How do you know what you’re invested in?

How do you know what you’re invested in?

American consumers and investors are increasingly interested in knowing that the money they give to companies through purchases or investments aligns with their values.

As a consumer, picking products to purchase and companies to support is pretty straight-forward. Consumers evaluate products on a range of criteria such as price, quality, and function and select the option that best meets their needs. If a consumer dislikes a company for any reason – business practices, stance on social or political issues, etc. – the consumer can simply choose to avoid buying products from their company. On the other hand, a consumer might choose to buy from a company that they admire for any variety of reasons that go beyond the products they produce.

As a consumer it is easy to find products we like and companies that we want to shop from or that we want to avoid. When it comes to investing though, it is harder to know if your investments align with your values.

Why is it harder? Well, two reasons make thoughtful values-based investing challenging: the growth of mutual funds and ETFs and the diversification of company lines of business.

1st Challenge: Many investors use mutual funds and ETFs

As we’ve discussed before, in the past an investor’s only option was to invest directly in a company, either as a direct investment or by purchasing shares. Since you were investing in a single company you could be reasonably aware of what the company did to make a profit.

These days, investors can choose to invest in stocks or in other products such as mutual funds and ETFs. Mutual funds and ETFs are like a basket of stocks and/or bonds and allow investors to easily diversify their portfolio and take advantage of the fact that these investments are managed by others. These products have been a huge blessing to many investors.

But they have made it difficult for investors to really know which companies they really own. Investors associate investing with the mutual fund itself, but few investigate the actual company holdings within the fund. This means that investors can unknowingly be profiting from companies that do not align with their values.

2nd Challenge: Modern companies are often large and diverse

Should an investor just stick to investing in stocks? Well, the second difficulty is that many publicly traded companies are so large and diversified that it can be hard to even know all the products or services a particular company is involved in. For example, a company that makes baby products might also be involved in making products used in abortions. Even picking individual stocks (which has its own risks) an investor often cannot be certain about all the company’s business practices.

What about using investment screens?

One way to help with the difficulty of knowing what you are investing in is by using investment screens. Investment screens allow you to choose criteria that you seek to include or exclude from your investments. There are screening services that are available for investors to use on their own but there are challenges to doing it yourself.

Different screening services use different criteria, methodologies, and assumptions. This means that the same investment might be included or excluded by different screeners even if you select the same criteria in both. To effectively screen your own funds, you would need to understand the nuances and goals of each screening tool and have an investment strategy for harmonizing the differing results.

At Beacon Wealth Consultants, our investment committee uses several different screening tools coupled with a rigorous evaluation process that seeks to invest in companies that are making a positive impact and avoid companies that provide products and services, or are involved in business practices that run counter to our faith values. We are happy to be able to use our time and expertise to serve our clients in this way using a best-efforts process that seeks to align our clients’ investments with their values.

If you’re not sure what you are investing in, request a free portfolio screening report today!


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