Faith-based investing: Applying personal values to your portfolio

What is faith-based investing?

Faith-based investing enables you to incorporate your values and religious beliefs into your investment decisions. Today, investors have access to a growing selection of investments that specialize in aligning investment decisions with faith-based values.

Depending on your religious beliefs or affiliations, there are options available to help you achieve your financial and nonfinancial goals. As always, it’s important to work with your financial advisor to determine the best approach to meet your unique needs.

Understanding faith-based considerations

Many investors are increasingly interested in incorporating their faith into their investment decisions and financial goals. Motivations may include aligning their beliefs with the creation and growth of their wealth, influencing companies to adopt policies that benefit society or fulfilling their purpose by making an impact for the common good.

Many beliefs and values are commonly shared by a variety of faiths, while some distinct guidelines may apply only to a specific religion. The following examples include values that tend to align to many faiths. As part of a faith-based strategy, an investor may prioritize investing in businesses that:

Faith-based strategies may also evaluate how companies navigate their ethical duties to shareholders, employees and customers. Companies with strong corporate governance, clear disclosure of accounting practices and proactive policies to protect employee and consumer safety may be favored.

What are my faith-based investment options?

While there is no clearly defined or universally accepted framework that all faith-based investments must adhere to, some religious organizations provide investment policy guidelines that investors can follow.

Below, we discuss investment strategies of the three most widely practiced religions in the United States: Christianity, Judaism and Islam.¹

1. Christianity

Christian-based strategies seek to allocate capital toward companies that align with Christian principles. Often referred to as biblically responsible investing, these strategies are rooted in the belief that people are stewards of creation and should make investment decisions that allow it to flourish. Exclusionary and proactive screening used to identify companies that meet the investment criteria may be developed in-house or with religious institutions that have provided guidance on compatible investment options.

Many fund strategies take an interdenominational approach and follow teachings of the Bible that align with many Christian faiths and organizations. Some, such as Catholic-based funds, identify specific guidance. Catholic funds follow the principles laid out by the United States Conference of Catholic Bishops (USCCB), which include five major categories: 

1. Protecting human life
2. Promoting human dignity
3. Enhancing the common good
4. Pursuing economic justice
5. Saving our global common home

These categories form the basis by which specific exclusions, such as abortion, gambling, tobacco and weapons manufacturing, are applied to the portfolio.

2. Judaism

The Jewish faith provides direction for investors who follow the teachings of the Torah. Protecting the environment, promoting social justice and the responsibility of charitable giving are values embraced by the Jewish faith that may be woven into investment decisions. Guidance given by the Central Conference of American Rabbis (CCAR), for example, may serve as a resource to align Jewish beliefs with financial objectives.

3. Islam

Sharia-compliant funds consider whether business practices are halal (permissible) or haram (impermissible). Sharia law generally prohibits debt and other interest-bearing investments, including bonds and highly leveraged companies. Likewise, companies that derive profit from alcohol, tobacco, gambling, adult entertainment, weapons, pork products, insurance and certain banking products are typically excluded. Ongoing compliance is a key foundation of Sharia-compliant funds. Sharia scholars provide direction to monitor fund holdings for halal compliance and identify earned income to be purified through charitable giving.

What are some potential trade-offs to faith-based investing?

While there are many benefits to faith-based investing, it’s important to acknowledge the potential trade-offs that may come with a faith-based strategy. For instance, stringent or extensive exclusions can reduce asset or sector diversification, potentially lowering returns and increasing susceptibility to market downturns. Some fund managers may prioritize the focus on these nonfinancial goals ahead of financial returns. Another consideration investors should keep in mind is cost, which may be higher depending on the fund or fund family selected.

While there are potential trade-offs of faith-based investing, we believe investments that can balance returns with your values can help achieve your spiritual purpose as well as your financial goals.

How you can take action now

If you are interested in incorporating more faith-based investing strategies into your overall financial strategy, talk to your financial advisor to determine if faith-based investing is right for you.

Additionally, including charitable giving in your financial strategy may align with your purpose and yield benefits for the charity of your choosing and for you — in the form of tax benefits. Speak with your financial advisor to learn more about gifting strategies, including the timing of gifts, deduction limits, which assets to gift and common mistakes to avoid to help maximize your impact.

What you need to know

The decision to incorporate your nonfinancial goals into your financial objectives is a personal choice. Make sure the goals and objectives of a faith-based investment align with your expectations. Your financial advisor can help you understand any potential trade-offs so you can decide what's right for you.