Want Investments That Align With Your Values? Here’s a Step-by-Step Guide to Faith-Based Investing

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Faith-based investing involves choosing companies that align with your religion. Read on to learn how it’s done and some risks you should avoid. 

Faith-based investing involves buying shares in companies or funds that align closely with your religious values.

Like other value investing philosophies, faith-based investing involves screening out companies whose practices and products don’t align with your values, rather than including only those who practice your religion. For instance, Muslim investors may want to screen out food companies that sell pork products.

Value-based investing can be tough, as you can’t always know which companies align with your faith. Below, I’ll break down a few steps to help you get started.

1. Use an ETF or mutual fund screener

If you’re buying individual stocks, you have control over which companies you can exclude from your portfolio. The problem for many faith-based investors, however, is picking exchange-traded funds (ETFs) and mutual funds that also exclude those companies.

One solution is to use an ETF or mutual fund screener. One example is this ETF Database. Many of these screeners are advanced and can exclude ETFs whose holdings contain companies that conflict with your values. For example, on ETF Database’s webpage, you can find a Catholic Values ETF list and a Sharia Compliant ETF.

Just be careful — some faith-based ETFs or mutual funds will come with high expense ratios that can bog down your investment returns. Be sure you know how much you’re going to pay each year in fees before you invest.

2. Open a low-fee brokerage account

Once you screen out the right investments, you’ll need a brokerage account to buy shares.

If you’re investing in stocks and ETFs, look for a brokerage account that has low or no trading commissions. You might also want to find a broker that has no account minimums, which would require you to deposit a minimum amount before you could start investing.

No brokerage is completely faith-based, so you’ll have to choose a secular company. Fortunately, many of the best brokers will allow you to trade shares in faith-based funds and companies.

3. Be wary of unlicensed ‘faith-based’ advisors

It’s unfortunate, but many faith-based investors are vulnerable to manipulation. Often, in the interest of doing the right thing, faith-based investors will place their trust in financial advisors who use a smokescreen of faith to embezzle their money.

A recent example was the faith-based financial planning firm, Gallagher Financial Group. The firm was run by a Texas preacher operating under the false name, Doc Gallagher. Doc promised investors (mostly Christians) a 5% annual rate of return if they invested in his Diversified Growth & Income program. The program, however, was entirely false: Doc misappropriated $20 million from roughly 60 investors and was sentenced to 25 years in state prison.

It’s fine to invest with financial advisors who practice your faith, but be sure they are licensed to give advice. For instance, a Certified Financial Planner (CFP) is someone who has passed rigorous training and will have credentials that you can check on the CFP Board.

If someone calls themselves an “advisor,” but doesn’t have credentials to back up their training — or they have a license to sell securities but not to advise clients — be skeptical: take a closer look at their past before you decide to invest with them.

How to start faith-based investing

A faith-based approach to investing involves more strategy than chasing the next hottest growth stock. Even so, faith-based investors should still pay attention to a company’s business fundamentals, such as revenue growth, profitability, and its outlook on the future. Likewise, if you’re investing in ETFs or mutual funds, take a look at the fund’s historic performance, fees, and the company in its holding.

To get started from scratch, you’ll need to open a brokerage account. You have a lot of options, but you might want to select a broker based on how you intend to invest. For instance, if you’re choosing stocks, take a look at the best stock brokers. Similarly, if you want to invest in ETFs, look at the best ETF brokerages that rank high for these funds.

Our best stock brokers

We pored over the data and user reviews to find the select rare picks that landed a spot on our list of the best stock brokers. Some of these best-in-class picks pack in valuable perks, including $0 stock and ETF commissions. Get started and review our best stock brokers.

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