Investing with values
How can I invest in socially responsible companies? — D.L., Monticello, Minn.
The easiest way is to park your dollars in one or more mutual funds — or exchange-traded funds (ETFs) — that follow socially responsible guidelines. That way, you're letting the fund managers do the research and make the buy and sell decisions. Or, in the case of passively managed funds, you're simply investing in the same securities that are in a socially responsible index. Some will have the acronym ESG in their title, meaning that they focus on environmental, social and governance factors. Note, too, that some of these funds invest in companies that do well on socially responsible measures, while others simply exclude companies that don't.
Some funds you might look into include the Vanguard FTSE Social Index Fund Admiral Shares (VFTAX), the iShares MSCI USA ESG Select ETF (SUSA), and the Vanguard Global ESG Select Stock Fund Investor Shares (VEIGX).
You can also invest in individual companies you select on your own, but first you'll need to decide which issues matter most to you. For example, you might consider the environment; gender equity and diversity; workplace conditions and other human rights issues; and whether you're willing to support companies involved in gambling, tobacco, weapons and/or alcohol. Few companies will be perfect on every issue. Learn more at GreenMoney.com, CorpWatch.org and CSRwire.com.
What's a sector? — C.F., Erie, Pa.
A. The words "sector" and "industry" are often used interchangeably, but sector often refers to a larger segment of the economy. The industrials sector, for example, includes the airline industry as well as the construction industry, while the health care sector includes everything from hospitals to medical-device makers and biotech companies.
Investing in retirement
It's easy to imagine that after saving and investing throughout your working life, you'll stop doing so once you retire, perhaps selling off your stocks and parking your assets in safer places such as certificates of deposit (CDs).
However, there's a strong case to be made for continuing to invest in stocks. After all, if you retire at, say, 65, and then live to 95, you're looking at 30 years of retirement, a long period in which your money would likely have grown a lot if invested in stocks. The trick, then, is to keep out of stocks any money you expect to need within five years (or 10 years, to be ultraconservative) — because in the short term, as we've recently been reminded, anything can happen. The rest of your money can stay invested in stocks in order to grow.
You can consider bonds for some of your money, as many retirees do, but know that stocks will almost always do better over the long run. Business professor Jeremy Siegel's research has found that between 1871 and 2012, stocks outperformed bonds 78% of the time over all 10-year periods, 96% of the time over all 20-year periods, and 99% of the time over all 30-year periods.
Another smart move for retirement is to invest in healthy and growing dividend-paying stocks, as they will generate income without your having to sell off shares from your holdings. If you have, say, $200,000 invested in dividend payers that have an overall average dividend yield of 4%, you can look forward to $8,000 in annual income — or even more, as dividends tend to be increased over time, too.
By continuing to grow much of your portfolio throughout your retirement, you can protect your assets from inflation, which shrinks the buying power of money over time. Inflation has averaged about 3% annually over long periods, enough to roughly halve your money's buying power over 25 years. If retirement planning has you confused or worried, consult a financial adviser. You can find one near you at NAPFA.org.
My dumbest investment
Falling for hype
My dumbest investment was investing in shares of a company that had an innovative, reportedly environmentally friendly, fracking technology: pumping a propane gel deep into the ground to release natural gas instead of pumping in water, which would get polluted. (The propane was recaptured above ground.) This technique was supposed to revolutionize the fracking industry, but my shares went from trading for about $10 apiece to bankruptcy, which the company filed in 2015. That was the first and last time I bought into a company without doing fundamental analysis prior to purchase. It was a great learning experience about dealing with hype. — S.H., online
The Fool responds: This was a classic penny-stock fiasco. Digging online, you can run across excerpts hyping the unprofitable little company with words such as this: "an extraordinary new technology — which will fuel the fracking Mega Trend for decades." "It is a fortune in the making. Keep reading to learn how you can collect yours, starting now." "In addition to immediately solving every environmental concern over fracking in the U.S., there's a very real possibility this company's technology could actually get MANDATED ... by every oil- and gas-producing country in the world."
Breathless language like this is a big red flag. The company's technology was intriguing, but it would have been best to watch it for a while, waiting for it to establish a track record of growth and profits.