Today, more than ever, investors want portfolios with a purpose — beyond just making money. They want to invest with integrity and support companies that make the world a better place, or at least avoid those they deem morally questionable.
This practice — known as socially responsible investing — is increasingly popular. In fact, the newest MagnifyMoney survey of more than 1,100 U.S. consumers with investment accounts finds that more than half avoid stock purchases that conflict with their values. These principled financial pursuits, however, vary greatly depending on investors’ age and political affiliation.
A slight majority of investors today want to sleep soundly at night knowing their money isn’t being used to fund companies that don’t align with their values. Just more than half (51%) say they avoid companies for moral or ethical reasons. Topping the list of those they avoid:
Ismat Mangla, MagnifyMoney senior director of content, says companies that sell products that can be considered harmful — like tobacco or alcohol — or focus on vices — like pornography or gambling — are often the kinds of stocks that people who want to focus on ethical investing avoid. But in an era of climate change, some investors also avoid supporting companies whose business practices may be harmful to the environment.
“There’s been a huge uptick of interest in socially responsible investing in recent years, but especially so in the wake of the COVID-19 pandemic, which has exposed so many flaws in our economies and social system,” Mangla says. “People are anxious to invest in ways that can help create positive change in our society, especially when it comes to climate change and inequality.”
Of course, not all investors pursue portfolios with a purpose, as 49% of respondents say they don’t avoid investing in any company for moral or ethical reasons. Whether they feel good about that is another matter.
Do individual investors have a responsibility to ensure the companies they invest in make the world a better place? The vast majority (67%) agree. Not all put their money where their mouths — or rather consciences — are, as that’s significantly higher than the 51% of investors who say they follow through and avoid investing in companies that don’t make it a better place.
In general, Gen Zers (ages 18 to 24) are considered the most socially conscious, so it’s no surprise they’re leading the way on socially responsible investing. The differences between the generations are stark, though.
Nearly three-quarters of Gen Z investors (73%) say they avoid investing in certain companies for moral or ethical reasons, compared with just 39% of baby boomers (ages 56 to 75). Millennials (ages 25 to 40) and Gen Xers (ages 41 to 55) fall in the middle at 56% and 48%, respectively.
As for political affiliation, Democrats follow their bleeding hearts more often, with 60% reporting they avoid investing in companies they deem morally or ethically corrupt. Just 42% of Republican investors and 47% of independent investors say the same.
All this idealistic thinking comes with a bit of cognitive dissonance and internal strife. In fact, almost one-third of investors (32%) say they feel guilty about some of their investments … just not guilty enough to cease trying to earn a profit from them.
Men (37%) are more likely than women (27%) to invest despite their guilt. And those who earn more are more likely to invest with a guilty conscience, with 35% of those making $75,000 or more a year saying they feel guilty about their investments but make them anyway. That’s compared with just 19% of investors who make less than $35,000 who report investment guilt.
But shh … guilt’s little cousin embarrassment also exacerbates problems for investors. Overall, almost one-third report they’d be embarrassed if others found out about some of their investments.
However, no matter their feelings, most investors (53%) say they have never avoided purchasing a particular stock because it didn’t align with their values.
In line with the other findings, it’s not surprising that Gen Zers (64%) were most likely to report that they have avoided a stock because of their beliefs, compared with 55% of millennials, 45% of Gen Xers and 31% of baby boomers.
Democrats (59%) are also most likely to report they have avoided stock purchases based on their values than Republicans (40%) and independents (38%).
MagnifyMoney defined socially responsible investing to respondents as investing in companies that will bring positive social/environmental change, which often excludes funds profiting from things such as tobacco, alcohol and fossil fuels.
Respondents are overwhelmingly supportive. In fact, just 18% of respondents shut down the idea altogether, saying they’re not interested in it. Another 20% say they’re only interested in it if the return on their investment is the same or better than non-socially responsible investments.
Interestingly, men (19%) are most likely to say they’re not interested in socially responsible investing at all, but they’re also the most likely (34%) to state that they already invest in at least one socially responsible stock or fund.
For those respondents not interested in socially responsible investing, money worries don’t top the last. Rather, 44% don’t believe there’s such a thing as a truly socially responsible company, followed by feeling like they don’t know enough about socially responsible investing (34%). Only 15% say they don’t think they’d make much money through socially responsible investing, and 8% say it seems too costly. Lastly, 12% say it doesn’t match their political beliefs.
The bottom line still drives the most investment interest, though, with 48% of respondents saying they’re most interested in investing in companies that show a strong history of good returns. Companies that make a lot of money are a top interest for 44% of respondents.
Other top interests rank as follows (note that respondents could select all that apply):
Is ignorance bliss? When asked if respondents always look into a company’s mission to ensure their values align before purchasing stock (even through an investment fund), investors are nearly evenly split, with 32% saying they don’t and 30% saying they always do. Another 38% report doing so some of the time.
In theory, most investors are virtuous, with 65% saying they’re willing to sacrifice some profit to make the world a better place. Women (67%) are more willing than men (63%), while those investors who earn less than $35,000 a year (71%) are more willing than those who earn $100,000 or more a year (65%).
Still, when asked what they’d do if they found they’d invested in a fund that donated a large amount of money to a cause they strongly oppose, only 41% say they’d stop investing in the fund.
And when it comes to the bottom line, the vast majority of respondents don’t ignore the dollar signs, as 67% say they’d rather invest in an oil company that will provide a $1,000 return in five years over a “green” solar company that would provide a return just half of that.
Again, men are the most likely to follow the dollar signs, with 73% stating they’d choose the more profitable company, compared with 59% of women.
But does socially responsible investing always mean sacrificing profit? No. According to Mangla, the opposite may be true.
“Any kind of investing involves assuming a certain amount of risk, but socially responsible investing may actually help your bottom line,” Mangla says. “There is a great deal of research indicating that focusing on assets screened for environmental, social and governance criteria drive strong financial performance. But just as you would with any investing strategy, it’s important to pay close attention to fees that could eat into your returns.”
While gender and income status certainly affect one’s proclivity for portfolios with a purpose, it’s the differences between age and political affiliation that are the starkest.
The younger generations are certainly more idealistic about investing — at least in theory. When asked if they’re willing to sacrifice returns in exchange for investing in companies that will make the world a better place, 75% of millennials and 72% of Gen Zers say yes, versus 62% of Gen Xers and 48% of baby boomers. Along those same lines, 78% of millennials and 77% of Gen Zers believe individual investors are responsible for making the world a better place, while 66% of Gen Xers and 47% of baby boomers state the same.
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Is their conscience strong enough to drive their decisions, though? Not always.
Regarding feeling guilty about investing in a stock but doing it anyway, Gen Z (52%) and millennial investors (44%) lead the way, while 28% of Gen Xers and 12% of boomers report the same. Gen Zers (64%) and millennials (42%) are also more likely to be embarrassed to tell others about one of their investments than Gen Xers (30%) and baby boomers (8%).
However, the younger generations are more likely to do a “values check” before investing every time — 41% of Gen Zers and 40% of millennials, compared with 30% of Gen Xers and 12% of baby boomers. They’re also more likely to report having passed on a stock or fund because its values didn’t align with theirs — 64% of Gen Zers and 55% of millennials, compared with 45% of Gen Xers and 31% of baby boomers. Still, 63% of millennials and 62% of Gen Zers say they’d choose the more prosperous oil fund over the “green” solar energy company. Call them conflicted.
As for politics, it’s Democrats who are most idealistic, with 80% stating they believe it’s their responsibility to ensure the companies in which they invest make the world a better place. Only 57% of Republicans and 60% of independents say the same. Likewise, 78% of Democrats say they’re willing to sacrifice returns in exchange for investing in companies that will make the world a better place, while 54% of Republicans and 60% of independents say the same.
All that idealism comes with some tough emotions, though. When asked if they feel guilty about investing in a stock but do it anyway, 40% of Democrats fessed up, compared with just 29% of Republicans. As for shame, 40% of Democrats say they’re embarrassed to tell others about one of their investments, while only 27% of Republicans and 26% of independents report the same.
Democrats are the most likely to let their consciences drive their investment decisions — 40% say they do a “values check” every time before investing, versus 25% of Republicans and 22% of independents. And 59% of Democrats — compared with 40% of Republicans and 38% of independents — say they’ve decided not to invest in a stock/fund because values didn’t align. However, when it comes down to sheer profits, more than half of Democrats (56%) still chose the more profitable oil fund over the “green” energy one — guilt and embarrassment be damned.
If socially responsible investing is a priority for you, professionals can help. In fact, most investors (70%) say financial professionals should provide socially responsible investing advice.
If you agree and want to find a responsible financial advisor who will alert you about potentially questionable investments, there are plenty of options. For example, robo-advisors can help with asset allocation and focus on socially responsible investing. However, if you want to work with a human being, it’ll require a bit of research to find the right financial advisor.
“Interview the financial advisors you are considering working with and ask them about how they can help you invest according to your values,” Mangla says.
MagnifyMoney commissioned Qualtrics to field an online survey of 1,116 U.S. consumers with an investment account, conducted June 24-29, 2021. The survey was administered using a non-probability-based sample, and quotas were used to ensure the sample base represented the overall population. All responses were reviewed by researchers for quality control.
We defined generations as the following ages in 2021:
While the survey also included consumers from the silent generation (defined as those 76 and older), the sample size was too small to include findings related to that group in the generational breakdowns.
The “Find a Financial Advisor” links contained in this article will direct you to webpages devoted to MagnifyMoney Advisor (“MMA”). After completing a brief questionnaire, you will be matched with certain financial advisers who participate in MMA’s referral program, which may or may not include the investment advisers discussed.