Everyone knows exchange-traded funds (ETFs) are a convenient and cost-effective way to invest in a basket of stocks or other securities. What most investors don’t know is how to choose an ETF that aligns with their values, morals, and beliefs.
With so many ETFs on the market, investing has become a retail game. There are ETFs for just about any sector, industry, region, or theme. Even so, not all ETFs are created equal. In fact, some may be completely against your principles as a human being or as a responsible investor.
Instead of blindly investing in the first socially responsible ETF you see, take time to understand the advantages and disadvantages of each fund before making your final decision.
This article will walk you through some helpful tips for choosing an ethical fund.
Know the Impact of Your Investment Practices
When choosing an ethically responsible ETF, it’s important to know the impact of your investment practices. This will help you understand how your investment portfolio should look.
What is your investment goal? Are you saving for retirement? Saving for one-time expenses, like a wedding? Or are you investing for the long term? What is your risk tolerance when it comes to investing? What is your investment amount?
Knowing how much you have to invest will help you determine which ETFs are within your reach. Generally, the more expensive the ETF, the more diversified it is. If you’re just starting to invest, you may want to choose a less expensive ETF with a more limited portfolio. This will give you ample time to learn the ropes before diving into something more complicated.
Research The Asset Management Company
Before investing in a specific ethical fund, you should research its asset management company.
How long has it been in business? What is its track record? What are its strengths and weaknesses?
Investing in an ETF managed by a reputable company will help you avoid any unethical practices, like excessive trading or poor portfolio construction. But investing in an ETF managed by a weak or inexperienced company could lead to poor performance or unethical practices.
Understand The ETF’s Investment Strategy
When choosing an ethically responsible ETF, it’s important to understand the ETF’s investment strategy. This will help you determine if the ETF is a good fit for your portfolio.
What is the ETF’s investment strategy? How often does the ETF rebalance its portfolio? What type of investor is the ETF best suited for? What type of investor is the ETF best suited for?
Asking these questions as an investor will help you determine if the ETF’s strategy is right for you.
Check Out The ETF’s Holdings
Before investing in an ethically responsible ETF, you should check out its holdings. This will help you understand if the ETF has any holdings that go against your beliefs.
What are the ETF’s top holdings? How do the ETF’s holdings align with your investment strategy? What are the ETF’s top industries? What are the ETF’s top stocks? What are the ETF’s top industries?
Knowing the industries represented in the ETF’s portfolio will help you determine if the ETF is a good fit for your portfolio.
Wrapping Up: An Ethical ETF Is A Solid Long-Term Investment
An ethically responsible ETF is a solid long-term investment that will help you achieve your financial goals. Choosing the right ETF, however, can be a difficult process. Luckily, once you’ve found the right ETF, it’s easy to invest in it. All you have to do is open a brokerage account and purchase the ETF shares. The rest is up to the ETF’s portfolio managers.