Home » sin stocks » Sin Stocks Report: Summer Of Sin #5 — Is Ethical Investing The Opposite Of Sin Stock Investing?

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One very popular trend right now is so-called “ethical investing”. Given the terminology of “sin” and “ethical” it can be tempting to think that these are opposites. But are they? Let’s answer the question, “Is ethical investing the opposite of sin stock investing?

Is Ethical Investing The Opposite Of Sin Stock Investing?

Ethical investing (also called Socially Responsible Investing, or SRI for short) is a broad term. Chances are you’ve heard of “ethical investing”. Ethical investing has been around for years but it was often discussed mainly in religious circles as the way to carefully invest your money in accordance to the guidelines set out by your religion.

However, in recent years, and at an ever-increasing rate, ethical investing has worked its way into mainstream investing. Although anyone can be an ethical investor, the rising trend has primarily been driven by a rise in younger and female investors.

So, what is ethical investing? Simply put, it’s making investment decisions that are aligned with your ethics and values. Perhaps you choose to invest in companies that are doing good work in the world, or you are choosing not to invest in companies that sell certain products or services or that aren’t aligned with your viewpoint.

And with a name like “ethical investing” it seems like “sin stock investing” should be the opposite. However, ethical investing and sin stock investing are NOT polar opposites. They are NOT mutually exclusive.

Here’s why…

Ethics differ from one person to another: There is no single standard for ethical investing. It depends on YOUR personal ethics. Ethical investors used to just avoid the standard sin stocks like alcohol, tobacco, and gambling. But everyone has different ethics. Some people might not like firearms so they’d want to avoid investing in gun manufacturers. Ethical investors who practice Islam may choose not to invest in companies that sell pork products, whereas Ethical investors who practice Christianity may have no problem with pork producers at all. So being an ethical investor sounds great but it’s not one thing. It depends on you. If you love guns and beer but hate gambling then you can be an ethical investor whose ethics allow you to invest in gun manufacturers and breweries but not casinos. That’s why being a sin stock investor does not mean you’re not always mean you are against ethical investing.

Ethical investing is a short-sighted: Ethical investing sounds great. And people love to proclaim that they are ethical investors. But whenever someone boasts about ethical investing, you need to ask them what they are choosing to invest in. Many will say that they are not investing in sin stocks like alcohol, tobacco, and gambling. But keep asking them: are they investing in financial institutions that charge usurious interest or who were involved in the financial meltdown of 2007? Do they invest in cosmetic products that do testing on animals? Are they investing in electronics companies that hire sweatshop labor? Ethical investors love pointing at sin stocks as “bad” but fail to apply the same level of ethics to all investments.

Sin stocks aren’t all that bad anyway Sure, your ethics might say that breweries are bad… but what about wineries? Or your ethics might tell you that defense sin stocks are bad but what about companies that make equipment (and just happen to sell some of that equipment to the military?) Or, what about for-profit prisons? We call those sin stocks here at Sin Stocks Report but not everyone would!

Sin stocks are hard to identify: Another problem ethical investors will struggle with is knowing what is a sin stock and what isn’t. Until recently, a cigarette manufacturer was also owned by the same company that made Kraft Dinner. And the company that owns Penthouse Magazine is the same company that owns religious and ethnic dating websites. Worse yet, you can make a purchase today in a company that is not a sin stock but then you need to monitor it constantly because these large corporations invest in and divest from other companies all the time.

Investing doesn’t give your money to those companies anyway: When a company sells its shares on the open market, that initial public offering (IPO) is what brings in the money to the newly publicly traded company. Later, when one investor sells shares to another investor, the money doesn’t go back to the company. It goes to the seller. Therefore, buying and selling shares in a tobacco company doesn’t make you a supporter of tobacco. It makes you a supporter of the stock market exchange, and you just happen to own shares of a tobacco company.

Ethical investing and socially responsible investing are marketing terms created and advanced by brokerage houses that want to appeal to principled investors. And to be clear, there’s absolutely nothing wrong with being an ethical investor. You should always check your values against your investment choices to make sure they are aligned. But just don’t be fooled into think that an ethical investor or socially responsible investor is the opposite of a sin stocks investor.

DISCLAIMER

Nothing on this site is a recommendation because, hey, I can't read your mind and I don't know what you have in your portfolio, and I'm not a licensed financial advisor. So never EVER trade without doing your due diligence. If you want more information about this fascinating topic, please check out the Sin Stocks Disclaimer page which basically says the same thing but more emphatically.