Although profits are the name of the game in the stock market, some investors are more selective than others in the way those returns are generated. Some people prefer to see their ethical and religious views upheld -- even in their financial decisions. Enter faith-based companies, which are businesses that dedicate their operations to products and services that are aligned with certain religious and moral values. Having these standards doesn't prevent these companies from raising money in the stock market, however.
Setting a Standard
The definition of a faith-based company may vary depending on the individual or institutional investor. It's safe to say, however, that faith-based businesses meet certain moral or religious standards -- either intentionally or inadvertently -- defined by investors. These standards could be aligned with any faith, such as Christianity, Judaism or Muslim beliefs, for instance. The fact that these companies list shares in the stock market means they're giving investors, both individual and institutional, the opportunity to share in profits alongside the business without sacrificing these beliefs.
Screening for Violators
Typically, faith-based investing is based on what a company is, but in some cases it's a reflection of what a business is not. Faith-based investing also involves screening companies that profit from what some consider "sinful" behaviors, such as gambling, smoking or consuming alcoholic beverages. A screen for Islamic religious views might avoid businesses that have an association with pork-related products. In Christianity, the line may be drawn at the pharmaceutical industry, where contraceptives and drugs enabling embryo-based stem-cell research are made.
Show Me the Profits
In some cases, remaining true to someone's faith trumps the returns earned in the stock market. Some investors are more focused on supporting the practices of faith-based businesses than they are on earning returns, according to a 2008 article in "Time." Indeed, in some cases, investors must be willing to sacrifice higher returns in exchange for sticking to their morals. The stock market goes through cycles where sin stocks produce greater profits than faith-based companies. Over long periods, however, there should be more of a balance in the returns provided by these two groups of companies.
This Isn't Chump Change
Large institutions, including pensions and endowments, whose very fabric is woven in religious beliefs are the poster children for faith-based investing. Such funds have been known to direct capital into funds that invest mostly if not only in faith-based companies. Demand is such that in some cases, religious institutions have been able to persuade financial institutions to create investment funds -- some of which that manage hundreds of millions of dollars -- that screen for faith-based companies, according to a 2012 article on the Pensions & Investments website.
Where to Turn
If you want to add faith-based companies to your portfolio, you may be surprised to learn that many of them are in the mainstream. For instance, major retailer Wal-Mart Stores is known as a pioneer for incorporating tenets of the Christian faith into both its products and management style. Meanwhile, Tyson Foods keeps a group of pastors on staff for employees across faiths and religious denominations. The Muslim faith avoids investing in companies with large amounts of debt, so the eligible companies may change. By choosing investment fund Amana Funds, however, investors gain exposure to stocks that are acceptable by Muslim standards.
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