A Message from Bob Dreizler, Chartered Financial Consultant:

For more than two decades, I've helped people seek financial security while honoring their emotional and social concerns. During this time, I looked for but never found a practical and engaging money management book I could recommend to my clients, so I wrote Tending Your Money Garden.

As a specialist in socially conscious investing, I enjoy educating people about how their investing habits can impact more than just their assets. I hope this column will help you enhance your financial situation so you can fulfill your dreams.

Adding Values to Your Investments

It still stuns me whenever a new client--usually a woman--tells me that she has been insulted by her financial planner or stockbroker--usually a man. She'd asked for information about socially conscious investing, and her advisor had made her feel foolish because she cared about where she invested, not just about her potential rate of return.

It's a myth that socially conscious mutual funds under-perform traditional funds. Recent stock market history has discredited this theory, but the myth lives on.

Financial advisors who specialize in this area may use different terms such as "socially responsible," "natural," or "values-based" investing, but most would agree that this type of investing has three key components: social screening, shareholder activism and community investment loans.

Dozens of socially conscious mutual funds screen out or avoid investing in companies that do not meet their non-financial criteria. Some proactively select only firms they feel will make a positive contribution to the Earth and society. Other funds use religious values or single-issue screens (i.e., gay/lesbian treatment, minority ownership, or animal testing/cruelty).

Most socially conscious mutual funds avoid the following types of companies:

Major polluters.
Tobacco, alcohol, and gambling industries.
Gun and weapon system manufacturers.
Utilities that use nuclear energy.
Companies with poor employee or customer relations.
Firms that use foreign sweat shops and child labor.
Companies that lack gender and ethnic diversity in top management positions and on their board of directors.

How do you know if a mutual fund uses social screens? You can't depend on the name of the fund. Just because there's a happy-faced Earth on the prospectus cover doesn't necessarily mean the fund is environmentally friendly. Check inside the prospectus and annual report for non-financial criteria and current holdings.

Selecting cleaner stocks is not as easy as it seems. Consider this example: Company A was accused of selling a product that depletes the ozone layer. Company B spent billions of dollars to clean up the environment in the 1990s. Which is the socially responsible company?

This is a trick question, of course. Company B is Exxon, which spent a small fortune cleaning up Prince Edward Sound (and its corporate image) after the Valdez oil spill. Company A is Ben and Jerry's, a firm generally perceived as being socially responsible. Their ice cream, however, requires the cooperation of cows, animals that expel bovine flatulence, a pungent gas that can deplete the ozone layer.

Social screening is not a black or white process. It's not a choice between Luke Skywalker and Darth Vader. Even Darth, we ultimately discovered, had some redeeming qualities, and Luke may have had impure thoughts about Princess Leia.

Just as there is no perfect person, no company is purely good or evil. In varying degrees, we all pollute and use natural resources, but we also have the power to make the Earth a safer and healthier place by choosing how and where to invest. If strong principles guide you in most phases of your life, you can also choose to align your investments with those values.

If this type of investing interests you, learn more at the Social Investment Forum's Web site.