James K.A. Smith has written extensively on how our hearts are—often unintentionally—formed by our habits. What investing habits are we participating in that may be subtly shaping our view of money?
I’m not sure when I first heard about ‘faith-based investing’ (or ‘values-based investing’). But I do remember the first time I felt skeptical about the whole idea. It was about ten years ago, and the setting was a conference room in my workplace. Our organization’s investment advisor was visiting for the day, discussing different fund options for our retirement accounts.
The information guide listed five or six of the usual fund families with their various options. They were categorized in the ways we’re accustomed to seeing: growth, aggressive growth, international, emerging markets, etc. — along with fee structures, and five and ten year performance metrics.
It was a sea of information, but my eyes were particularly drawn to the performance metrics and fees. As I scanned the numbers, one thing became clear: faith-based investing funds were the best investment strategy . . . if I wanted my retirement account to chronically underperform.
This was my first real concern:
Close to this time I was also becoming convinced of the wisdom of another investing trend — favoring low-cost index funds over higher-priced options. I reveled in sharing the story of Warren Buffett’s $1 million “bet” with Ted Seides — a wager on whether a group of hedge funds (selected by Seides) would outperform over ten years a low-cost index version of the S&P 500. Like an overly-hyped boxing match that ends up boringly one-sided, the index fund’s 10-year return trounced the hedge funds by over 99% — and a charity selected by Buffett emerged a million dollars richer.
The verdict seemed clear: smart money commits to low-fee index funds, while stupid money chases returns in actively managed, high-fee funds. Faith-based funds, values-based funds, socially responsible funds — they all seemed simply like the latest gimmick by which actively managed funds continued to underperform. I was convinced that wise stewardship of God’s money argued against such investments.
But this was only the case on the basis of my second concern:
Like a poorly produced ‘Christian movie’ that still runs up big sales at the box office, these funds seemed like a marketing ploy aimed at do-gooders who didn’t care about the actual quality of the product.
The Bible addressed this situation, I thought, in passages like Romans 14, which described Christians with a “weak conscience,” whose moral alarms were always going off like a malfunctioning alarm clock. While I certainly respected their freedom to honor God in a way they believe appropriate, I also felt free to pursue a less rigid approach.
In Paul’s language, I shouldn’t pester “the weaker brothers and sisters” among us who might need to be reassured by the moral purity of their investment choices — they too would stand before God. But these gray areas, I imagined, were areas of Christian freedom, subject to the individual conscience of the believer. Broad index funds or other low-fee actively-managed funds seemed to me like Paul’s example of meat sacrificed to idols — only dirty for those whose conscience was troubled.
To the issues of stewardship and conscience, I added a third critique, this time with a theological lens:
The theological underpinnings for this assessment are two-fold. First, an understanding that after the Fall, life and work in this world is always tainted by sin. In the prophet Jeremiah’s words, “the heart is deceitful above all things.” Since sin is pervasive, it crops up in unexpected ways and places.
The implication for investing seemed simple: it is naive to think we can invest only in companies that align with God’s creational purposes. The world — especially the world of business/investing — is far too messy.
Even companies with the best of intentions can cause untold harm, which is not always evident until many years later. Perhaps it is too easy to use the example of modern social media companies, but their initial laudable aim of making the world a more connected, better place has come with toxic consequences.
Second, though well-intentioned, I thought that avoiding investments in obviously wicked companies was, at best, marginally better than the alternatives. Plenty of the other companies, I reasoned, were simply better at concealing their harm. In other cases, the harm they produce is an unfortunate byproduct of doing something beneficial. Opioids, for instance, relieve real pain and have helped many people, though they have also left a trail of addiction and death.
All of which underlines the fact that we live in a morally messy world. The solution, I thought, was not to embrace a highly developed boycott mentality, but to recognize that we are not polluted by participation in an imperfect world. After all, Jesus told his disciples to pay their taxes to an evil government, and Paul ate meat sacrificed to idols, arguably aiding the idolatry industry. Such is life in a fallen world.
I don’t remember the exact date I began to change my mind on these matters. Perhaps like with Hemingway’s description of bankruptcy, my views changed gradually, then suddenly. But I do know the key ideas that began to reshape my understanding, addressing each of my core concerns.
Regarding underperformance and high fees, I began to see that ethically-run companies who create compelling value for people and planet tend to perform very well over the long term. Their business models are intrinsically sustainable — making them less susceptible to the unpleasant surprises that can plague unsuspecting investors.
There are now thousands of performance studies on the effect of investing with ethical criteria and I won’t attempt to cover them here. But in my own research, I came to the same conclusion as a wealth advisor in an article published in the New York Times last year, “Investing according to theological beliefs . . . [is] as profitable as investing without a religious screen, and no more risky.”
Secondly, on the issue of faith-based or values-based funds being packaged for those with weak consciences, I came to see that investing is ownership. For two reasons, this magnifies our moral responsibility:
While the conscience is meant to be obeyed, it is also meant to be informed. My tangible first step was to ask what companies I actually owned through my investments, and was I happy helping these companies financially, and benefiting from them financially? Just a little investigation made me realize that my newly-informed conscience was distressed with some of my (previously) unexamined investment choices.
Thirdly, my thinking about the moral ambiguity of companies changed. I continued to believe that companies, like individuals, could not avoid the implications of Adam’s and Eve’s fall. Still, I realized that some companies practice business in ways that align with God’s ‘Love your neighbor’ command while others do the opposite. Some companies purposely create value for their various stakeholder neighbors — customers, employees, suppliers, etc. Others, unfortunately, often exploit those same neighbors.
Eventually I realized I had come to a different view of business. Some companies intentionally create products and services that add beauty, goodness, protection, help, healing, and service to the world. These companies, though imperfect, add to human flourishing and make the world better. In that sense, they reflect my own faith values.
I decided that these are the kinds of companies in which I want to invest. And though I might not be equipped to evaluate such companies directly, I could invest with fund companies that had demonstrated the ability to do these assessments well.
After all, investing in faith-based funds doesn’t have to lead to underperformance, they are being widely sought by those with informed consciences, and many rely on compelling ways to measure how companies are impacting human flourishing–itself a competitive advantage. And at the very least, that should be worth a closer look.
This communication is provided for informational purposes only and was made possible with the financial support of Eventide Asset Management, LLC (“Eventide”), an investment adviser. Eventide Center for Faith and Investing is an educational initiative of Eventide. Information contained herein has been obtained from third-party sources believed to be reliable.