf/FIIS_ETF_ONEQ/fidelity-nasdaq-composite-index-etf-oneq.html)

VFH - Vanguard Financials ETF - 0.12% Expenses (https://personal.vanguard.com/us/funds/snapshot?FundId=0957&FundIntExt=INT)
 
These are just examples.  You should be able to find other low-cost funds that do not include energy stocks (or are at least significantly underweight in energy).  You would want to check the prospectus documents to ensure you were comfortable with at least their top holdings.  You might also want to supplement with some purchases of funds investing in renewable.)

Once you found a group of funds you were comfortable with, use Personal Capital or Morningstar x-ray to create an allocation that is at least reasonably diversified.  (You don't want to accidentally end up with 80% tech stocks.)

It actually seems like a fun Mustachian challenge: DIY a fossil-fuel free at much lower cost than a 1%-plus fee solution.  Someone with more time and energy on their hands than I do should give it a shot.

With only $5,000 to invest, it may be difficult to put together a truly balance portfolio.  On the other hand, I don't think it's essential to be fully diversified with such a small portion of your lifetime earnings on the line.



You could also look at Vanguard's sector funds. The ER is 0.12%. You'd want the ETFs since the Admirals have a $100k minimum.
Sector   Admiral   ETF
Technology   VITAX   VGT
Financials   VFAIX   VFH
Health Care   VHCIX   VHT
Consumer Services   VCDAX   VCR
Industrials   VINAX   VIS
Consumer Goods   VCSAX   VDC
Energy   VENAX   VDE
Basic Materials   VMIAX   VAW
Utilities   VUIAX   VPU
Telecommunications   VTCAX   VOX

One option is just to equal weight them. But if you want the market weight, as of 4/30 it's:
Basic Materials   2.80%   2.80%
Consumer Goods   9.70%   9.80%
Consumer Services   13.80%   13.80%
Financials   18.80%   18.80%
Health Care   13.50%   13.40%
Industrials   12.50%   12.50%
Oil & Gas   7.80%   7.80%
Technology   16.00%   16.00%
Telecommunications   2.10%   2.10%
Utilities   3.00%   3.00%

SpicyMcHaggus

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Re: I don't like the Vanguard index funds
« Reply #47 on: June 03, 2015, 10:38:47 AM »
Sounds like you can have your idealism or you can have decent returns. Decide what you're willing to sacrifice.

vagon

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Re: I don't like the Vanguard index funds
« Reply #48 on: June 03, 2015, 07:25:30 PM »
People suggesting who are suggesting a lack of investment in a publicly listed company has no affect, are just plain wrong.
In general the amount of market cap affects a companies ability to raise funds and the share price will directly impact the remuneration of the employees at that organisation.
In energy companies specifically there is even more of an influence with capital levels as, after generating the supply, all these companies do is trade in commodities and futures with reasonably volatile prices.

That said, I will echo others here who are right in saying the amount you specifically invest will have very little impact.
« Last Edit: June 03, 2015, 07:29:38 PM by vagon »

Indexer

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Re: I don't like the Vanguard index funds
« Reply #49 on: June 03, 2015, 08:55:53 PM »
Not investing in energy companies will have zero impact.  Not for the reasons other have mentioned... but because of the 'why' people invest in them in the first place.  Some people buy energy companies through indexes, but the people who invest in the big energy companies directly normally do so for the dividend.  The lower the price is to the dividend the higher the yield and the more attractive they look.  If you don't invest in them someone else will just for that reason.  The price will increase until the yield isn't that attractive anymore.  I welcome people not investing in energy companies.  I would personally love for the price to get so low the dividend yield is 10% on Exxon if the price got there because of irrational investing and not problems with the company.  Your bias would equal my profit.  However that would never happen because so many other people think like me and would jump on it long before it got there.



Now if you do still want to go down this course.....  why not just buy a social index to get your diversification?