One of the central tenets of this blog is demystifying seemingly complex concepts to empower novice investors. Today marks a different approach, in which I present a quandary to which I don’t know the answers. In which I doubt there is one right answer and  suspect the answer varies by the person. In which I encourage you to really think about it for yourselves.

In an informal study run by me, I’ve discovered that numerous millennial investors and savers care about putting our money where our values are. Such a simple desire creates interesting predicaments because it exposes the shameful lack of accountability in the corporate world, including a dearth of cost-effective options for investors seeking to make reasonably meaningful, and profitable, allocations of their finances.

One example cropped up during a conversation with a friend while we were setting up her Roth IRA with Vanguard. As we reviewed the different ways to get started, she asked about socially responsible options. Our investigation uncovered little. None of Vanguard’s target date funds – which post the lowest minimum deposit to enter – included notes on social responsibility. Vanguard does offer one fund for socially conscientious investors: Social Index Fund Investor Shares (VFTSX). This made my friend’s barrier to entry higher, as the minimum deposit to invest in VFTSX is $3,000, or $2,000 more than the target date funds. Moreover, we both found the key holdings to be surprisingly… common. Then – as now, at the time of writing – the top 10 holdings included Apple, Microsoft, Pfizer, JP Morgan, and Procter & Gamble. I have nothing against those firms, and recognize that efforts such as Apple’s recycling practice may create some environmental good, but I would be hard pressed to feel I was doing good by supporting any of them. My friend agreed. Finally, critically, from a financial perspective, the VFTSX offers less growth opportunity than does the VTSAX, the Vanguard Total Stock Market Index Fund (admiral shares). Less money, unclear conscientious upside. What’s a person to do?

In my friend’s case, several concepts were at odds, as she was seeking a way to make her money to do two things: build wealth and do good. From the results I’ve outlined, the VFTSX accomplishes neither particularly well.* From a financial standpoint, VFTSX fails to deliver the returns that an analogous, socially apathetic fund would. From a responsibility standpoint, VFTSX fails to provide a viable option to people like my friend who care broadly about social justice issues because it invests in essentially the same players as other index funds. Ultimately, she went with it, but neither of us was really satisfied. It’s small wonder that millennials are unimpressed with the financial system.

I can’t lay all the blame on VFTSX because these challenges are pervasive across the field of socially responsible investing. How can do I good while doing well? How can I do the most good? How can I avoid creating harm? How much harm can I tolerate creating in order to do good?

Because you can find as many answers as the Internet holds to these questions, I will offer my conceptual framework to help guide your research. This is, of course, actually a quandary of morals and not of finance. That’s why the answers are not simple and are manifold. You need to determine what you want to do, what your goals are, before you can seek out the right financial instrument.

retirist-financial-instrument-guitar

Decide whether you want to play in an orchestra or a punk band before you buy a Stratocaster.

So, while this investigation is never easy and for most of us feels inefficient, I’d encourage you to sit down and determine how you want your version of social responsibility to look. For instance, one school of thought is to maximize your wealth so that you can donate large sums to the charities and causes you believe do the most good. If that sounds good to you, then dig deeper and question where your limits are. If making money means investing in big oil, big food, [the industry or major company that galls you], can you do it? If not, can you do achieve the wealth you want another way? If you can’t, what can you do?

These decisions aren’t easy, but there are plenty of free resources that will help you form your opinions and then match your financial products to your goals. Personally, I have decided that while building a solid base of wealth is important to me, and doing so via traditional means is acceptable, I want to dedicate some of my own money to riskier causes that I care about. One is the environment. I have allocated some money to testing out an investment in an ETF dedicated to innovative green energy, at a cost and risk profile I can shoulder at this stage in my career.

If anyone has found her/his own solutions to the problem, I’m all ears! Leave ideas, questions, and comments below, and happy introspective investing.

*Though I admit I do hold VFTSX as I try to figure out what to do about this quandary. At the very least, I have sent one small market signal to Vanguard that this type of product is desired.