Christian investors often ask many good questions about committing to faith-based investing.
We find that they are frequently surprised by the answers. Here are some common FAQs on the subject.
Q: Will faith-based investing cause me to earn lower returns?
While that is potentially the case, it's not necessarily so. The reality is that excluding certain companies reduces the number of investment opportunities available to your portfolio. However, a well-designed Christian portfolio can still be highly diversified and competitive with the broader market. For another perspective on this question, Matt Rusten from the Eventide Center of Faith and Investing blog, shares why concerns about performance initially make him skeptical of faith-based investing - and what ultimately changed his mind.
Q: What is the biggest potential cost?
It's possible to miss a great investment simply because it doesn't pass your moral and ethical filters. A company might become one of the market's biggest winners while being excluded because of an objectionable product, service, or business practice. A conventional S&P 500 investor may be able to own it while you cannot.
Q: Could Christian investing make my portfolio less diversified?
Possibly. Strictly screening companies from particular industries can create unintended concentrations in the remaining sectors, companies, or investment styles. While this is true, we've found that building a highly diversified portfolio can be accomplished easily with the wide array of faith-based investing options on the market today.
Q: Could I accidentally become overly concentrated in certain sectors?
Yes. If you screen out more companies from certain industries, the portfolio's remaining sectors can become disproportionately important. This can increase volatility when those sectors fall out of favor.
Q: Could Christian investing cause me to buy more expensive stocks?
Yes. If your restrictions eliminate otherwise highly attractive low valuation companies, you have fewer choices. It's possible you could wind up paying a higher valuation for the companies that remain. Over long periods, the price you pay for an investment matters.
Q: Could the restrictions increase my investment costs?
Yes. Some specialized Christian funds can have higher expense ratios, research costs, or trading costs than a basic S&P 500 index fund. Even a small annual fee difference can compound significantly over time.
Q: Does a Christian screen always mean substantially lower returns?
No. That's an important distinction. A relatively moderate Christian screen can leave a large portion of an index like the S&P 500 investable.
Q: Could Christian investing improve returns?
Potentially. Avoiding businesses with excessive leverage, poor governance, regulatory problems, reputational risk, or questionable business models can sometimes protect capital and improve long-term results. Investing in companies that support their employees, care for their community and provide solid value to their customers can be good long-term investments.
Q: What's the biggest financial danger?
Not the Christian principles themselves—but implementing them poorly. Excessive exclusions, concentration, high fees, unnecessary trading, or abandoning diversification can create a much larger performance penalty than simply applying a thoughtful Christian screen.
So, the key question for a Christian investor is not whether faith-based investing will maximize returns, but how to honor one's personal convictions while maintaining diversification, focusing on high-quality investments, engaging for positive change, and pursuing strong long-term returns. In the end, it's about honoring God who owns it all.
Speak with a Strategic Stewardship Advisor to learn more about how a strong, faith-based portfolio can be built to attain your goals.
The returns on a portfolio consisting primarily of Faith Based investments may differ from a portfolio that is more diversified or where decisions are based solely on investment considerations.