Is It Ethical To Invest in the Stock Market?


Investing in the stock market involves buying shares in companies driven by profit, but some people believe that ethics and the stock market don’t align. Are they correct? Is investing in the stock market ethical?

The stock market may be ethical to one person but unethical to another. This is because ethics are morally subjective, so there’s no known standard for what universally qualifies as ethical. An investor has to decide what constitutes ethical for them and seek matching investments.

This article will look more closely at the argument of ethics in stock market investing.

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What Is Ethics in Investing?

The primary definition of ethics refers to moral principles. Other definitions describe ethics as the rules of conduct deployed by specific groups. 

Ethical investing generally refers to giving your investment capital to companies that meet your moral selection criteria. The selection criteria will cover practices and actions that you consider ethical to you. Your rulebook can be guided by your personal beliefs, religious leanings, or causes you care about.

The subjectivity of it all is why it’s hard to adopt a blanket approach when discussing the ethics of the stock market. For one investor, companies involved in adult entertainment, weapons, and tobacco and gambling may be in the unethical column, while another investor may remove weapons but include alcohol.

Is the Stock Market Ethical?

The stock market, in general, is made up of companies that take different approaches to achieve growth. Many of them will fall short of most moral expectations. Therefore, if you’re looking at the stock market holistically, you’re sure to find it unethical in some ways.

However, if you consider that some companies are more ethical than others, you’d be more reluctant to paint all the companies with the same brush. It’s also important to keep in mind that some companies that you may count as unethical might have contributed to life-improving changes to some societies around the world.

Popular Ethical Issues Amongst Ethical Investors

Some of the ethical issues modern ethical investors watch out for includes the following:

  • Monopolistic ideals: In a free-market economy, there will always be winners and losers. However, companies with principles that make healthy competition almost impossible are regarded as unethical by many investors. These companies often owe their success to many smaller, stifled businesses over the years.
  • Environmental damage: Brands operating in the energy and manufacturing space are regarded as contributors to our ecosystem’s decay. These businesses disrupt wildlife habitats, pollute water bodies, and make the air unsafe for breathing by chopping down trees. Ethical investors avoid these businesses in favor of those that have adopted government standards for emissions.

How Can You Invest Ethically in the Stock Market?

To invest ethically in the stock market, here are a few things you can do:

Decide Your Investment Goals

What is more important to you: making the highest profit possible or putting your ethics first? 

If profit is more important to you, you have to put this goal next to your selection criteria. The most ethical companies may not always deliver the highest ROI every year. Some of them may never pay a dividend for the foreseeable future.

Again, you also have to consider how your investment choices affect the volatility of your portfolio. Investing in three ethical companies will leave your portfolio curve more volatile than an investment in the S&P 500. The best ethical investors tend to strike a balance between their ethics and growing their wealth over time.

Draw Up a List of Ethical Issues That Are Important to You

As we mentioned earlier, ethics is subjective. You need to make a list of ethical issues that are important to you. It’s best to divide them in their order of importance. This way, you’ll find it easier to build a portfolio that works and matches your beliefs and opinions.

Research and Ask Questions

Once you’ve established your ethics criteria, it’s time to find businesses that meet your requirements. When you find them, research their operations and ask questions to ensure you have the full picture before handing over money.

You might ask:

  • Who owns the business?
  • Where are the products from?
  • Do they take good care of their staff?
  • How is their business impacting the world?

These are questions that’ll help you decide if their position in your portfolio has any merits. If a business doesn’t meet your selection criteria, you can drop them for another.

Avoid Excessive Analysis

Ethical stock investing is a good idea. However, it is easy to get bogged down with the time spent analyzing different companies and how they fit (or don’t fit) into your selection criteria. 

Digging that deep into your research can lead to what is known as analysis paralysis—a situation where you end up with far too much information and end up doing nothing at all.

Talk to Your Financial Advisor

Instead of spending many hours researching brands and businesses to invest in, you can save time by communicating with your financial advisor, stating your investment goals. Most of them can help you find ethical investment opportunities that hold a lot of promise as quickly as possible and help you avoid poor investment decisions. The financial advisor will work with your selection criteria, helping you to improve on it where possible.

Invest Your Money

When you’ve found a good selection to make a portfolio, you can go ahead with your investment. Your investment can be as simple as buying shares in the company or making an investment that is sizable enough to give you a voice and influence over how the business operates.

Even when you don’t control your investment, buying shares in a company can still qualify you as a shareholder activist. You’ll have the right to attend investor events and meetings, from where you can hold the company accountable, ensuring that they’re still adhering to the principles that made you an investor in the first place.

Other Ways To Navigate the Ethical Investing Debate

At the core of it all, ethical investing is often about making money from the lucrative stock market while satisfying your conscience. Other approaches that can help you achieve this goal include:

  • Invest in brands that do good. A brand that doesn’t meet all of your ethics criteria can still prove a good addition to your portfolio if they organize many sustainability or humanitarian projects worldwide. You’ll feel better about your investment, knowing that you’re supporting a brand that gives back to the community in various capacities.
  • Invest to raise money for charity. This is another option for navigating the ethical investing waters. You can take advantage of the stock market to raise money for causes you believe in. This type of investing gives you more control over what causes you to focus on. You’ll also know for certain where your funds are making an impact instead of waiting for a report from the companies you’re invested in.

Author’s Recommendations: Top Trading and Investment Resources To Consider

Before concluding this article, I wanted to share few trading and investment resources that I have vetted, with the help of 50+ consistently profitable traders, for you. I am confident that you will greatly benefit in your trading journey by considering one or more of these resources.

Conclusion

The ethical investing conversation is a highly subjective one where different investors often have different interpretations of what is ethical and what isn’t. This means that the stock market can be ethical for one investor but not for another one.

If you’d like to practice ethical investing while still making money from the stock market, start by making a list of values that are important to you and building your selection criteria. Armed with this information, you can either start seeking out qualified companies to invest in or communicate with your financial advisor for professional help.

BEFORE YOU GO: Don’t forget to check out my latest article – ‘Exploring Social Trading: Community, Profit, and Collaboration. I surveyed 1500+ traders to identify the impact social trading can have on your trading performance, and shared all my findings in this article. No matter where you are in your trading journey today, I am confident that you will find this article helpful!

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    1. Corporate Finance Institute. (2021, January 23). Ethical investing – Overview, types, advantages, disadvantages. https://corporatefinanceinstitute.com/resources/knowledge/trading-investing/ethical-investing/
    2. Mercado, D., & CFP®. (2020, October 21). Don’t call it a fad. Ethical investing is here to stay. CNBC. https://www.cnbc.com/2020/10/21/dont-call-it-a-fad-ethical-investing-is-here-to-stay.html
    3. Tharp, D. (2017, September 14). The big problem with ethical investing. MarketWatch. https://www.marketwatch.com/story/the-big-snag-in-ethical-investing-2017-09-14
    4. What is ethical investing and how do you do it? (2020, October 13). NerdWallet. https://www.nerdwallet.com/article/investing/ethical-investing

    Navdeep Singh

    Navdeep has been an avid trader/investor for the last 10 years and loves to share what he has learned about trading and investments here on TradeVeda. When not managing his personal portfolio or writing for TradeVeda, Navdeep loves to go outdoors on long hikes.

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