[ad_1] Since the Dawn of Mustachianism in 2011, the same question has come up over and over again: “MMM, I see your point that index fund investing is the best option. But when you buy the index, you’re getting oil companies, factory farm slaughterhouses and a million other dirty stories. How can I get the benefits of investing for early retirement without contributing to the decline of humanity?” And in these nine years since then, the movement towards socially responsible investing has only grown. Public pension funds have started to “divest” from oil company stocks, and various social issues like human rights, child labor, climate change or corporate corruption have bubbled to the surface at different times. And all of this has led to the exploding new field of Socially Responsible Investing (SRI), and a growing array of new ways to do it. So it seems that this is not just a passing trend – people just might be starting to care a bit more. And since capitalism is just an expression of human behavior, the nature of capitalism itself may be starting to change. This leads us naturally to the question: What can I do with my money to help fix the world? And even better, is there a way I can make money in the process of fixing it? The answer is a good, solid “Probably.” As long as you don’t get too hung up on getting every last detail perfect, because just like real life, investing is a haphazard and approximate and unpredictable thing. But by understanding the big picture, you can make slightly better decisions on average, which lead to slightly better results. And slightly better results, stacked up consistently over time, can lead to a much better life, or even a much better world. This is true in all of the main areas we care about – personal wealth, fitness and health, even relationships and happiness. And while your money and investments are certainly not the most important thing in life, they are still worthy of a bit of easy and effective optimization. So anyway, the first thing to understand with SRI is, “what problem am I trying to solve?” The answer is, “You are trying to make your investing (especially index fund investing) have a better impact on the world.” On its own, index fund investing is ridiculously simple. You just get an account at any brokerage like Vanguard, Etrade, Schwab or whatever, and dump all your money into one exchange-traded fund: VTI. When you do this, you are buying a stake in 3500 companies at once(!), which is both impressive and overwhelming. How do you even know what you are holding? Well, this is all public information, and easily available with a quick Google search. For example, here’s a list of the top 90 holdings in VTI (click for larger): Top 90 holdings in Vanguard’s VTI Exchange Traded Fund As you can see, the biggest chunk of money is allocated to today’s tech darlings, because this index fund is weighted according to market value, and these are the most valuable companies in the US today. Through a convenient coincidence, the total value of the VTI fund happens to be just under $1 trillion dollars, which means you can just throw a decimal point after the ten billions digit of market value to get a percentage. In other words, about 4.7% of your money will go towards Apple stock, 4.4 towards Microsoft, and so on. Together, these top 90 companies are worth more than the remaining 3,540 companies combined, so these are what really drive your retirement account. And within this list, you will see some of the usual suspects: Exxon and Chevron (oil), Philip Morris (tobacco), Raytheon and Lockheed (bombs), and so on. But what about the less-usual suspects? For example, I happen to think that sugar, and especially sugar-packed beverages like Coke, is the biggest killer in the developed world – a major contributor to 2 million of the 2.8 million deaths each year in the US alone. Should I exclude that from my portfolio too? And what about drug and insurance companies – aren’t they behind the political stalemate and high costs of the US healthcare system? Comcast funded some election disinformation campaigns here in my home town in the early 2010s, should I exclude them too? And if you’re part of a religion that is against charging interest on loans, or in favor of pasta and Pirate costumes, or against a spherical Earth, or any number of additional ornate rules, you may have still more preferences. The higher your desire for perfection, the more difficult this exercise will become. However, if you are like me and you just want to get most of the desired result with minimal effort, you might simply have a look at the Vanguard fund called ESGV. ESG stands for “Environmental, Social and Governance”, and in practice it just means “We have tried to avoid some of the shittier companies according to some fairly simple rules.” And the result is this: Vanguard’s ESGV Exchange traded fund (ETF) – top 90 holdings The first thing you’ll notice is that it’s almost the same. In fact, the top five holdings – Apple, Microsoft, Amazon, Facebook, Alphabet (Google), collectively referred to as the FAANG stocks – are completely unchanged – and this means that there will be plenty of correlation between these funds. It’s also the reason that the stock market as a whole has recovered so quickly from this COVID-era recession: small businesses like restaurants and hair salons have been destroyed by the shutdowns, but big companies that benefit from people staying at home and using computers and phones are making more money than ever. The stock market isn’t the whole economy, it’s just the publicly traded companies, which are the big ones. But let’s look at the biggest differences between the normal index fund versus the social version. The following large companies listed on the left are
