In the midst of talking heads and quarterly statements, it can be surprisingly easy to lose sight of one foundational fact: if you hold stock in your portfolio, you are a business owner. The returns or declines you see on your statements are at least in part reflections of corporate activity. In other words, your dollar is doing something.
So do you delight in what your dollar does? Or would you groan about what you own?
Faith-based investing provides a pathway for mitigating these contradictions and aligning investment activity with personal belief. But for those interested in faith-based investing, it can be tricky to know where to begin learning the basics. Here are five common questions that often arise when exploring faith-based investing.
How does faith-based investing work?
It may be helpful to think of faith-based investing more as a sieve than as a recipe. Rather than prescribing things companies must do to be included in a portfolio, faith-based investing focuses more on what companies must not do. A company significantly involved in producing or distributing violent or pornographic material, for instance, would be screened out.
Even “neutral” companies, so to speak, can still be included in a faith-based portfolio so long as they don’t actively violate the specified criteria. A faith-based investment portfolio, for example, can include investments in companies that aren’t explicitly Christian so long as those companies don’t significantly violate specified Christian values.
What is the objective of faith-based investing?
On the most basic level, faith-based investing aims to generate a return on invested funds over time.
It is distinct, however, in aiming to generate that return by using only investment opportunities that do not significantly contradict the investor’s expressed value system.
Am I forfeiting diversification if I use faith-based investing?
No. You can maintain strong diversification within an entirely faith-based investment portfolio. Using the metaphor above, the “sieve” of faith-based investing can still allow through a wide variety of funds and companies (such as international, large-cap, mid-cap, etc.) and build out diversified portfolios in light of the individual investor’s stated objectives and risk/return comfort level.
Does faith-based investing underperform relative to the market? Or does it outperform the market?
While there’s no guarantee that faith-based investing will do better than the overall stock market, there’s also no guarantee that it will fare worse. Historically, faith-based investing has generally tracked alongside the market, variously outperforming and underperforming relative to the market depending on the specific market conditions at the time.
How do I know if faith-based investing is right for me?
Consider your overall investment philosophy, passions, and priorities, and then explore it further in a conversation with our team.