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Ethical ETF’s: Is It the Right Investment Strategy for You

  • October 12, 2022
  • 3 min read
Ethical ETF’s: Is It the Right Investment Strategy for You

Ethical investment funds are rising, with the number of new and existing ethical ETFs tripling over the past few years. 

An exchange-traded fund (ETF) is a basket of stocks from companies that are working to make a positive change in the world. These funds positively impact companies by making them accountable for their actions and investments. As such, many investors have started to invest in these ETFs because they align with their values as well as their portfolios. 

Investors can purchase ETFs directly from their brokers and place them in their investment portfolios. But why exactly are these ethical ETFs worth it? 

Here are some great reasons why you should invest in an ethical ETF if you want to increase your chances of growing your money efficiently and responsibly.

Reduce Costs and Increase Returns

Ethical ETFs are cost-effective and have low management fees. Some are so low-cost that they are less than 0.25%. This may not sound like a lot, but when compounded over the course of a lifetime, it can make a big difference in your returns. 

Diversification and Asset Allocation

Investors who are interested in ethical investing need to understand that their portfolio will be less diversified than those of non-ethical investors. This is because ethical investors generally do not invest in industries like tobacco, weapons, or fossil fuel. However, there are ethical ETFs that offer a wide range of companies and industries, which may provide a decent amount of diversification.

That said, you should keep in mind that if you invest in an ethical ETF that tracks a specific index, you will not be able to select individual stocks. Therefore, you will not have as much control over your portfolio as you would if you picked individual stocks. 

Help Build a Responsible Portfolio

Ethical ETFs make it easy to build a responsible portfolio because they offer a wide selection of companies that align with your values. They also track indexes that cover different sectors and countries, which helps you diversify your portfolio. 

Transparency and Tracking

People often question whether an ethical ETF tracks its index properly. Ethical ETFs are not like actively managed funds, which are essentially a group of analysts who pick stocks. Ethical ETFs track their index by purchasing the stocks that make up the index. 

Some ethical ETFs track their indexes very closely while others do not. Ethical ETFs that track their indexes very closely are often referred to as “rolled” or “in-kind” funds. These ETFs buy the actual stocks that make up the index, which makes them more transparent.

ETFs Are a Good Starting Point for Novices

If you are new to the world of investing and want to be responsible with your money, ethical ETFs make a great starting point. Ethical ETFs make it easy to start investing because they allow you to diversify without having a lot of money. You can start investing in ethical ETFs with as little as $25.  

In Conclusion

An investment in ethical ETFs can be a very worthwhile proposition. Ethical ETFs can help you grow your money while also building a responsible portfolio that is consistent with your values.  

However, there are several factors to consider first before making the final decision. There are many different types of ETFs on the market, but not all are created equally. Some have certain advantages over others that may help you achieve your financial goals. 

Just make sure you do your research and speak to an investment consultant.

About Author

James Adams