The Socially Responsible Investing Total Return

It’s knee-knocking time in the stock market these days. As the major indices tumble, well-diversified portfolios are taking a hit along with those out of balance. Certainly even seasoned investors are looking at all the risk factors in play – a slumping economy, rising energy prices, the falling dollar, the ongoing war – and thinking about stuffing some money under the mattress.

For socially responsible investors this is the time to consider the SRI “total return” of your investments. In traditional investing total return is a stock's price appreciation, plus income from dividends. But with SRI the total return is appreciation plus dividend income plus principle rewards. That’s “principle” and not “principal.” It’s also an important part of what can help SR investors get through these periods and not make panic-induced mistakes. Because socially responsible investors have selected their mutual funds or stocks based upon certain social, environmental and governance issues, they tend to be long-term investors. It wasn’t just performance that caused them to buy in the first place. It was also a fund’s history of engagement with companies or a corporation’s record on issues of importance.

“Not all act the same way, but social investors tend to look beyond the quarter-to quarter returns and look more at the long term returns,” says Noel Friedman, managing director of research products with KLD Research & Analytics. “That is somewhat reflective of what tends to be seen as the “stickyness” of assets in (socially responsible) funds. They aren’t jumping out of these funds with the first signs of trouble.”

Which is exactly the surest way for inexperienced investors to lose money. It’s difficult for the pros to time the market, foolhardy for the inexperienced. Smart investors research their investments before they buy, then hold them for the long haul. True socially responsible investors are cloaked with an extra layer of protection against the news, web sites and cocktail party chat that would drive others to make rash decisions. People who invest in mutual funds or companies because they share the same social concerns won’t dump those investments simply because the market swoons.