Author Topic: Ethical implications of index fund investing  (Read 18534 times)

liberteEgalite

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Re: Ethical implications of index fund investing
« Reply #50 on: January 20, 2017, 12:21:19 PM »
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I have been fortunate enough to "beat the market" without touching the market over the last fifteen years.

Can you share how you did this?

I did a lot of research, bought low, and held. The universe looked the other way. It's not something I'd expect to be able to repeat.

TheAnonOne

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Re: Ethical implications of index fund investing
« Reply #51 on: January 20, 2017, 12:24:17 PM »
Quote
I have been fortunate enough to "beat the market" without touching the market over the last fifteen years.

Can you share how you did this?

I did a lot of research, bought low, and held. The universe looked the other way. It's not something I'd expect to be able to repeat.

In the accumulation phase almost everyone will beat the market. Volatility basically guarantees that.

I beat the market in 2016 because some of my dollars went in durring the Jan downturn and brexit moves.


financiallypossible

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Re: Ethical implications of index fund investing
« Reply #52 on: January 20, 2017, 02:00:17 PM »
Here, http://www.mrmoneymustache.com/2016/11/24/efficiency-is-the-highest-form-of-beauty/

MMM encourages Mustachians to wield their influence to craft a world that's better for all.

In my view, investing in an index fund does not do that. Dollars are like votes. Dollars in an index fund are a vote for the status quo. Dollars in an index fund tell the market, "Keep the allocation the same. Keep at it, BoA, JP Morgan, FB, fast food, and auto industry! Crank out more crummy auto loans. Keep deluding people and messing with their psychology so they'll buy more stuff. I vote for people to be fatter, sicker, and hate their jobs more, even while feeling more trapped in them. Anti-depressant profits, go ye up! Tax-dodging corporations, here's a ten-spot. Add to your army of lawyers and accountants to work those tax loopholes even harder this year!"

Has anyone grappled with this philosophical/ethical issue? Am I missing something? I'm interested in hearing from folks who have found investment approaches that exert a Mustachian influence on the community or the world. How can we steer capital in directions that qualify as constructive to the Mustachian mind? "Locavesting" by Amy Cortese, is interesting, yet how does a person manage risk / diversify a portfolio that includes local investments?

You basically summed up 1 of the 2 reasons I don't like index investing. I do invest in index funds but view it as a necessary evil. Reading Fast Food Nation in 2007 helped me change my life. I'd never invest directly in McDonalds, Coke, etc. and the like, but don't get that choice when going index. This is why I do my own research and do invest in a diversified group of individual stocks (currently on 17-20% of my portfolio, but this'll grow over more time).

The other reason I don't like index funds -- they fail to ask "What's the price?" (a very important question to ask per Benjamin Graham of The Intelligent Investor). The funds get top heavy on overpriced names like AMZN and FB -- floating castles in the sky just waiting to fall back to Earth. I'd never purchase those name at their current P/E ratios and price/book either. Not on a moral or ethical basis, but on a strictly cost basis. Sure, I've gotten to participate in the upside as a holder of index funds for a decade now, but their downside is looming.

America is too addicted to prescriptions and drugs; very sad.

The socially responsible index/ETFs is a very crowded and popular space as of the past 2 or 3 years. I also would not touch those funds either on price alone. Better to do your own research and pick companies you like, at prices you like, doing businesses you don't hate, and with management that you can at least somewhat trust (all top level management, aka hood ornaments, gets paid far too much).

liberteEgalite

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Re: Ethical implications of index fund investing
« Reply #53 on: January 20, 2017, 03:18:53 PM »

You know when you're at a party and you're discussing something cool, everyone's having a good time, and then somebody randomly says, "You know that's made by little kids in a sweat shop in India, right?," and you want to throw your drink in their face and leave the table?   That.  Don't be that weirdo.

I'll try to stay away from Southern dinner parties in 1858.

liberteEgalite

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Re: Ethical implications of index fund investing
« Reply #54 on: January 20, 2017, 04:10:12 PM »
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who prefer free-market solutions might make the necessary sacrifices to enact them

I'm still struggling to understand what your 'free market solutions' would be and how you think they would be implemented.

I agree, it's a concept that requires a lot of creativity and effort.

One example might be forming a B-corp with a bylaw stating that a certain percentage of profits will be rolled into training workers. One might be figuring out how one's business can coordinate with a program that funds on-the-job training for veterans. Now that school vouchers seem likely to happen, is it a good time to start or fund a school that effectively prepares high school grads for entrepreneurship, helping them escape wage-slave woes?

Strictly from a returns perspective, these might be sub-optimal courses of action. Yet, it is possible to imagine a world I wouldn't want my kids to live in, no matter how much is tucked away in their index funds. Such as, a world filled with angry unemployed people.

financiallypossible

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Re: Ethical implications of index fund investing
« Reply #55 on: January 20, 2017, 04:39:57 PM »
Dollars are like votes. Dollars in an index fund are a vote for the status quo. Dollars in an index fund tell the market, "Keep the allocation the same."

100% agree that dollars are votes. Whether spent on consumer goods, experiences, or investing in different business or real estate. Every spent or invested dollar is a vote in one form or another.

Investing in index funds is like giving up your voting rights and saying "I'll let everyone else decide". But what happens when everyone invests purely in index funds? Who's steering the ship?

Ryland

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Re: Ethical implications of index fund investing
« Reply #56 on: January 21, 2017, 05:48:47 PM »
The ethics of the index fund conversation! Always a tough one.

My thought is socially responsible index funds (SRI) are pretty darn okay. It's up to you when/if you want to invest in them. But I've noticed that since I've built 5-7 years worth of spending saved up in my portfolio, I now feel more comfortable using my dollars to "vote" for the SRIs.

Maybe it's index at the start, when you've got you're FU money throw 'em the bird and start investing in the socially responsible companies.

Either way, this is always a great discussion. Love it

liberteEgalite

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Re: Ethical implications of index fund investing
« Reply #57 on: January 22, 2017, 06:32:23 AM »
The ethics of the index fund conversation! Always a tough one.

My thought is socially responsible index funds (SRI) are pretty darn okay. It's up to you when/if you want to invest in them. But I've noticed that since I've built 5-7 years worth of spending saved up in my portfolio, I now feel more comfortable using my dollars to "vote" for the SRIs.

Maybe it's index at the start, when you've got you're FU money throw 'em the bird and start investing in the socially responsible companies.

Either way, this is always a great discussion. Love it

Thanks, Ryland!  Have you run across any SRIs that steer clear of the financial and agri-business giants?  ExxonMobil came up early on in this thread, but I'm really less concerned about petroleum than the exploitative practices of these two sectors.

I realize that when you want to get picky, at some point it's not an "index" anymore.

Any thoughts on the Parnassus funds? (They do seem to contain financial stocks.)

Indexer

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Re: Ethical implications of index fund investing
« Reply #58 on: January 22, 2017, 09:16:56 AM »
Thanks, Ryland!  Have you run across any SRIs that steer clear of the financial and agri-business giants?  ExxonMobil came up early on in this thread, but I'm really less concerned about petroleum than the exploitative practices of these two sectors.

Wait, that's it? You primarily want to avoid those two sectors. Well, that is easy. Why didn't you say so? :-)

You can use sector specific ETFs to build a stock portfolio excluding the sectors you want to avoid.

Link to ETFs: https://investor.vanguard.com/etf/list?assetclass=sec#/etf/asset-class/month-end-returns

Not exactly sure what you mean by agri-business giants. Dow chemicals & Monsanto are in the Materials ETF. A lot of the big food companies are in the Consumer Staples ETF.

If you want a breakdown of the %s in each sector I would just copy VTSAX while excluding the sectors you don't want.

VTSAX breakdown:     Corresponding ETF(this is my best guess).
Basic Materials   2.60%   Materials ETF
Consumer Goods  9.60%     Consumer discretionary & consumer staples ETFs. Likely heavier on the staples side.
Consumer Services  13.00%   Consumer discretionary & consumer staples ETFs. Likely heavier on the discretionary side.
Financials   20.70%    Financials ETF (probably some REIT ETF as well).
Health Care  12.30%    Healthcare ETF
Industrials   12.90%   Industrials ETF
Oil & Gas   7.00%     Energy ETF
Technology  16.30%    Information Technology ETF
Telecommunications  2.40%   Telecommunications ETF
Utilities  3.20%   Utilities ETF

EDIT: Cost difference, VTSAX is 0.05%, almost all of the ETFs are 0.10%. Doing it this way only costs you an extra 0.05%. This also keeps you very well diversified, especially compared to trying to build a portfolio with individual holdings.
« Last Edit: January 22, 2017, 09:30:18 AM by Indexer »

Guide2003

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Re: Ethical implications of index fund investing
« Reply #59 on: January 24, 2017, 01:12:26 PM »
Second, do our investments in general rely upon an economy that only grows because people respond to marketing, consume more than they need, spend all they earn, and neglect their health and environment? If everyone became Mustachian overnight, most businesses in most strip malls would go bankrupt. New cars would be hard to sell. The restaurant, luxury, fashion, electronics, retail, and oil industries would collapse. We savers profit because the spenders fail to do the right things for themselves, their families, and their communities. Our shares in Ford are propped up by the sale of SUVs and luxury fake work trucks we would never buy. Our shares in YUM brands are for a business that sells bad health on a plate. Our shares in VISA return a profit to us because others are financially profligate (or illiterate). And every index fund has some tobacco in it.

Great points above and below this post ChpBstrd. I literally just joined the forums here to ask a similar question to that posed on this thread. I recently saw an author offhandedly decry investing based on a growth economy because it "presupposes that planet Earth be mined and harvested beyond what is materially sustainable...because the desire for growth of GDP is so dominant, even blinding."

I think this is a third point that is a slightly different twist than the two you posted. Can anyone elaborate on how our passive, index investing does NOT rely on the economy to grow [based on natural resource consumption at ever higher levels]? That line from the book really jarred me because I had always been more concerned about my personal consumption than my investing habits. The only counterpoint I can see was already mentioned, and I don't have the posting skills to quote the other post as well, but that part of being an ethical investor is not just how you make money but also what you do with it, and it is the responsibility of every one of us to spend our time and money on causes we care about.

financiallypossible

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Re: Ethical implications of index fund investing
« Reply #60 on: January 24, 2017, 01:35:01 PM »
I recently saw an author offhandedly decry investing based on a growth economy because it "presupposes that planet Earth be mined and harvested beyond what is materially sustainable...because the desire for growth of GDP is so dominant, even blinding."

So true. The author of Early Retirement Extreme mentions how conventional economics theory only focuses on producing and consuming.

Resources are often not viewed or theoretically considered infinite. Decomposing is also not considered as a component of the economy. I'm happy selling my unneeded stuff on Craigslist so that I can play an active decomposing role the in the economy and help reduce the need to produce more "stuff".

Dropbear

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Re: Ethical implications of index fund investing
« Reply #61 on: January 25, 2017, 01:53:58 AM »
Resources are often not viewed or theoretically considered infinite. Decomposing is also not considered as a component of the economy....

There are strong vested interests in maintaining the current system in which recycling or rubbishing processes are externalised costs.  We could have a system where policies force some degree of consideration for sustainable processses - container deposit and refund schemes for example.  If these policies were widespread, everyone's investments - from wind farms to tobacco - would by default be more sustainable.

However, the arguments about the relative power in conscious consumption (or lack of, for mustachians) and the relative weakness in conscious investing (unless powers are exercised at shareholder meetings) are quite convincing, given the general unsustainability of the current economic system.  It seems that the most important thing we can do to encourage a more sustainable world is to demand it - politically.

Metric Mouse

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Re: Ethical implications of index fund investing
« Reply #62 on: January 25, 2017, 02:22:45 AM »

Love the username, Dropbear.

liberteEgalite

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Re: Ethical implications of index fund investing
« Reply #63 on: January 25, 2017, 09:38:35 AM »
Second, do our investments in general rely upon an economy that only grows because people respond to marketing, consume more than they need, spend all they earn, and neglect their health and environment? If everyone became Mustachian overnight, most businesses in most strip malls would go bankrupt. New cars would be hard to sell. The restaurant, luxury, fashion, electronics, retail, and oil industries would collapse. We savers profit because the spenders fail to do the right things for themselves, their families, and their communities. Our shares in Ford are propped up by the sale of SUVs and luxury fake work trucks we would never buy. Our shares in YUM brands are for a business that sells bad health on a plate. Our shares in VISA return a profit to us because others are financially profligate (or illiterate). And every index fund has some tobacco in it.

Great points above and below this post ChpBstrd. I literally just joined the forums here to ask a similar question to that posed on this thread. I recently saw an author offhandedly decry investing based on a growth economy because it "presupposes that planet Earth be mined and harvested beyond what is materially sustainable...because the desire for growth of GDP is so dominant, even blinding."

I think this is a third point that is a slightly different twist than the two you posted. Can anyone elaborate on how our passive, index investing does NOT rely on the economy to grow [based on natural resource consumption at ever higher levels]? That line from the book really jarred me because I had always been more concerned about my personal consumption than my investing habits. The only counterpoint I can see was already mentioned, and I don't have the posting skills to quote the other post as well, but that part of being an ethical investor is not just how you make money but also what you do with it, and it is the responsibility of every one of us to spend our time and money on causes we care about.

Thanks, Guide2003!  It's good to hear from someone else disturbed by this. Beyond the supremely important issue of the limits of the earth's carrying capacity,  I think humans lose in other ways with the expectation and demand for everlasting economic growth.

I mentioned previously the ways in which people's jobs suck more and more (if they still have them) due to this demand for ever greater efficiency.

It is heartbreaking that it is now all but impossible to bike in Chinese cities like Beijing. Bikers were the majority there in 2000, but now they have progress in the form of everyone having polluting cars. One student from China told me a city doesn't "look nice" when it has lots of bicyclists. I tried to explain that the trendiest US cities are trying to build bike infrastructure.

I have been very much influenced by "Small is Beautiful" by E.F. Schumacher. The "Bhuddisht economics" he outlines as a thought experiment, an economic system where quality of life and human dignity are primary concerns, is quite an interesting picture and in many respects concurs with core principles of Mustachian living.

It has always struck me that GDP is an odd metric because things like earthquakes, floods, cancer, diabetes, divorce, road accidents, legal battles, and bureaucracy cause it to go up, whereas gardening, home-cooked meals, "using your muscles," reading books, being healthy, making music with friends, laughing, and making love are either GDP-neutral or replace GDP-boosting activities.

Whatever GDP is, you can't say it measures quality of life.

financiallypossible

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Re: Ethical implications of index fund investing
« Reply #64 on: January 25, 2017, 10:08:00 AM »
It has always struck me that GDP is an odd metric because things like earthquakes, floods, cancer, diabetes, divorce, road accidents, legal battles, and bureaucracy cause it to go up, whereas gardening, home-cooked meals, "using your muscles," reading books, being healthy, making music with friends, laughing, and making love are either GDP-neutral or replace GDP-boosting activities.

Whatever GDP is, you can't say it measures quality of life.

So profound; I love it!

Guide2003

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Re: Ethical implications of index fund investing
« Reply #65 on: January 25, 2017, 10:13:43 AM »
I have been very much influenced by "Small is Beautiful" by E.F. Schumacher. The "Bhuddisht economics" he outlines as a thought experiment, an economic system where quality of life and human dignity are primary concerns, is quite an interesting picture and in many respects concurs with core principles of Mustachian living.

It has always struck me that GDP is an odd metric because things like earthquakes, floods, cancer, diabetes, divorce, road accidents, legal battles, and bureaucracy cause it to go up, whereas gardening, home-cooked meals, "using your muscles," reading books, being healthy, making music with friends, laughing, and making love are either GDP-neutral or replace GDP-boosting activities.

Whatever GDP is, you can't say it measures quality of life.

I've tried Small is Beautiful three times and can't make it past chapter 3 hahaha! I guess my main question then is since index investing is so directly linked to GDP growth, which is directly linked to natural resource depletion (understanding that there is a lot of other things linked to resource depletion as mentioned above), is there any alternative passive investment strategy? It seems like the only thing you could do otherwise is real estate or speculate in commodities/collectibles directly. I wish the author of the book had offered an alternative for me to look into!!

liberteEgalite

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Re: Ethical implications of index fund investing
« Reply #66 on: January 25, 2017, 10:17:32 AM »
Thanks, Ryland!  Have you run across any SRIs that steer clear of the financial and agri-business giants?  ExxonMobil came up early on in this thread, but I'm really less concerned about petroleum than the exploitative practices of these two sectors.

Wait, that's it? You primarily want to avoid those two sectors. Well, that is easy. Why didn't you say so? :-)

You can use sector specific ETFs to build a stock portfolio excluding the sectors you want to avoid.

Link to ETFs: https://investor.vanguard.com/etf/list?assetclass=sec#/etf/asset-class/month-end-returns

Not exactly sure what you mean by agri-business giants. Dow chemicals & Monsanto are in the Materials ETF. A lot of the big food companies are in the Consumer Staples ETF.

If you want a breakdown of the %s in each sector I would just copy VTSAX while excluding the sectors you don't want.

VTSAX breakdown:     Corresponding ETF(this is my best guess).
Basic Materials   2.60%   Materials ETF
Consumer Goods  9.60%     Consumer discretionary & consumer staples ETFs. Likely heavier on the staples side.
Consumer Services  13.00%   Consumer discretionary & consumer staples ETFs. Likely heavier on the discretionary side.
Financials   20.70%    Financials ETF (probably some REIT ETF as well).
Health Care  12.30%    Healthcare ETF
Industrials   12.90%   Industrials ETF
Oil & Gas   7.00%     Energy ETF
Technology  16.30%    Information Technology ETF
Telecommunications  2.40%   Telecommunications ETF
Utilities  3.20%   Utilities ETF

EDIT: Cost difference, VTSAX is 0.05%, almost all of the ETFs are 0.10%. Doing it this way only costs you an extra 0.05%. This also keeps you very well diversified, especially compared to trying to build a portfolio with individual holdings.

I appreciate the suggestion!  I want to avoid about half the sectors, but this idea is worth playing with.

The percentages denote representation within the VTSAX? I wonder how closely they correlate to share of GDP?

liberteEgalite

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Re: Ethical implications of index fund investing
« Reply #67 on: January 25, 2017, 10:19:33 AM »
Guide2003, this post offered some ideas to check into:

... so find a way to profit from good (spoiler: it's not as profitable). You've already read the Cortese book, so you are on the right track, but I found it pretty vague on implementation strategies. Michael Shuman's book Local Dollars, Local Sense is somewhat more practical. Check out Slow Money and if you have time, read up on concepts like degrowth and steady-state economics. And check out some of the impressive folks on this board (like arebelspy) who achieved FI without ever touching the stock market.

To invest outside the system you'll need starter funds and a substantial amount of business/investing acumen; bootstrapping may be necessary in both areas. Unfortunately, given the way securities laws are written, investing outside the system can be next to impossible for anyone who's not an "accredited investor" (basically this just means you already have a high income and/or net worth) Ė although this is changing with the JOBS act and "reg A+." And the superior profitability of evil means you'll need to be willing to accept lower returns. But it is absolutely doable!

liberteEgalite

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Re: Ethical implications of index fund investing
« Reply #68 on: January 25, 2017, 10:24:41 AM »
PS: That pharma guy Shkreli who smirked through his congressional hearing has lashed out with a site in which to air other pharma companies' misdeeds:

http://www.pharmaskeletons.com/

Guide2003

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Re: Ethical implications of index fund investing
« Reply #69 on: January 25, 2017, 10:56:06 AM »
Yeah thanks! I'm checking local libraries now.

dixonge

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Re: Ethical implications of index fund investing
« Reply #70 on: January 28, 2017, 10:52:31 PM »
Interesting topic!

I'm mainly interested in dividends with high yields. Owning an oil stock would pay me dividends from their profit. That would *connect* me to carbon emissions/CO2, etc. By divesting that stock I won't have any impact on that company, but at least I avoid profiting from it. It's not about my money funding oil extraction, more about being tied in.

I'm about to pull the trigger on a basket of high yield renewable and green stocks. All I have is my meager portfolio. My pension fund is broadly invested, and I have almost no say in that. So I'll focus on the money I control and take my dividends from wind and solar, etc. At least it'll help me sleep better.

The Happy Philosopher

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Re: Ethical implications of index fund investing
« Reply #71 on: January 28, 2017, 11:13:03 PM »
The most power most of us have in this world is how we choose to use our money, not how we invest our money. If you came to the decision that efficient market/index investing is the best way for you to invest your money from a mathematical expectancy outcome, this is what you should do.

Remember, you are buying stocks and bonds on the secondary market from other individuals and institutions, which for the individual investor had no perceptible effect or influence on anything.

If you were investing in private equity or IPOs this is a different story.

People are going to buy and sell stock and make money. It may as well be you. The real influence and power is in what we choose to do with that money. That is where your real power lies

Social protest that costs you money and has no chance of influencing or changing anything seems like a poor bargain to me. I'm going to make as much as I can in the capital markets and use that money in a way that aligns with my values.

dixonge

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Re: Ethical implications of index fund investing
« Reply #72 on: January 29, 2017, 08:17:12 AM »
People are going to buy and sell stock and make money. It may as well be you. The real influence and power is in what we choose to do with that money. That is where your real power lies

Social protest that costs you money and has no chance of influencing or changing anything seems like a poor bargain to me. I'm going to make as much as I can in the capital markets and use that money in a way that aligns with my values.

I'm moving some money to renewable energy yieldcos. As far as protest goes, it's rather silent. But I'd rather receive growth and dividends from that sector than the rest. Should be the same as a traditional energy MLP as far as its impact on my portfolio, but I get the peace of mind I seek.

WallStreetPhysician

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Re: Ethical implications of index fund investing
« Reply #73 on: January 29, 2017, 12:02:34 PM »
Here, http://www.mrmoneymustache.com/2016/11/24/efficiency-is-the-highest-form-of-beauty/

MMM encourages Mustachians to wield their influence to craft a world that's better for all.

In my view, investing in an index fund does not do that. Dollars are like votes. Dollars in an index fund are a vote for the status quo. Dollars in an index fund tell the market, "Keep the allocation the same. Keep at it, BoA, JP Morgan, FB, fast food, and auto industry! Crank out more crummy auto loans. Keep deluding people and messing with their psychology so they'll buy more stuff. I vote for people to be fatter, sicker, and hate their jobs more, even while feeling more trapped in them. Anti-depressant profits, go ye up! Tax-dodging corporations, here's a ten-spot. Add to your army of lawyers and accountants to work those tax loopholes even harder this year!"

Has anyone grappled with this philosophical/ethical issue? Am I missing something? I'm interested in hearing from folks who have found investment approaches that exert a Mustachian influence on the community or the world. How can we steer capital in directions that qualify as constructive to the Mustachian mind? "Locavesting" by Amy Cortese, is interesting, yet how does a person manage risk / diversify a portfolio that includes local investments?

Very interesting topic.  I posted MOD EDIT: Spam link removed. my take on my blog, but in short, investing in the total stock market is an investment in the U.S. economy, not the individual companies, who may disagree with your values.  It doesn't bother me at all to invest in index funds, but if it does to you,  Vanguard FTSE Social Index Fund (VFTSX) is a good alternative.
« Last Edit: March 22, 2017, 06:25:04 AM by arebelspy »

payingforschool

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Re: Ethical implications of index fund investing
« Reply #74 on: January 29, 2017, 05:49:01 PM »
Great post! And yes!

An index fund is just a collection of company stocks. Which means you own a little bit of each company and profit, or lose money from their actions. And with larges amounts of money you really do own noteworthy portions of these companies.

Once I realized this and realized I was making money - even just a little - from the sale of cigarettes to other countries who don't yet have restrictions in place. The product actually harms people. I would rather work forever than participate in that and just look the other way because it is hidden behind a financial product.  Who would want to retire on funds derived from smokes sold to minors?

Luckily there are alternatives. I went the dividend stock route where I could select companies based on their core mission. I make money when lives are saved, and lose money when it doesn't work out. That works for me. Curiously the approach has trounced the market but that is likely a one off and isn't the point at all. The point is - you don't have to compromise.

Metric Mouse

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Re: Ethical implications of index fund investing
« Reply #75 on: January 29, 2017, 08:30:11 PM »
Here, http://www.mrmoneymustache.com/2016/11/24/efficiency-is-the-highest-form-of-beauty/

MMM encourages Mustachians to wield their influence to craft a world that's better for all.

In my view, investing in an index fund does not do that. Dollars are like votes. Dollars in an index fund are a vote for the status quo. Dollars in an index fund tell the market, "Keep the allocation the same. Keep at it, BoA, JP Morgan, FB, fast food, and auto industry! Crank out more crummy auto loans. Keep deluding people and messing with their psychology so they'll buy more stuff. I vote for people to be fatter, sicker, and hate their jobs more, even while feeling more trapped in them. Anti-depressant profits, go ye up! Tax-dodging corporations, here's a ten-spot. Add to your army of lawyers and accountants to work those tax loopholes even harder this year!"

Has anyone grappled with this philosophical/ethical issue? Am I missing something? I'm interested in hearing from folks who have found investment approaches that exert a Mustachian influence on the community or the world. How can we steer capital in directions that qualify as constructive to the Mustachian mind? "Locavesting" by Amy Cortese, is interesting, yet how does a person manage risk / diversify a portfolio that includes local investments?

Very interesting topic.  I posted my take on my blog, but in short, investing in the total stock market is an investment in the U.S. economy, not the individual companies, who may disagree with your values.  It doesn't bother me at all to invest in index funds, but if it does to you,  Vanguard FTSE Social Index Fund (VFTSX) is a good alternative.

Good points. Loved the blog post.

Indexer

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Re: Ethical implications of index fund investing
« Reply #76 on: January 29, 2017, 08:53:14 PM »
Thanks, Ryland!  Have you run across any SRIs that steer clear of the financial and agri-business giants?  ExxonMobil came up early on in this thread, but I'm really less concerned about petroleum than the exploitative practices of these two sectors.

Wait, that's it? You primarily want to avoid those two sectors. Well, that is easy. Why didn't you say so? :-)

You can use sector specific ETFs to build a stock portfolio excluding the sectors you want to avoid.

Link to ETFs: https://investor.vanguard.com/etf/list?assetclass=sec#/etf/asset-class/month-end-returns

Not exactly sure what you mean by agri-business giants. Dow chemicals & Monsanto are in the Materials ETF. A lot of the big food companies are in the Consumer Staples ETF.

If you want a breakdown of the %s in each sector I would just copy VTSAX while excluding the sectors you don't want.

VTSAX breakdown:     Corresponding ETF(this is my best guess).
Basic Materials   2.60%   Materials ETF
Consumer Goods  9.60%     Consumer discretionary & consumer staples ETFs. Likely heavier on the staples side.
Consumer Services  13.00%   Consumer discretionary & consumer staples ETFs. Likely heavier on the discretionary side.
Financials   20.70%    Financials ETF (probably some REIT ETF as well).
Health Care  12.30%    Healthcare ETF
Industrials   12.90%   Industrials ETF
Oil & Gas   7.00%     Energy ETF
Technology  16.30%    Information Technology ETF
Telecommunications  2.40%   Telecommunications ETF
Utilities  3.20%   Utilities ETF

EDIT: Cost difference, VTSAX is 0.05%, almost all of the ETFs are 0.10%. Doing it this way only costs you an extra 0.05%. This also keeps you very well diversified, especially compared to trying to build a portfolio with individual holdings.

I appreciate the suggestion!  I want to avoid about half the sectors, but this idea is worth playing with.

The percentages denote representation within the VTSAX? I wonder how closely they correlate to share of GDP?

Not sure on percentages, but I would imagine it is pretty close.

If you like this idea I would use this for the bulk of the portfolio. Even if you exclude a few sectors using these ETFs will give you exposure to hundreds of companies. This will get you the diversification you need. Then you can invest in more specialized things you really care about to round it all out.

beltim

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Re: Ethical implications of index fund investing
« Reply #77 on: January 30, 2017, 01:36:34 AM »
Second, do our investments in general rely upon an economy that only grows because people respond to marketing, consume more than they need, spend all they earn, and neglect their health and environment? If everyone became Mustachian overnight, most businesses in most strip malls would go bankrupt. New cars would be hard to sell. The restaurant, luxury, fashion, electronics, retail, and oil industries would collapse. We savers profit because the spenders fail to do the right things for themselves, their families, and their communities. Our shares in Ford are propped up by the sale of SUVs and luxury fake work trucks we would never buy. Our shares in YUM brands are for a business that sells bad health on a plate. Our shares in VISA return a profit to us because others are financially profligate (or illiterate). And every index fund has some tobacco in it.

Great points above and below this post ChpBstrd. I literally just joined the forums here to ask a similar question to that posed on this thread. I recently saw an author offhandedly decry investing based on a growth economy because it "presupposes that planet Earth be mined and harvested beyond what is materially sustainable...because the desire for growth of GDP is so dominant, even blinding."

I think this is a third point that is a slightly different twist than the two you posted. Can anyone elaborate on how our passive, index investing does NOT rely on the economy to grow [based on natural resource consumption at ever higher levels]? That line from the book really jarred me because I had always been more concerned about my personal consumption than my investing habits. The only counterpoint I can see was already mentioned, and I don't have the posting skills to quote the other post as well, but that part of being an ethical investor is not just how you make money but also what you do with it, and it is the responsibility of every one of us to spend our time and money on causes we care about.

The idea that stock market returns are driven primarily by economic growth is one of those myths that just won't go away.  In fact, stock market returns are driven by profits, not by economic growth.  And history shows that there isn't a correlation between economic growth and stock market returns:
http://psc.ky.gov/pscecf/2012-00221/rateintervention@ag.ky.gov/10252012f/MSCI_-_BARRA_-_GDP_Growth_and_Equity_Returns_-_2010_--_SSRN-id1707483%5B1%5D.pdf
http://www.economist.com/blogs/buttonwood/2009/08/the_growth_illusion
http://seekingalpha.com/article/1541782-s-and-p-earnings-decoupled-from-gdp-growth-and-linked-to-the-stock-trend

cschx

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Re: Ethical implications of index fund investing
« Reply #78 on: February 02, 2017, 09:33:18 AM »

You know when you're at a party and you're discussing something cool, everyone's having a good time, and then somebody randomly says, "You know that's made by little kids in a sweat shop in India, right?," and you want to throw your drink in their face and leave the table?   That.  Don't be that weirdo.

I'll try to stay away from Southern dinner parties in 1858.

I lol'd.

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Hargrove

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Re: Ethical implications of index fund investing
« Reply #80 on: February 02, 2017, 08:17:03 PM »
I don't think there are any ethical implications to investing in irresponsible industries. It's not like you hand the CEO the money. After the IPO, the company is not building anything with your cash. If anything, you're buying the opportunity to vote "no" to every shareholder proposal and then get at-or-below cost consumer junk from them, at their expense, at the shareholder meetings... I guess.

Wait wait...

It's the MOST ethical thing to buy the WORST industries you can. What would you do if given the opportunity to garnish a mobster's proceeds and donate the money to charity? Say "no"? What are you going to do now, NOT take garnishments out from the mob?

Bahaha. MOB ETF for the win.

Kaspian

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Re: Ethical implications of index fund investing
« Reply #81 on: February 03, 2017, 11:38:14 AM »

You know when you're at a party and you're discussing something cool, everyone's having a good time, and then somebody randomly says, "You know that's made by little kids in a sweat shop in India, right?," and you want to throw your drink in their face and leave the table?   That.  Don't be that weirdo.

I'll try to stay away from Southern dinner parties in 1858.

Wow, I can't believe it, but there's that kooky narrative again which seems to permeate absolutely everything these days: Anyone with an opposing ethical viewpoint must be a Southerner--and God knows, all those people were and are racist, slaveowner assholes.    ...Fucking hell.  :(

powskier

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Re: Ethical implications of index fund investing
« Reply #82 on: February 04, 2017, 12:38:59 AM »
I was into ethical investing in the mid 90's, in hindsight I wish I had not sold my XOM( Exxon), because I would be 100k richer, that's a lot of money I could have given to all the conservation groups I support...
There are many ways to play the game, don't put yourself at a disadvantage.

ChpBstrd

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Re: Ethical implications of index fund investing
« Reply #83 on: February 04, 2017, 11:31:29 AM »

You know when you're at a party and you're discussing something cool, everyone's having a good time, and then somebody randomly says, "You know that's made by little kids in a sweat shop in India, right?," and you want to throw your drink in their face and leave the table?   That.  Don't be that weirdo.

I'll try to stay away from Southern dinner parties in 1858.

Wow, I can't believe it, but there's that kooky narrative again which seems to permeate absolutely everything these days: Anyone with an opposing ethical viewpoint must be a Southerner--and God knows, all those people were and are racist, slaveowner assholes.    ...Fucking hell.  :(
Actually, I'm from Arkansas and I can vouch for that. Most (but not all) people here are racists. As a white male, I am privileged, I guess you can say, to hear them repeating the old tropes about other races' inherent criminality, the bell curve, and moral debauchery while I stand in line at the hardware store. Tan skinned and brown skinned people do not mingle much here. There are distinct neighborhoods, schools, and cultures for each.

There are also clusters of tolerant people. They tend not to go to church.

MustacheAndaHalf

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Re: Ethical implications of index fund investing
« Reply #84 on: February 05, 2017, 12:56:31 AM »
Dollars are like votes. Dollars in an index fund are a vote for the status quo. Dollars in an index fund tell the market, "Keep the allocation the same."
100% agree that dollars are votes. Whether spent on consumer goods, experiences, or investing in different business or real estate. Every spent or invested dollar is a vote in one form or another.
Completely disagree, and I'd strongly encourage you to take other actions than just adjusting investments.  The problem is that who sees this as a vote?  The market price is impacted by events and frequent trading.  The lack of your money buying Exxon shares is literally not on their radar, and has no effect on their behavior.  You are trying to do good, but never going to get noticed.  My problem isn't the ethics, its that avoiding investments in this manner does not have an impact.

A few people view this as a big issue.  How do those people expect Exxon to detect your lack of buying?  And even if they did spot a lack of buying, they wouldn't know why - people might be saving for a house or might be protesting.  The money doesn't show intent, and a lack of buying isn't something these companies can detect.

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Re: Ethical implications of index fund investing
« Reply #85 on: September 21, 2019, 10:48:41 PM »
If you truly want to make a difference in the world, moral handwashing and the piestic pursuit of moral purity in consumption and investment doesn't amount to a hill of beans. Progress has only ever been made by people organizing. Read the history of the American Revolution, the abolitionists, the suffrage movement, the labor movement, or the civil rights movement. In each leap forward for individual rights, it was organized people who pressured politicians, built massive public support, organized growing local social societies, and defeated their opponents at the polls (or in the cases of the Revolution and Civil War, at war). At the very least, it always took decades of meetings, donations, volunteering, letter-writing, rallying, and bleeding.

In a nutshell, I'm saying that worrying about index funds is a distraction. If you spend two hours researching this issue, that's two hours of volunteer labor a real-life organization could have used to promote your values in an actually effective way. If you earn $10k less over the next few years due to stock-picking, that money could have filed a lawsuit, printed a million handbills, or lobbied for change.

Today, the civil rights, labor, women's rights, and human rights movements are starving for time, talent, and money.

Meanwhile, we're all staring into our cell phones, sending data to Facebook and Google, certain that sharing a fucking meme or "liking" a "news" article changes the world in some magical way. Guess what. The only result is more effective advertizing.

Today there are few union family picnics, few local communities of like minded people, hardly any great orators, and a few empty shells of the organizations that once moved the world. And yet there is this faith that sending our petitions and complaints to some corporate cloud server makes us activists, or absolves us from abandoning our values - which we have done by doing nothing to support them. People consider their Facebook "groups" to be the same as an actual group. The meaning of "friend" is also different, and cheaper, now. Nobody realizes they're playing video games while Rome burns.

Millions of people think they are doing good by purchasing organic strawberries or recycling their toothbrushes. The activists of yesteryear would slap us out of our self-delusion if they could.

These days, people prefer push-button or consumption-based pseudo-activism, oblivious to the realization that politicians ignore online petitions, corporations ignore socially responsible investing, and their own consumption/investment decisions are completely based on greenwashing from PR departments. Totally ineffective.

So, bottom line, if you care about something, join or start an organization. Volunteer. Build networks of friends and mobilize them. Don't congratulate yourself for pushing buttons like most people do.


Scathing! I like it! :)

TomTX

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Re: Ethical implications of index fund investing
« Reply #86 on: September 22, 2019, 10:59:22 AM »
It's AMAZING how many people in this thread jumped to full-blown strawman mode, insisting that if one wants to do better, one must jump immediately to ultimate perfection.

Rubbish. Hogwash.


+1. And to build on the depth of the argument: When one starts to think about where they could/should draw the line in terms of their investing, it is either arbitrary or a near impossible task. You could dig all the way to the base. One could say, well the NYSE and NASDAQ and other exchanges are profiting from hosting companies that are not socially responsible, handling their trades. Maybe these companies have computer server farms that use utility companies that use coal for electricity. So if you can't use the exchanges, you can't even invest in "socially responsible" funds or single companies.

I've moved all my personally-held investments into the Vanguard ESG funds. Are they perfect? No. Is it a good first approximation and fairly low cost? Yes. They move the needle toward a more responsible approach.

https://investor.vanguard.com/investing/esg/

I also pay for 100% (net) renewable power, push my power company to increase renewables (and eliminate coal) from the base power mix, didn't go to work this past Friday, etc.

You can do better than you are today. You don't have to throw up your hands and the impossibility of perfection - and do nothing better at all.

Mellabella

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Re: Ethical implications of index fund investing
« Reply #87 on: September 24, 2019, 07:49:50 AM »
I agree TomTX. I think aiming for perfection can put people off doing anything. Donít let perfection be the enemy of the good.

TomTX

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Re: Ethical implications of index fund investing
« Reply #88 on: September 25, 2019, 07:39:19 PM »
As I noted in the other similar thread, ethical investing (with Vanguard) has beaten the equivalent standard index on the 1, 3, 5 and 10 year timeframes, typically about 1% per year better. "Since inception" is meaningless since the funds were started nearly 30 years apart.

Have a look for yourself:

https://advisors.vanguard.com/web/c1/compare-products/?FundId1=VFTNX

Add in VFINX and scroll down.