Exploring Faith-Based Investment Options

Key Takeaways

• Faith-based investing allows investors to align their investments with their religious beliefs and to promote social responsibility.

• To get started in faith-based investing, investors should establish what issues matter to them, or which activities they wish to avoid, and consider factors such as risk tolerance and the preferred level of involvement in investment management.

Similar to impact or socially responsible investing, there is faith-based investing, which allows investors to align their holdings with their religious beliefs and values, plus other benefits. To help, here is an exploration of faith-based investment options, including types, challenges, and setting financial goals.

What is Faith-Based Investing?

Contrary to what many may think, what faith-based investing is not, is buying and selling stocks in religious organizations.

As with secular, traditional investing, faith-based investors seek to generate optimal returns. The difference is that those who employ faith-based principles in deciding where to place their capital select companies, managers, and investments that mesh with their religious values. Such values may also include ethical, environmental, and social elements.

A Christian investor may, for example, seek the professional help of an investment company that describes itself as Christian, and whose investment offerings complement the principles of Christianity. For example, such companies may not wish to invest in businesses that engage with gambling or adult entertainment.

Faith-based investing, then, is also known as values-based investing or, in Christianity, Biblically responsible investing. 

Benefits of Faith-Based Investing

Faith-based investing lets investors align their investments with their religious beliefs and to promote social responsibility.

Overarchingly, faith-based investing can provide investors with a sense of peace and fulfillment that comes from knowing that their investments are having a positive impact on the world.

Faith-Based Investors

Who are faith-based investors? It is first important to note that general investment approaches, styles, and interpretations can vary among institutions, congregations, and even denominations. 

Here is an exploration of the fundamental investment approaches of the two main Christian groups — Catholics and Protestants – with a look at Islamic and Jewish faith investing.

Catholics

Catholic investors may adhere to principles set forth by the Catholic Framework for Economic Life, guidelines that suggest how those who follow the Catholic faith should participate in finance and the economy.

Catholics who seek to have their money work in a way that promotes their religious values commonly avoid investing in companies that:

• Participate in the adult entertainment industry
• Build weapons of mass destruction
• Promote or fund embryonic stem cell research
• Support abortion and contraceptives
• Engage in racial or gender discrimination

What faithful Catholic investors are generally interested in are companies that:

• Support labor unions, and thus, fair employment practices
• Support human rights
• Support environmental responsibility

Protestants

Protestants tend to focus on thriftiness and hard work. As such, toiling and saving are paramount in the faith. While Protestant denominations span beliefs, from conservative to liberal, followers often seek to base investments on Christian values in general.

The Church of England, for example, has investment guidelines and an Ethical Investment Advisory Group, which offers guidance on investment policies and choices, as well as relationships between investors and managers.

The board aims to invest in vehicles that promotes the church’s ethical and social concerns and its teachings, while eschewing companies that participate in a range of activities, such as:

• High-interest lending
• Embryonic cloning
• Adult entertainment
• Addictive behavior
• Firearms

Islamic Investing

There is also Islamic law, which generally teaches followers to live by certain guidelines while seeking returns on their investments. Investors’ disciplined approach is considered relatively conservative, as well as socially and ethically responsible.  

In terms of investments, Islamic principles prohibit:

• Investments in pork-related businesses
• Investments that pay interest
• Companies with a large debt load because they pay interest on loans
• Companies that engage in, and profit from, alcohol, or gambling
• Short-term speculation

Investing in the Jewish Faith

Generally, Jewish values center around diversification and philanthropy, as dictated in the Talmud. Such values guide the faith’s investment practices, and promote investments that address:

• Social justice
• Climate change
• Global or local issues
• Shareholder engagement

There are mutual funds that adhere to Jewish investment strategies as well as a Jewish Funders Network that offers “Greenbook: A Guide to Jewish Impact Investing.”  

Faith-Based Motivation

Investment or financial advisors are motivated to integrate faith-based investment practices into their professional approach by key factors including market insights, access to educational material, and a wide range of investment strategies. 

Making Investment Decisions

Faith-based investment strategies should be guided by the investor’s priorities, be they good returns, doing good by one’s faith, or both.

To get started in faith-based investing, investors should establish what issues matter to them, or which activities they wish to avoid, and consider factors such as risk tolerance, personal faith, and the preferred level of involvement in investment management. 

The investor then may choose an investment vehicle, be it faith-based funds or ETFs, individual stocks, or alternative assets.

Challenges Faced by Faith-Based Investors

The current investment landscape presents challenges to faith-based investors, including possible high fees for faith-focused investments, relatively limited investment options, and historical underperformance. Do note, though, that the rapid growth of faith-based investing has led to more investment options and improved performance.

A key factor that contributes to the limitations of faith-based investing include screening criteria, which restricts the ability to pursue investments based exclusively on fundamental financial characteristics. An off-setting strategy may be to ask one’s advisors how a particular fund is being established since some managers engage with companies to attempt to bring about change. This may open up more investment possibilities.

Financial Goals

There are ways to establish financial goals based on religious values and principles, including:

• Reflecting one’s faith in one’s finances
• Making ethical choices
• Seeking the greater good
• Prioritizing peace of mind
• Exploring faith-based funds and ETF

Types of Faith-Based Investments

There are a number of investment options available for faith-driven investors. Here are some:

Mutual Funds

Here, it may be best to work with a financial advisor or investment professional for more information.

• Amana mutual funds, provided through Saturna Capital
• The Iman Fund
• GuideStone Funds
• New Covenant Funds
• The LKCM Aquinas Fund
• Steward Mutual Funds by Crossmark
• Praxis
• Ave Maria

Exchange-Traded Funds

These ETFs and others may have negative screens that exclude investments that are against religious values, or positive screens that focus on redemptive practices.

• iShares MSCI Israel ETF
• Inspire ETFs
• Timothy Plan
• The FIS Christian Stock Fund ETF

Stocks and Bonds

For example, a recent analysis by the Christian Investment Forum, which examined the returns of 44 Christian faith-based stock and bond funds, found that the average return performed better than the benchmarks in their classifications. Findings were consistent over periods of one, three, five, 10, and 15 years.

Impact Investing/Responsible Investing 

Through impact investing, investors seek to affect favorable social or environmental outcomes while generating good returns. This strategy involves investing in companies that are creating measurable positive change on the planet. In so doing, investors usually review the environmental, social, and corporate governance of the fund or company in which they are interested.

Alternative Investments

As with impact investing, investments in private-market alternatives – essentially any assets other than stocks and bonds – are increasingly popular as investors seek refuge from the constant volatility of public markets. 

Alternatives, which can provide consistent secondary income, are also another option available for faith-driven investors. From private equity to real estate investment funds, those looking to align their religious values with their financial decisions have an abundance of options. In fact, Yieldstreet, the leading alternative investment platform, has the broadest selection of alternative asset classes available.

An additional benefit of investing in alternatives is the opportunity presented for portfolio diversification, which is key to long-term investing success. Diversification – creating holdings that include a variety of asset types and classes – can mitigate risk and even improve returns. 

Alternative Investments and Portfolio Diversification

Alternative investments can be a good way to help accomplish this. Traditional portfolio asset allocation envisages a 60% public stock and 40% fixed income allocation. However, a more balanced 60/20/20 or 50/30/20 split, incorporating alternative assets, may make a portfolio less sensitive to public market short-term swings. 

Real estate, private equity, venture capital, digital assets, precious metals and collectibles are among the asset classes deemed “alternative investments.” Broadly speaking, such investments tend to be less connected to public equity, and thus offer potential for diversification. Of course, like traditional investments, it is important to remember that alternatives also entail a degree of risk. 

In some cases, this risk can be greater than that of traditional investments.

This is why these asset classes were traditionally accessible only to an exclusive base of wealthy individuals and institutional investors buying in at very high minimums — often between $500,000 and $1 million.  These people were considered to be more capable of weathering losses of that magnitude, should the investments underperform.

However, Yieldstreet has opened a number of carefully curated alternative investment strategies to all investors. While the risk is still there, the company offers help in capitalizing on areas such as real estate, legal finance, art finance and structured notes — as well as a wide range of other unique alternative investments. 

Moreover, investors can get started with a relatively small amount of capital. Yieldstreet has opportunities across a broad range of asset classes, offering a variety of yields and durations, with minimum investments as low as $10,000.

Learn more about the ways Yieldstreet can help diversify and grow portfolios.

Summary

As with any other investing approach, faith-based investing seeks to maximize investor returns. Where it diverges from traditional plans is that it permits the selection of investments, as well as companies and managers, that are in line with their religious values. Note, though, that there are challenges that may include limited options and higher fees.