What Is Faith-Based Investing?

SmartAsset: What is faith-based investing?

A foundational religious parable tells of two servants who invested their money in the marketplace and one who buried it in the ground. This story gives Christians lessons about serving God with their money and abilities. More broadly, faith-based investing means applying religious principles to investing. This approach makes it possible to accomplish good in the world and receive excellent investment returns. Here are the details.

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Faith-based investing means investing according to the moral, ethical and social sensibilities that arise from your religious beliefs. As a result, faith-based investors – whether Christian, Muslim, Jewish, Hindu or any other faith – will steer clear of specific investments, even if they are lucrative. And they search for returns with companies aligning with their values.

For example, Catholic investors won’t put money into companies that produce nuclear weapons, firearms or landmines or that profit off embryonic stem cell research or abortifacients. Instead, they invest in companies that practice social responsibility and provide excellent conditions for workers.

How Faith-Based Investing Works?

Faith-based investing seeks high returns, just like other investment approaches. However, it balances this priority with following religious convictions. For instance, companies promoting fair, accessible housing and environmental health will attract faith-based investors. On the other hand, their dollars won’t go towards companies profiting from tobacco or gambling.

Generally, faith-based investing values caring for people and the planet. As a result, religious investors often prefer companies demonstrating concern about economic justice, corporate responsibility and environmental protection. That said, many religious sects have specific way of investing, examples of which are outlined below.

Type of Faith-Based Investing

Catholicism

The Roman Catholic church has a robust history of faith-based investing, starting with social and financial activism against South African apartheid in the 1960s. In addition, leadership developed the Catholic Framework for Economic Life, which consists of ten faith-based principles. For example, the framework promotes all people’s right to life essentials, such as food and shelter, and prioritizes the welfare of vulnerable populations.

In addition, Catholic investors won’t put money into companies that practice discrimination or stem-cell research. Furthermore, they avoid companies that profit from abortion, contraception, weapons sales or adult entertainment. To that end, Catholic Investment Services manages over $1 billion on behalf of the church.

Protestantism

Benjamin Franklin once said, “Remember that time is money.” Protestants have the reputation, at least historically, of taking this message to heart by working hard and living frugally. They see their accumulated wealth as a way to create good in the world. Like Catholics, Protestant investors generally value the environment, justice and human well-being.

For example, GuideStone Funds bases its values on the Bible and manages over $15 billion in assets. The company supports “the sanctity of life, family, stewardship and health and safety.”

Judaism

Jewish values vary widely, from the ultra-Orthodox to the Reform and Reconstructionist. However, there are a number of common elements to Jewish investing. For example, the Talmud emphasizes giving and diversifying assets. These practices are foundational in the Jewish way of life, including investing.

Although there is no formal guidance for socially responsible investing in Judaism, the faith encourages caring for the poor and being wise with money. As a result, Jewish investors usually put money into environmental health, social justice and the country of Israel. There are also mutual funds that follow Jewish investment strategies, such as the iShares MSCI Israel ETF, which invests in Israeli equities.

Islam

Specific rules in Sharia law, also known as halal, govern the Islamic way of life and investing practices. Sharia law prohibits participation in specific industries, including alcohol, gambling, tobacco, pork products and pornography.

In addition, the religion doesn’t allow speculation, interest and debt. Muslim investors who want to invest according to their faith avoid companies that don’t adhere to these principles, as well as those with high levels of debt.

Sukuk bonds, which represent ownership in future or current assets but do not pay interest, are a popular investment option for Muslim investors. Amana mutual funds, offered by Saturna Capital, avoid interest-bearing securities and prioritize long-term equity investments to safeguard against inflation. The Iman Fund, established by Allied Asset Advisors in 2000, is another mutual fund that follows Sharia principles and invests only in halal investments.

How to Build a Successful Investment Strategy That Aligns with Your Faith

As the examples above demonstrate, it’s possible to follow your religious convictions and invest profitably. Here are the strategies to build a successful investment strategy with your faith as the foundation:

Identify Your Priorities

First, ask yourself what about your faith drives your investment approach. For example, you might be passionate about gun violence, gender equality or affordable housing. Once you know your values, you can tell what kind of assets are appealing.

Determine Your Investment Style

Next, your investment style is crucial to understand. Specifically, you might have a low-risk tolerance. In this case, it’s best to seek safe investments that fit your approach. In addition, you might prefer to manage your investments yourself or hire a trusted professional.

Consider Your Goals

Your investment goals will also shape your approach. For instance, starting a faith-based retirement portfolio at 25 means you’ll be investing for decades. On the other hand, starting a college fund for your 10-year-old means you’ll need to cash out in less than a decade. Therefore, your objectives are critical to remember as you choose investments.

Find a Fund That Fits

As mentioned above, numerous faith-based funds are available for religious investors. From Saturna Capital for Muslims to the Global S&P 500 Catholic Values ETF, a range of investment products can fit your faith preferences. A fund specific to your denomination is an excellent place to start.

Consult With a Financial Advisor

If you’re unsure how to start, a financial advisor can help you clarify your priorities and choose funds that fit your beliefs. For example, their knowledge of the stock market can lead you to a company with environmentally friendly practices or a faith-based stock portfolio.

Bottom Line

Faith-based investing is similar to conventional investing in that it seeks low costs and high yields. However, it also filters out specific investments that violate religious values. Your religious beliefs will drive your individual style of faith-based investing, so understanding your values is key to investing in a way that gives you peace and improves the world.

Tips for Faith-Based Investing

Faith-based investors face the same challenges as conventional investors: diversification, tax implications, management costs, etc. Fortunately, a financial advisor can offer valuable insight and guidance. Finding one doesn’t have to be hard. SmartAsset’s free tool matches you with up to three vetted financial advisors who serve your area, and you can interview your advisor matches at no cost to decide which one is right for you. If you’re ready to find an advisor who can help you achieve your financial goals, get started now
If you’re a Christian who wants to apply your faith to finances, you can learn about biblically responsible investing.