Ethical investing can actually produce superior returns

Looking for profits from the developing world is just one of many lessons learned by investors who have taken an ethical approach to investing.

Some of those who've ridden various strategies through good times and bad in their lifetimes, are passing down hard-earned wisdom about what works and what doesn't for reaping profits from socially responsible investing (SRI).

And while SRI requires a special intentionality among younger investors, the venture probably comes as second nature to senior citizens at least when they think about it, according to Ron Manheimer, director of the North Carolina Centre for Creative Retirement at the University of North Carolina at Asheville.

"As people get older, they get interested in biographies and history and how they fit into the larger picture of things," said Manheimer.

For instance, investors can help finance low-income home construction by committing their dollars for 15 years, taking annual tax credits, and hoping they can sell their stake in an appreciated real estate market when the term is up.

The Chicago-based Social Equity Group, has welcomed an influx of seniors to its mission-driven investing in recent years. About 1 in 4 of the firm's 500-plus clients was a senior citizen in 2002. Now it's about 1 in 3.

"There has been an increase [in interest from seniors], especially in the years since the bear market," says Ron Freund, director of client management in the firm's Berkeley, California, office.

Seniors concerned about preserving assets were aiming to steer clear of scandal-prone companies, he says, and saw social screening as "a risk-reduction benefit to social investing."

Joe Gerhards, a retired engineer in Concord, California, was fairly content with his conventional investing strategy until shortly after George W. Bush became president in 2001.

As one who opposed Bush's policies, he became uncomfortable that "corporations are basically ruling everything, and somehow we have to dampen that down."

Now he operates in a narrower universe of potential investments.

His stocks and mutual funds include no producers of what he regards as "unhealthy" products. He's also sought out companies such as Sharp for their commitments to developing solar power.

After these adjustments, Gerhards says his portfolio has been generating superior returns, averaging 8 to 9 per cent annually over the past five years. "After seeing the dotcom crash here a while back," Gerhards says, "I came to the conclusion that trying to maximise your money is probably a little less efficient [than accepting slightly lower returns] over the long haul."

By investing in "socially conscious corporations, your risk level goes way down because they're not just looking at the bottom line. And it's certainly much more peaceful. I can sleep much better knowing I'm doing something to manage corporate responsibility," he says.

But having high ethical standards can also lull investors into complacency. One lesson is: don't get greedy or self-righteous. Another is: remember, you're just as vulnerable as everybody else.