Ethical Investment: Where To Place Your Money

Investing in companies that align with your values is becoming increasingly important to investors. However, it can be challenging to determine which companies are considered bad and which are not. Some general guidelines to consider when deciding where to invest your money include avoiding companies you don't fully understand, companies with untrustworthy management, and companies that aren't offering good value.

When it comes to investing, choosing not to put your money into certain companies can be just as important as deciding where to invest. One bad investment can significantly impact the performance of your entire portfolio.

- Companies you don't understand: Investing in a company requires a deep understanding of how the company operates, its mission, obstacles, and more. Without this level of understanding, investing becomes speculation, which is essentially gambling. Before investing, ensure you thoroughly research and understand the company and the industry it operates in.

- Companies with untrustworthy management: Even the best companies can be negatively impacted by their leadership. It is important to look into the track record of the company's executives and assess their level of honesty and transparency with shareholders. Additionally, analyse the CEO's salary and whether it is justified by their performance.

- Overpriced companies: It is crucial to wait for a good opportunity to invest in a company, even if it means adding it to your watch list and waiting for the market to offer a better price. This strategy helps you avoid overpaying and provides a margin of safety if the company underperforms.

By following these guidelines and conducting thorough research, you can make more informed investment decisions and avoid putting your money into bad companies.

High-yield savings accounts

• SoFi Checking and Savings: Best for High-Yield Online Savings Accounts, 4.50% APY
• CIT Bank Platinum Savings: Best for High-Yield Online Savings Accounts, 4.70% APY
• Capital One 360 Performance Savings: Best for High-Yield Online Savings Accounts, 4.10% APY
• UFB Portfolio Savings: Best for High-Yield Online Savings Accounts, 4.83% APY
• Barclays Tiered Savings Account: 4.50% APY

With a high-yield savings account, your balance can grow faster over time than it would in an average savings account, without any additional effort on your part. Your money is working harder for you in a higher-rate account.

Long-term certificates of deposit

When you open a CD, you agree to leave your funds deposited for a specified period, such as 6 months, 1 year, or even 10 years. During this time, your money earns interest at a fixed rate, providing a guaranteed and predictable return. This fixed rate is beneficial when interest rates are expected to fall, as you can lock in a higher rate for the duration of the CD term. However, if interest rates rise during the term, you may miss out on higher returns.

CDs are a good option if you want to save for a specific goal, such as a down payment on a house, a new car, or a vacation. They are also suitable for retirees who want a stable investment that provides a steady income without the volatility associated with stocks and bonds. Additionally, CDs are federally insured by the FDIC for banks and the NCUA for credit unions, up to $250,000, providing an extra layer of security for your investment.

It's important to remember that CDs have limited withdrawal flexibility. If you need to withdraw your funds early, you will typically incur an early withdrawal penalty, which can eat into your earnings or, in some cases, your principal. Therefore, CDs are best suited for those who are confident they won't need to access their funds during the term.

When considering a CD, shop around for the best rates, as they can vary widely between financial institutions. Compare the interest rates, terms, and early withdrawal penalties offered by different banks and credit unions to find the most favourable option for your needs.

Corporate bond funds

A bond is a loan to a company for a set period, with a predetermined interest rate. In return, the company agrees to pay interest and then repay the face value of the bond once it matures. A corporate bond is a bond issued by a company, often publicly traded, and stands in distinction to government-issued bonds.

Corporate bonds offer many advantages, including regular cash payments, less volatile pricing, and less risk than stocks. They may also yield more than government bonds of a similar rating. Bonds also provide access to a secondary market, giving investors a place to liquidate their holdings, which is not possible with bank CDs.

However, there are also disadvantages. A bond's interest rate is typically fixed, meaning investors will not benefit from potential increases in dividend payouts over time. Corporate bonds may also be riskier than government debt since a company does not have the same power to raise taxes or issue currency to repay the debt.

When considering investing in corporate bonds, it is important to analyse the company's ability to repay the bond. Bonds are rated by three major ratings agencies: Standard & Poor's, Moody's, and Fitch. The higher the issuer's quality, the lower the interest rate they will have to pay.

For investors seeking to add corporate bonds to their portfolio, bond ETFs offer a great alternative to selecting individual issues. Bond ETFs provide instant diversification, lower minimum investments, and reduced analytical work. They are also typically more liquid and cheaper than buying individual bonds.

Overall, corporate bond funds are a good way to add diversification to a stock-heavy portfolio. They offer stability and capital preservation, making them ideal for investors seeking to protect their capital and earn a profit from interest payments.

Dividend stock funds

When choosing a dividend stock fund, there are several factors to consider:

• Dividend history: Look for companies with a solid history of paying and increasing dividends.
• Dividend yield: This is the annual dividend payment relative to the share price, usually expressed as a percentage. A high yield can be tempting, but it may indicate that a company's shares have taken a hit or that investors expect a dividend cut in the future.
• Fund performance: Consider the fund's performance over time, not just the dividend yield.
• Expense ratio: The expense ratio is the annual fee charged by the fund, so a lower ratio is preferable.
• Diversification: Check the fund's holdings to ensure it is not overly exposed to certain companies or industries.
• Assets under management: Funds with low assets under management and high dividend yields may be riskier.
• Vanguard Dividend Appreciation ETF (VIG): Tracks the performance of the NASDAQ U.S. Dividend Achievers Select Index, focusing on companies that have consistently increased dividend payments for at least a decade. It has a dividend yield of 1.8%, an expense ratio of 0.06%, and assets under management of $81 billion.
• Vanguard High Dividend Yield ETF (VYM): Tracks the FTSE High Dividend Yield Index, selecting high-yield dividend-paying companies based in the U.S. It has a dividend yield of 3.0%, an expense ratio of 0.06%, and assets under management of $55.7 billion.
• Schwab US Dividend Equity ETF (SCHD): Tracks the Dow Jones U.S. Dividend 100 Index, focusing on companies with strong financial performance and sustainable dividends. It has a dividend yield of 3.6%, an expense ratio of 0.06%, and assets under management of $57.4 billion.
• SPDR S&P Dividend ETF (SDY): Tracks the S&P High Yield Dividend Aristocrats Index, selecting companies that have consistently increased dividend payments for at least 20 consecutive years. It has a dividend yield of 2.6%, an expense ratio of 0.35%, and assets under management of $20.3 billion.

Remember, investing in dividend stock funds still carries risk, and past performance does not guarantee future results. It's important to do your own research and consider your financial goals and risk tolerance before investing.

Value stock funds

• The Vanguard Equity-Income Fund Investor Shares (VEIPX): This fund focuses on investing in large-cap companies that pay investors above-average dividends. It is best for investors who want higher yields and have a long-term investment horizon.
• The ClearBridge Large Cap Value Fund (SAIFX): This actively managed value fund seeks capital appreciation and income through a value-focused investing strategy. The fund offers multiple share classes and pays a consistent quarterly dividend.
• The Invesco S&P 500 Enhanced Value ETF (SPVU): This fund tracks the performance of the S&P 500 Enhanced Value Index and invests at least 90% of its assets in stocks that are part of this index. Stocks in this index have a high "value score", meaning they are undervalued based on fundamental analysis.
• The iShares Edge MSCI USA Value Factor ETF (VLUE): This index fund seeks to replicate the holdings and return of the MSCI USA Enhanced Value Index, which includes US large- and mid-cap stocks with value characteristics that trade at a comparatively low valuation.

Frequently asked questions