Seeking the impossible - ethical, reliable investment.

August 10, 2012 3:46 AM

Seeking the impossible - ethical, reliable investment.

We live in the UK. We are lucky enough to have just over 100K GBP in savings. We had money in shares, but took it out a few years ago because it just didn't go with our ethical standpoint. Currently these savings sit in various savings accounts doing nothing much (interest rates for savings in the UK are very, very low). We move every couple of years so buying a home is not on the near horizon for us. We need to have a readily available 'hunk' of cash in case of emergency (for example, all of our family live in Australia and would need funds to return if a family member fell ill or some such).
We are one step away from buying a property in Berlin as an investment. Berlin because it is cheaper than property in the UK (therefore we can buy something for £85K and not go in to debt), because people sign long leases so we know it will have a return for years to come, and we like Berlin. This is not a buying to speculate prices will go up and we will make a killing when we resell the place. It is more like investing with a better rate of return than the bank, and in ten years time at least we have a piece of property at the end of it.
BUT - the thought of being a landlord makes me feel a bit squicky. Thing is, these savings are not something we can really speculate with. Is there some way to invest this money that is ethical (not buying shares, or currency trading, or even becoming a landlord) but has a guaranteed return? Doesn't have to be huge, but has to mean I don't have a chance of making a loss.

posted by Megami to work & money (12 answers total)

http://www.triodos.co.uk/en/personal/ is a new online ethical bank which I have heard good things about, but haven't used myself.

Might be a good place to start looking.

Good luck.
posted by Faintdreams at 3:51 AM on August 10, 2012

It's hard to answer this, because it's not clear what your ethical requirements actually are. You seem to have invested the structure of an investment with ethical meaning, rather than the way it makes money. "Shares" of stock are just partial ownership of a business, the same way you'd have ownership of a house in Berlin, the same way you currently have ownership of 100k in cash. If you have it in a money market account, it may already be in the form of "shares."

I'm not saying this to be pedantic -- the fact is that your best choice given almost any ethical constraints is likely to involve some kind of basic financial instruments, whether stocks or bonds or CDs, and if you have a problem with the instruments themselves, that's a real handicap.

Was it the actions of the companies you owned shares in that bothered you ethically? Then you could always invest in different companies, right? Or is it the whole idea of owning part of a business that bothers you, rather than just a piece of real estate? In that case you could buy shares in a real estate trust that owns apartments -- exactly what you're planning to do in Berlin, only on a much larger scale, with the attendant benefits of diversification and much lower transaction costs.

If it's the potential exploitation in being a residential landlord feels wrong to you, pick a trust that owns office or industrial real estate, with large corporate tenants who won't tug at your sympathies.

...and so on. Getting a "return" means someone is making money somehow, no way around it. You need to narrow down which ways of making money bother you ethically, not focus on the particular investment instruments.
posted by pete_22 at 4:18 AM on August 10, 2012 [1 favorite]

As for the part about "no chance of making a loss" -- there is of course no way to get better-than-bank-interest returns without risking some loss. I suspect you know that though, and are really asking for relatively safe investments that meet your ethical requirements. In which case, see above re: clarifying those requirements so that others here can help.
posted by pete_22 at 4:28 AM on August 10, 2012

Is there some way to invest this money that is ethical (not buying shares, or currency trading, or even becoming a landlord) but has a guaranteed return? Doesn't have to be huge, but has to mean I don't have a chance of making a loss.

It's pretty much a rule that the less risk there is, the lower the reward. The closest thing to guaranteed returns is what you are already doing- savings in a bank.
posted by gjc at 5:22 AM on August 10, 2012

these savings are not something we can really speculate with

Then you don't buy property with that amount of money. The only effective way to do that at this price point is to be a landlord. Which is risky and time-intensive, doubly so since you'd be an absentee.

If you still want to invest in real estate, consider a REIT. Real Estate Investment Trusts are basically companies that just invest in real estate. Some income is from property appreciation, but much is from rental/lease income. It's less risky than buying a property outright, because you'll be diversified throughout the entity's entire holdings, so it's more like you're getting a small piece of a bunch of properties.

But even that's probably riskier than you want. This...

We need to have a readily available 'hunk' of cash in case of emergency

...actually says that you don't want to "invest" this money at all, i.e., expose it to risk with the hope of gain. Two reasons. First, you can't afford to lose it. But second, you can't afford for it to be illiquid. You need to have access to that money at the drop of a hat. So rather than investing, what you really want to do is save the money, just at a better interest rate than you can get in a checking account. Look into online banks. In the US, they're offering 0.8-0.9% in online savings accounts, which is an order of magnitude better than you'll do in a traditional account. It's still not much, but hey, what can you do?
posted by valkyryn at 5:37 AM on August 10, 2012

I suggest you need to sub-divide your assets into layers structured in a pyramid like shape. In the relatively small topmost first layer you have ready cash sitting in a current or savings account. In the next layer you need the remainder of what you call the "hunk of cash". Enough to give tide you over the sorts of emergencies you might readily foresee: big unexpected bills, or a few months of unemployment for example. Put that in something like an ISA which is might be a little harder to get at but which will be safe. The rest of the money is for your investment - that sum of money that you can afford to fluctuate in value in the short term and (hopefully) grow in the long term. You need to be concrete about how long you are planning on investing for, what your attitude to risk (as well as ethics) is and why you are investing.

I would consider trying to find a fee-based financial advisor who could help talk you through all the details and help get things set up initially - particularly with regard to managing risk and ethics. You need somebody who can take an overall look at your detailed financial position, who can suggest options and issues you might not have thought of and who can echo back any of your assumptions to check they are correct. The best way to find such a person is probably through personal recommendation from any business-savy friends. Good advisors should offer an initial meeting for free in which you can quiz them and make sure your values are aligned.
posted by rongorongo at 6:10 AM on August 10, 2012 [1 favorite]

What's squicky about becoming a landlord? You could look into property management companies to do all the hard stuff for you while you're away.
posted by RobotVoodooPower at 6:48 AM on August 10, 2012

Thanks everyone for your answers. To be clear - we will hold said 'hunk' of savings/cash in a bank account, hence the fact we are not putting it all in to a property. The Triodos savings look like a viable alternative.

The 'squicky' about being a landlord is more my weirdness over owning a property yet not living in it. Not saying that other people who do that are bad or anything, it is just me I have a problem with.

I have spoken to financial advisers in the past and am yet to find one who 'gets' the ethical thing. But I will keep searching.
posted by Megami at 7:38 AM on August 10, 2012

I agree 100% with the advice that you should invest in a variety of places to increase the diversity of your portfolio and keep some money in cash as an emergency fund.

As for ethical investments: have you looked at municipal bonds? Municipal bonds help towns build things like hospitals which fits my idea of an ethical investment. They lock your money up for a while and you won't see high payouts for highly rated bonds (lower risk, lower reward), but, if it's a tax free bond, you can still do pretty well for yourself.

This recommendation is based on the assumption that municipal bonds in the US are representative of municipal bonds elsewhere. My apologies if this advice doesn't transfer well across countries.
posted by eisenkr at 7:56 AM on August 10, 2012

I know you said you didn't want to invest in shares or bear any risk, but you may want to reconsider and select a socially responsible mutal fund. Yes, there is some risk, but that's why you would only put a portion of your investments in it.

Also, in the US there are some charities that seek out loans. Something worth investigating in the UK.
posted by Mr.Know-it-some at 8:18 AM on August 10, 2012

Owning property and not using it actively is exactly what investing is. Being an excellent landlord is a good thing. I owned and lived in a 2 family house for 20 years; it got me through some tough times, and was a good investment. I was fair but realistic with tenants; don't try to be a landlord unless you can be tough about being a rent collector.

Check out socially responsible funds.

There is risk, but diversification really helps. In 10 years, if you still have the same amount of money in the bank, you've lost spending power due to inflation. If you take pretty small, darn safe risks, you may keep up with inflation. If you invest in, say, 3 different funds, you are likely to keep up with inflation, and do a bit more. Plus, your money has helped businesses grow, keep people employed, and keep the economy moving, in a way that doesn't cause more trouble. No social fund is going to be perfectly aligned with your viewpoint, but socially responsible investment helps me sleep a little better. And, by voting with your money, you show that there are a lot of us who do care about how our money is made,
posted by theora55 at 9:19 AM on August 10, 2012

A Financial Plan for the Truly Fed Up has a range of ideas you might find interesting, including municipal bonds and peer-to-peer lending. It has a US-focus, but there are likely analogues that would be applicable to you.
posted by alms at 10:00 AM on August 10, 2012