What Is Faith-Based Investing: Definition, Religion-Specific Strategies

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Money and religion could be tense topics to debate on the dinner table. But in the case of investing, it’s becoming easier than ever to be certain your investment portfolio is in keeping with your religion. In lots of cases, it’s no different from investing in a conventional, secular portfolio apart from it aligns with a particular faith.

Faith-based investing is a technique for investors who’re religious to be certain they’re investing in a way that matches their personal faith. Investing based in your faith can take a bit more research and time. Listed here are a number of the ways in which investors can get exposure to faith-based investments based on their religious beliefs.

The Short Version

 

  • Faith-based investing is when investors have a portfolio that matches their religious beliefs.
  • Some religions, like Islam, have specific guidelines about what its followers should and shouldn’t spend money on, while other religions are open to interpretation.
  • As interest in faith-based investing has increased, more advisors are providing faith-based investing guidance and there are numerous ETFs and funds which might be aligned with specific faiths.

What’s Faith-Based Investing?

Faith-based investing is a technique of investing in a way that aligns with the investor’s religious faith. Like other forms of investment strategies that deal with ethics, resembling environmental, social, and governance investing, faith-based investing goals to earn cash without compromising one’s values. But how exactly that is finished can differ from other forms of traditional investing plans. Usually, it means investing in firms and assets which might be in keeping with what the investor believes in.

There isn’t any general guideline on the way to invest faithfully, because it depends upon the investor’s personal faith. Each religion and even sects inside religions have their very own guidance on what its followers should and shouldn’t spend money on.

Related: Find out how to Get Began with ESG Investing

History of Faith-Based Investing

Investing based in your personal faith and values goes back a whole bunch of years. Methodists used to screen investments in alcohol, tobacco, and gambling firms, while Quakers created the Free Produce Movement within the 1800s to boycott goods made by slave labor. By the 1900s, it was common for religious organizations to encourage followers to incite change through their investments.

Within the Nineteen Sixties, for instance, Roman Catholics and Protestants spoke out against apartheid in South Africa. They pooled their investments together to confront corporations that didn’t sign the Sullivan Principles, a company code of conduct to finish workplace discrimination and encourage pay equality.

How Have Financial Institutions Responded to Faith-Based Investing?

As faith-based investing has grown in popularity, so too has the industry’s support for value-based investing. Morgan Stanley, for instance, has instructed its financial advisors to assist clients construct portfolios that align with each their faith and financial goals. Other institutions have created faith-based funds that align with specific religious values, resembling Saturna Capital’s Amana Mutual Funds Trust, which follows Islamic finance values.

How Do Different Religious Groups Invest?

Not all religious followers invest the identical way. Faith-based investing principles vary based on the group’s personal religious beliefs. Listed here are a number of the commonest ways in which religious groups encourage their members to take a position:

Islam

Followers of Islam have specific rules set out for them that dictate how they need to live in a way that’s halal or complies with Sharia (Islamic) law. That features things like food but additionally investing principles. Usually, Sharia law forbids engaging in specific industries, including tobacco, alcohol, gambling, pork, and pornography. Things like speculation, interest-paying investments (including savings accounts), and debt usually are not considered halal.

Muslim investors who want to take a position based on their faith generally avoid investing in specific firms. Besides not investing in these industries, they may also be certain that any company they spend money on doesn’t have an excessive amount of debt. They often also spend money on Sukuk bonds, that are bonds that don’t pay interest but as a substitute represent ownership in current or future assets.

Jewish faith

Although there’s less formal guidance on investing based on the Jewish faith, there are overall principles dictated by the Torah that Jews can apply to their investment portfolio. Most of the teachings within the Torah talk concerning the importance of charity, justice, diversity, and caring for the planet.

For that reason, socially responsible investing is usually considered closely aligned with the Jewish faith and people wishing to take a position based on Jewish principles.

Catholic

Catholics who want to take a position based on their faith can take a look at the guiding investment principles of the U.S. Council of Catholic Bishops. These principles include things like protecting human life, reducing firearms production, protecting the environment, and inspiring corporate responsibility.

Investors who need to adhere to Catholic investing principles often avoid investing in firms that support abortion, produce firearms, are in adult entertainment, or engage in discrimination based on sex or gender. As an alternative, they could spend money on environmentally conscious firms, firms that support fair workplaces and human rights organizations.

Protestant and Other Christian Denominations

Protestant denominations range of their believes, so investing based on the protestant faith can vary by church. Usually, those of the protestant faith value labor and thriftiness, so things like saving are encouraged.

Some churches, just like the Church of England, have clear investment guidelines, which include promoting social and ethical issues and avoiding investments in firearms, adult entertainment, high-interest lending, and tobacco or gambling.

How Can Investors Construct a Successful Investment Strategy That Aligns With Their Faith?

Investing in a way that aligns together with your personal faith is usually a bit difficult in comparison with more traditional types of investing, but it surely doesn’t need to be inconceivable. Faith-based investing just requires a bit more planning and research.

Construct a Faith-Based Investment Strategy

The very first thing to do is to find out what your values are. Should you’re Muslim, for instance, it is advisable to familiarize yourself with the rules set by the Accounting and Auditing Organization for Islamic Financial Institutions. Or when you are Catholic, you may take a look at the six principles set forth by the U.S. Council of Catholic Bishops.

When you identified your core values based in your faith, you may take into consideration your personal investing goals and investing style. Are you okay with taking risk or do you like a portfolio that’s safer? What about your time-frame? Are you searching for short-term investments or are you looking to take a position for retirement in 20 or 30 years? Knowing your investment goals along together with your values can aid you determine what to take a position in, whether that’s ETFs, index funds, Sukuk bonds, or one other sort of investment.

Related: Best Investment Strategies (and Find out how to Select the Right One for You)

Put money into Funds that Adhere to Faith-Based Investing Values

One other option to spend money on a way that aligns together with your faith is thru funds that adhere to a faith. There are a lot of funds and ETFs that adhere to specific religious faiths.

For instance, Saturna Capital has a variety of funds which might be aligned with the Islamic faith. SP Funds by ShariaPortfolio is a personal fund that can also be compliant with those that follow Sharia law. The firm also offers a sukuk ETF and real estate ETF which might be backed by rental income as a substitute of interest.

One other fund, called J-Impact, invests in projects that adhere to Jewish values of creating the world a greater place while the iShares MSCI Israel ETF (EIS) invests in Israeli securities that track the Israeli equity market.

Meanwhile, the Global X S&P 500 Catholic Values ETF (CATH) gives investors exposure to firms that adhere to the rules set out by the U.S. Conference of Catholic Bishops. And the Recent Covenant Growth Fund (NCGFX) makes investments in keeping with the General Assembly of the Presbyterian Church, which incorporates not investing in firms within the gambling, firearm, and alcohol sectors.

Find an Advisor

If you would like to spend money on specific assets but aren’t sure in the event that they align together with your faith or aren’t sure the way to spend money on them, you can even discover a financial advisor who will help. Many large financial institutions, like Merrill Lynch or Morgan Stanley, have advisors to assist clients searching for faith-based investments.

Some smaller wealth managers and investment firms just deal with specific faith-based investing. The Knights of Columbus Asset Advisors, for instance, help clients spend money on a way that’s compliant with the Catholic faith.

The Takeaway: Can Faith-Based Investing Be Profitable?

Like other forms of investments, faith-based investing could be dangerous. You may make plenty of money, lose money, or simply break even. Whether or not your portfolio is profitable depends upon what you spend money on, how long you invest or, and the final health of the markets and economy.

Working with a financial advisor can aid you understand the risks and challenges of investing while ensuring your investments are aligned together with your faith. Regardless, it’s best to also do your personal research and learn as much about investing as you may. Your investments could be aligned together with your faith but they must also match your personal investing goals.

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