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What are the Different Types of Socially Responsible Investing?

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  • Written By: Ron Marr
  • Edited By: Bronwyn Harris
  • Last Modified Date: 23 September 2016
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The traditional investor places his money in areas geared toward creating the greatest financial return. An increase in wealth is the sole criteria, and the transaction is grounded in a pragmatic manner based on the increase of assets. Socially responsible investing is usually intended to return a profit, but the allocation includes a higher degree of altruistic speculation. The invested funds are typically intended to promote the betterment of a specific cause, community, or social movement. Acquisition of wealth is of equal or lesser importance to benefiting the advancement of society as a whole.

Socially responsible investing is highly subjective in nature. That which is viewed as socially responsible by one individual might well be seen as socially irresponsible by another. In the broadest definition of socially responsible investing, the investment itself does not matter. The socially responsible investor is one who devotes a percentage of his assets in a direction that he believes is best for the common good.

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Common investments that are seen as socially responsible often revolve around purchasing stock in companies that support environmental awareness. For instance, firms specializing in discovering alternative energy sources are popular with the socially responsible investor in 2011. The investment might also be made toward supporting land or conservation trusts. The monetary return in these cases would come in the form of potential tax offsets, rather than a growth in value or a rise in stock prices. The return is largely intrinsic, as the investor believes he is helping to preserve and protect nature.

A socially responsible investor might divert some of his assets toward firms that practice diversity in hiring practices. For such an investor, the outlay of funds is worthwhile in that the return consists of the attempt to enhance equality. The investment might be made to non-profit corporations that strive to promote basic human rights. In this scenario, again, any financial returns come primarily in the form of tax breaks. The personal return arrives with the knowledge that the investor’s fund are potentially righting a wrong or helping underprivileged individuals.

Socially responsible investing is not relegated to areas that are considered politically correct or popular. An investor might believe that a strong military is the key to peace, and thus purchase an interest in defense contracting firms or weapons manufacturers. The investor might not feel that alternative energies are viable, and thus would place his money in companies engaged in the exploration and extraction of natural resources. The rationale behind this type of investment might be that such a course lowers prices, which allows the average individual to retain a greater portion of his disposable income and live a more comfortable life.

Socially responsible investors are concerned with more than money. It is an area of finance where conscience is one’s guide. The principles of two such investors may be diametrically opposed, but the intent of both is to aid in the creation of a better world.

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