There are two things people tend to take very seriously: their money and their religion. It's no surprise, then, that Wall Street offers several ways to combine them.
Investing based on religious principles is one of the main branches of what is called socially responsible investing. Typically, this school of investing is more about what you won't buy than what you will. Investors generally avoid companies that manufacture or sell alcohol, tobacco or pornography; others also avoid investing in companies that make weapons or produce oil.
Investments screened in this way comprise about $2.7 trillion dollars of the $25 trillion invested in the United States, according to the Social Investment Forum, a nonprofit group. Morningstar currently tracks 91 mutual funds that it defines as faith-based, with a total of $22 billion in assets, compared with 33 such funds a decade ago.
While many institutions and endowments practice some form of social investing, the number of investors who screen companies for religious reasons continues to grow, says Lloyd Kurtz, a financial advisor with Wells Fargo who has worked in social investments for 15 years.
"Many people will not make any compromises in investing if something doesn't fit their values," he says. "If they believe tobacco is wrong in their personal life, they won't purchase any stock of a company that's in that business."
The easiest way to invest based on your faith is to buy a mutual fund or an exchange-traded fund. Because the holdings of faith-based funds can vary widely, it's impossible to pigeonhole their performance. Generally, however, they charge higher fees than index funds and historically have not performed as well.
They can also cause you to miss out on key financial drivers. Some faith-based funds, for example, shun drug companies because of their work on abortion-related treatments or stem cell research. Since these same firms tend to offer high dividends, however, a portfolio that lacks them can lag behind. Instead, faith-based investors might want to consider buying other dividend-paying stocks to make up the difference, says Kurtz.
Double-check that the fund's philosophy matches yours before purchasing shares, suggests David Kathman, an analyst at Morningstar who covers faith-based funds. "Some faith-based funds are more socially conservative than others, which may be a plus for some investors and a minus for others," he says. Some Catholic funds, for instance, won't invest in companies that offer benefits to unmarried partners of employees.
For investors who want to purchase individual stocks, several companies offer research that rates companies based on social screens. KLD Research and Analytics offers what Kurtz calls "a value line for social investors." Pro Vita Advisors, meanwhile, offers research regarding family and life issues from a conservative perspective, Kurtz says.
The two main Catholic mutual funds are the Ave Maria funds, launched in 2001, and the LKCM Aquinas funds launched in 1994.