Catholic Investing
"His master said to him, ‘Well done, my good and faithful servant. Since you were faithful in small matters, I will give you great responsibilities. Come, share your master’s joy.’” Matthew 25:21
Before I begin, this blog needs to start with a series of disclaimers. First of all, nothing written here should be taken as financial or investment advice. Every individual’s finances are unique and should be discussed in detail with a financial professional who understands her specific situations, needs, and goals. Secondly, I am not a theologian and have no formal training or education in Catholic doctrine.
Investing as a Catholic can be complicated. There are varying opinions on how and where lines should be drawn. For a detailed analysis of how the Bishops of the United States recommend Catholics approach investing, you can refer to this document.
Approaching Catholic or moral investing is similar to discerning which stores or businesses you are going to patronize. Some of it may be pretty clear, but the more you dive into it, the muddier the water may become. Discernment is essential with a deep awareness of the principle of stewardship: understanding that all we have is God’s; we are simply responsible for it for as long as He entrusts it to us.
What is investing?
Before we dive into how to invest or what to invest in, it is important to understand what investing is. Investing money at the very basic level is buying something with the hope that you will be able to sell it for more in the future. Typically, when someone talks about investing money, she is referring to purchasing some form of security with the hope that it will be worth more in the future. The most common forms of securities are stocks, bonds, ETFs, and mutual funds.
Stocks are typically ownership shares in a company. Bonds are loans to a company with a fixed return on top of the principal. ETFs (exchange-traded funds) and mutual funds are groups of company stocks united by a common characteristic. The differences between ETFs and mutual funds relate to how they are traded and their expenses.
When purchasing any of these securities, you are becoming a partial owner or debt provider. As such, an element of responsibility comes with your purchase. There are a few different trains of thought regarding how Catholics should exercise this responsibility. There are also different options regarding which securities you should consider purchasing.
Avoid
The first option is to avoid purchasing securities that include companies that do not uphold Catholic teaching. This sounds simple enough; however, there are two major complications with this approach.
First, how deep do you dig into the companies? If a company is known for selling pornography, this is pretty simple to weed out and reject. Finding out whether a company has a policy to allow workers to take vacation pay to go to another state for an abortion is a much harder task. You will need to determine where you plan to draw the line before you start investing. Is it with how the company makes its profit? Or does it go further into the morals of the company, the company policies, or the beliefs of the owners?
The other complication to this approach comes when you are primarily using ETFs and mutual funds for investing. One of the major benefits of these products is that they offer diversification without needing a large sum of money to get started. You can purchase a large-cap growth fund that mirrors the S&P 500 for under $100. This can be a great place to start for new investors.
Because these funds have many different companies within them, it is much harder to weed out companies that may be morally questionable. On top of that, fund managers can change which companies are in a portfolio based on how the market is performing if the company falls into the correct category. This can be a major advantage; however, it could also lead you to owning a piece of a company you want no part of.
There are Catholic and Christian ETFs and mutual funds available. Some of the most common I hear mentioned in Catholic circles are the Ave Maria Funds. These securities have been written in their management documents what they are and are not allowed to invest in. In many ways, this provides a great resource for Catholics who want their investments to align with Church teaching. However, it is still prudent to research what the rules are behind these investment vehicles and if they meet your standards.
Investors also need to weigh the benefits and drawbacks of the returns and management of these funds. Sometimes you may sacrifice potential returns for ethical investment or have poorer management of the funds. This can be the case with any security. It is essential to do your research or talk with a professional before making any investment decisions.
Actively Work for Change
Another approach to Catholic investing is to use your rights as a stock owner to petition for change within whichever company (or companies) you own. As a shareholder of a stock, you are able to vote at annual meetings on corporate governance issues. Because traveling to these meetings is burdensome for most, there is a proxy voting system that allows you to vote remotely. If you are a stock owner because you believe a company will be profitable, but do not agree with some of its policies, this is a way to try to lobby for change.
There are mixed opinions regarding how much influence you may have, but it is an avenue to explore. Typically, a higher stakeholder (larger owner or someone with more money invested) will be able to have more influence, but every voice and every vote can matter.
When you hold an ETF or mutual fund in your portfolio, you still have the opportunity to vote for company policies; however, the process is a bit more diluted. Because you own a basket of stocks, typically the fund manager will vote based on her fiduciary responsibility. Each fund is required to disclose how they vote and what its voting records have been within the fund documents.
Responsibly Use the Proceeds
Another school of thought is that we are called to save for the future and use our money to support ourselves and those entrusted to our care. Jesus even tells us to invest in the parable of the talents. Especially in situations where we might not have a lot of options, like company 401-k plans, it may be best to use the option with the best return and then responsibly steward the money we make in alignment with Catholic principles. While there is a bit of an “ends justify the means” ring to this, in certain situations, I think it has merit. However, this is an area where prayer, discernment, and even advice from a financial professional who understands your faith background is extremely helpful.
Regardless of what you are investing in, it is important to be a good steward of that money and the proceeds it makes. As daughters of God, we are simply stewards of what He has entrusted to us. We will be held accountable for what we have done or not done with these blessings.
Pray and Discern
With more companies coming out with Catholic or Christian ETFs and mutual funds, smaller investors have more opportunities to hold investments that align with their values. At the same time, remember that these funds will probably have different returns than the market overall. Managing these expectations is important. Morningstar and the Vatican Bank have teamed up to create a US index and a Eurozone index to help investors do this. Understanding the complexities of investing and keeping up with company policies is important. Prayer and reflection are essential.
Every situation is different and unique. Whether you are looking at a 401-k plan with limited investment options or a brokerage account with all the investment options available. Remember, there may not be a clear black-and-white answer to what you can or cannot invest in. It is complicated. God does want you to be responsible and provide for your family and your future. Walk this path with Him and allow Him to guide your decisions.
Erica Mathews is a CERTIFIED FINANCIAL PLANNER™ Professional with Financial Counseling Associates, a family-owned financial planning and investment management firm. She helps relieve financial stress with organization, automation and a plan, helping others manage their finances so they can live as God is calling them to. She lives in Colorado with her husband and four kids; they love CrossFit, rock climbing, gardening, and exploring. Erica’s email is erica@fca-inc.com